Short Sale Idea For My Home

Good Morning,

I am hoping to get some feedback on an idea I have had on potentially doing a short sale on my home. Here is the info on the house:

  1. Total debt on home is $390,000. The 1st is $350,500 @ 5.5%, becoming adjustable at the end of next year. The 2nd is $39,500, fixed at 7.6%
  2. The average price per square foot of recent sales of similar homes within 0.25 miles of my house suggests it’s worth $282,500.

I can afford the payments on the house, but would love to get rid of the $100K + spread of debt in excess of FMV. The idea I had was to arrange for an LLC (my father is the majority member) to purchase my house in a short sale and subsequently have the LLC sell it back to me at FMV. Initially, my thought was to have my father purchase the home, but I don’t know if the bank would have an issue with a related party purchasing the home. From a tax standpoint, either option would work because each transaction would be structured to be at arms-length.

Has anyone tried something similar to this? I know that my credit score would take a hit, but if I can shave $100K of debt, I’m willing to take the hit.


First of all we as investors do not want to allow a property to go into foreclosure or seek a short sale unless it is the very last option.

As real estate investors we depend on banks and lenders to finance properties for us, we want these institutions to be stable and have the ability to offer us mortgage solutions.

We as investors do not want to be part of the problem, we want to be part of the solution. For you to stand there and say “You can afford the payments” but want to scheme to defraud your lender, that’s illegal.

I have friends who are investors and upside down a million or more dollars on 10, 12 15 or 18 properties who are making payments on mortgages and doing the right thing, at least until something drastic changes or forces them to seek there last option.

In the state I am in it is illegal to rent a foreclosed or short sale property back to the previous owner and outright illegal for me as the buyer to sell it directly back to that original owner.

I want to ask you “How many years would you like to do”? I think you can read between the lines, so enough said.

How about using your brilliance and hard work to make more money, add assets and create cash flow and pay payments your responsible for!

It is easy to just walk away, say “To he_ _ with it”, but as real professional investors we take on challenges and find answers to problems, our reputations are important to our long term success.

Now, go do the right thing?


I am not an investor. The reality is that I am insolvent. My wife potentially will stop working once we have our second child. My first mortgage is adjustible and it is likely that the payments could be higher.

I can make the payments now, but may not be able to later. Wouldn’t it behoove me to make an attempt to get rid of a potential future meltdown?

Any thoughts are appreciated.

You would need to prove financial hardship to the lender, and I don’t think they’re going to accept future events that may or may not happen as qualifying for a financial hardship. I appreciate you trying to be proactive in trying to prevent a problem, but “just because I don’t like the extra debt” is not going to fly with a lender.

Also, as Gold River already stated, in many areas it may be illegal for the buyer to buy it on a short sale and sell it/lease it back to you. Check your state’s laws to verify if this is true in your location.

Unfortunately the reality of the situation is you may have to actually wait until you can’t afford your payments before you can continue with a short sale (unless you can currently prove to the lender otherwise), in which case you’ll probably have to sell it to an outside buyer.

Thank you for your constructive feedback, JakeRodgers.