Short sale scheme would be fraudulent

Q:

My brother lost his job last year and is now in foreclosure on his house. He is trying to get a friend to buy the house in a short sale and then flip the home back to him.

I told him I didn’t think this was legal, but he says the process is not checked out very thoroughly and that no one would ever know.

He has asked me for a loan to help him buy back his home after the short sale.

I don’t like the whole idea. I think it smells bad. What should I do?

If I do give him the money to help him buy the house back, do I have any liability?

A:

You are right about smelling bad. The deal stinks. There is a word for this kind of garbage: It’s called fraud.

A short sale is when a buyer purchases a home for less than what the seller owes his/her lender on the home. The lender has to agree to the short sale. A lender would never agree to a short sale it knows is merely a ruse for the owner to stay in the home.

To guard against this kind of deception, lenders require both parties in a short sale to sign various documents, some of them addressing exactly what your brother is proposing to do.

Your brother would have to lie to the lender. This is not a good idea. It is called fraud.

And even if the lender does not follow up and check whether your brother is living up to what he signed, it is still fraud. And there is always the chance that the lender would check that no fraud is taking place.

Your brother would be better off working up front with the lender to get the short sale approved and making sure that the lender waives any right to collect the difference between the sale price and what your brother owes the lender. Your brother should then consider himself lucky and move on.

As for you, shame on you for even considering financing your brother’s scheme.

You should not become involved in any situation in which you know fraud is being committed. You could lose your money or worse. Much worse.