In many circumstances, there’s nothing wrong with selling your house to someone you know. But different rules apply in a short sale.
As we discussed in an earlier post, a short sale may be an appropriate way to avoid foreclosure in certain cases when you owe more than your house is worth. Since a short sale will involve a bank giving up potential profit, there are extra rules in place to prevent fraud.
One common restriction in short sales involves signing what’s typically called an arm’s length affidavit, which prohibits short-selling a home to relatives or business partners.
But how far is an arm’s length? This question came up recently in felony charges brought against former Gopher and NBA player Sam Jacobson.
According to the Star Tribune, Sam Jacobson and his wife are now facing felony charges related to a short sale of Jacobson’s Apple Valley house in 2011. At the time of the sale, the two were dating and living together, but not married. After filing for bankruptcy, Jacobson’s home was approved for short sale, and his then-girlfriend purchased it.
Were the Jacobsons “unrelated” at the time, as required by the short sale contract? However the case plays out, it’s clear that a short sale to someone you know can easily raise suspicion of fraud.
An attorney can help you determine whether a short sale might be a possibility in your situation. But if you’re hoping to keep your house in your family, it’s wise to explore other options.