Can You Short Sale To A Family Member?

For some homeowners, the hard reality is that it simply isn’t financially feasible to stay in their home. Unexpected bills or changes in employment can make meeting ongoing mortgage payments impossible. In this situation, many homeowners will look to sell their home in order to get out from under the mortgage. But when your mortgage loan balance is more than the market value of your home, this situation is more complicated. If you were to sell your home for less than the balance of your loan, you would leave the sale still obligated on the amount of loan left over after the sale proceeds are applied.

One potential solution to this dilemma is a short sale. A short sale agreement is when your mortgage lender agrees to allow you to sell your home for less than what is owed on your loan. The agreement also includes a deficiency waiver, which absolves you of the remaining balance on your loan after the sale proceeds have been applied.

But to get the deficiency waiver, you will have to jump through far more hoops than a traditional sale. Your lender will have requirements regarding the sale price and will also do their own independent valuation of your home. They will also want assurances that the short sale price was negotiated fairly and not a product of collusion or fraud.


One of the important requirements for your lender is that you deal with the short sale buyer at arm’s length. So does that mean you can’t short sell your home to a family member?

For the most part, the answer is yes. While there isn’t an outright ban on entering into a short sale agreement with a member of your family, most banks require that you enter into an arm’s length transaction. In fact, your lender will most likely require that you sign what is known as an arm’s length affidavit attesting to the fact that you aren’t engaging in unethical dealings in order to defraud the lender. Not only will your lender typically not allow you to short sell your home to a family member, but lying on an arm’s length affidavit constitutes mortgage fraud.

In many cases, your bank won’t request the arm’s length affidavit until months after the short sale price is agreed to between you and your prospective buyer. Because you can expect your lender to require an arm’s length affidavit, attempting to negotiate a short sale with a family member is unlikely to be worth your time even if the price is far.


The short sale process can be daunting for most homeowners. With a Las Vegas real estate market that is known for fluctuating prices, that process can be a lot to take on. Your best opportunity for a smooth short sale is by having an experienced Nevada short sale attorney by your side. To discuss your options, contact the professionals at Vohwinkel Law today for your free consultation.

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