(LoanSafe.org) – A lot of homeowners stuck in the midst of a financial hardship may be exploring many different options to avoid foreclosure. One question we have come across many times here is, “can I short sale my house to an investor and eventually buy it back? However, is this legal?

According to Section 7.3 of Chapter 4 of the Home Affordable Foreclosure Alternatives Program (HAFA), there’s a specific clause that allows non-profit organizations to buy your home in a short sale, and rent them back to you with an option to buy back when your credit situation improves. In order for this exchange to occur, you must also meet all other HAFA requirements.

The Making Home Affordable Guidelines state:  “The terms of any sale approved by the servicer that provides an option for the property to be sold to a non-profit organization with the stated purpose that the property will be rented or sold to the borrower.”

However, the devil is in the details and there are definitely some factors you’ll want to consider before applying for HAFA with the intent to buy-back the home.

– The only way a borrower can participate is if they’re determined eligible for assistance under HAFA. If you happen to have an FHA or VA mortgage you may not be eligible for assistance under the program. Also the terms and conditions must be approved by both the mortgage servicer and investor. Even if your lender approves the short sale amount, they will also need to grant the sale to a non-profit.

– Second homes or investment properties are often turned down for HAFA assistance.

– So why would a “non-profit” agree to such conditions? The answer lies within the rental income they will collect. In many areas the rental market is in high demand and investors are purchasing up properties to take advantage of market conditions. According to HAFA guidelines, borrowers will be required to sign into a new 3-year lease to qualify for the buy-back program. There are several questions you’ll want to ask yourself before considering this option. What will your new monthly payments be and do they coincide with other rentals in the area? Are there larger or more updated homes in the area being offered at a lower price? Does the non-profit expect you to pay for maintenance fees and any needed repairs during this 3-year period? It’s imperative that you do your research to determine the best solution for you and your family. You do not want to be scammed over taken advantage of because you are too emotionally attached to the home. If you obtain the service of realtor or local attorney to help you negotiate the sale to a non-profit, make sure that they agree in WRITING to refund any upfront funds if you are not approved for a short sale under the said program.

Basic eligibility requirements for HAFA:

– You have a documented financial hardship.
– You have not purchased a new house within the last 12 months.
– Your first mortgage is less than $729,750.
– You obtained your mortgage on or before January 1, 2009.
– You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction.

*Eligibility criteria are for guidance only. Contact your mortgage servicer to see if you qualify for HAFA.

HAFA is available for mortgages that are owned or guaranteed by Fannie Mae and Freddie Mac (see Look Up Tools) or serviced by over 100 HAMP participating mortgage servicers.

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