Can You Sell a Short Sale Property to a Family Member in NJ?

Thinking of selling your short sale property to a family member? You’re not alone. Many NJ homeowners going through a short sale ask the same thing:

👉 Can I sell it to my son, daughter, or cousin and still get lender approval?

Here’s the truth: lenders enforce arm’s length rules very strictly. In fact, according to Fannie Mae guidelines, nearly 90% of all lender-approved short sales require an arm’s length transaction—meaning no family or close personal ties between buyer and seller.

In this blog, I’ll break down exactly what’s allowed—and how to avoid mistakes that can get your short sale denied.

What is a Short Sale?

A short sale happens when your mortgage lender agrees to let you sell your home for less than what you owe on the mortgage.

What does short sale mean for sellers? It’s a legal way to avoid foreclosure, settle mortgage debt, and move forward—often with less impact on your credit.

What is a short sale in real estate? It’s a negotiated deal between you and your lender—and lenders have strict rules about who can buy the property.

Arm’s Length Transaction—What Does It Mean?

✅ Buyer and seller must NOT be related (by blood, marriage, or business ties)
✅ No prior agreements to transfer property back after the sale
✅ No side deals or “under the table” money involved
✅ Buyer and seller must sign an Arm’s Length Affidavit confirming all of this

Why? Because lenders want the sale to reflect true market value—and protect themselves from fraud.

Can You Ever Sell to a Family Member?

In most cases—NO.

Trying to sell a short sale home to a child, cousin, sibling, or parent will almost always get denied.

However—there ARE legal ways to structure these deals AFTER the short sale closes and enough time passes. That’s why it’s critical to work with an expert who understands both lender guidelines AND NJ real estate law.

Curious about today’s NJ market? Check my free North Jersey Market Snapshot — or run numbers with my Mortgage Calculator.

Moving Forward—Legally

If you’re considering selling your short sale property to a family member—STOP and talk to an expert first.

Lenders take arm’s length violations seriously—and getting it wrong can delay your short sale or even trigger foreclosure.

I’m Johnny Rodriguez, North Jersey’s First AI-Certified Realtor and Short Sale Specialist. I help NJ homeowners navigate these tricky situations—and find the legal path forward.

✅ Learn more about me on my About Me page
✅ DM me for advice before listing
✅ Or call me today for a confidential consultation

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