Short Sale To Take Over Relatives House Payment

I'm hoping to get some advice on how I can help a relative who can no longer meet mortgage payments on the house. Here are some details:
1st Mortgage: $420,000 @ 8.75%
2nd Mortgage: $140,000 @ 8.75%
Appraised value: $610,000
Current FMV: $425,000

This is a new house (was built last year) and the FMV has dramatically dropped. There are two houses next to this one whose prices have dropped below $400k.

The mortgage payments total $4750. I think I can get a better APR (6%) so the payments would drop to $2500, which would be much more affordable.

I'm considering having him sell his house to me (FSBO) so we can get the better rate. I'm not living there but I'm making the payments.

Is there any way I could short sale this to reduce the price even more? I mean, there's no way this house would sell for its appraised value in todays market. I definitely want to keep the house in the family.

Any other suggestions or is FSBO the right (and best) thing to do?

The first step would be for the owners to contact the exisitng mortgagees and formally request a loan modification. It is unlikely the principal would be reduced unless/until the loans were at risk of loss due to foreclosure, but the interest rate might be negotiated.

If the present owners were to try to short sale to you, they would have to demonstrate, at a minimum, financial hardship.

Short Sell must be an arms length transaction. What is your relationship to the home owners?

Well, this is my older brothers property so I'm guessing a SS is out of the question. Still, his income can't support the mortgage and there would be a real chance of foreclosure. Is it better to buy the house from him or just deal with the banks on this one? I appreciate everyones input.

Unless you can afford to make your brother's mortgage payment every month for the next 30 years, you need to take a step back and look at this financially instead of emotionally.

I buy houses from people in "situations". And I have bought most of my houses from family members who tried to help other family members. Of course I only see the bad side of it, but I have seen enough to know that it can get really ugly. I have bought houses from well meaning relatives that no longer even speak to the relatives that they were trying to help.

Your brother bought a house that he can not afford. He probably needs to let the house go and get a rental. In my area you can rent a mansion for $2500 a month. I bet he can even rent a house in his own neighborhood for around $2000 and he won't have property taxes, insurance, or maintenance. This market has hurt a lot of people. I get several phone calls a day from people in foreclosure. This market caught a lot of people off guard. There is no shame in a foreclosure.

If you have lots of money, maybe you can even buy a house and let him live in it. But certainly keep the deed in your name. And certainly only buy a house at a good price. Why would you want to pay$560k for a house that is worth $425k?? And most certainly - ONLY HELP TO THE LEVEL THAT YOU CAN AFFORD TO LOSE YOUR MONEY. You will not be doing your family or his family any favors if you place yourself (and your family) in a financially dangereous situation.

Good Luck.