I want to do a short sale on my house. I owe $260K. My father wants to offer $130K. The bank says that if I sell it to my father and still live in it, they will sue him for fraud. Is he not allowed to rent to anyone he pleases. How long till I can buy it back from him and not get sued? Is there a time limit to this?
In the banks eyes, this is considered a non-arms length transaction in which you are defrauding them of $130,000 of owed debt of which you have agreed to repay by signing the original loan documentation. Your father may purchase the property on a short-sale transaction (I doubt the bank would sell for only 50% of what is owed), but don't be surprised if your Father is forced to sign an occupancy agreement that details that immediate family member cannot reside in the property after closing.
This is somewhat unusual but occupancy certifications are becoming more and more common as banks are being subjected to this type of fraud due to the current market conditions. The bank may send an inspector of some sort to the property after the closing to "certify" that the occupants are not family. If it is believed the occupants are family, you can bet the bank will send in the lawyers to recover the $130k that they forgave in the first place.
As for repurchasing the property, you are now in what is considered a "Flip" scenario and it is not likely that you will be able to get financing from a traditional bank at any point as the chain-of-title will clearly demonstrate that you and your father manipulated a short sale to your favor.
Educated guess... wait at least 10 years before trying to purchase it from Dad unless you can pay cash, financing is pretty much out of the question.