The bank will require that the house be listed on the MLS for a certain amount of time before they will accept a bid. The idea being that the bank wants to receive the best and highest bid. If you really want to purchase the home, then you could ask the homeowner to quit claim the property to you OR you need to convince him to complete a short sale package with the bank. The point is - ALL parties need to agree to the short sale. The homeowner/borrower, purchaser and the bank. Very simple process actually. In many situations the bank will not accept a short sale unless the borrower has defaulted in their monthly payments. The catch 22 of the situation is that once the borrower defaults then the bank brings a foreclosure action. Any foreclosure defense lawyer can defend the foreclosure to gain you the time and leverage necessary to push the deal through.
If the owner quit claims to you then the house will still have a lien for the full amount of the debt. You did not mention what the house was worth, but I assume it is less than the debt. So be careful. Your neighbor might want to talk to an experienced real estate attorney about their options. Beware that what is best for the owner might not be best for you.
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If your neighbor wants to start a short sale proceeding, he/she should contact a real estate agent who is experienced in short sales. The agent will likely know how to start the process with your neighbor's lender, even if your neighbor's bank branch cannot provide more information. As has been suggested by my other colleagues, though, it would be advisable for your neighbor to go talk to an experienced real estate attorney so that he/she understands his/her rights before starting the short sale.
Also, if you want to purchase your neighbor's house in a short sale, then your neighbor's lender will still have to approve your offer. Unlike with traditional sales, with a short sale the lender has to approve the amount offered by the buyer since the seller is selling the house short of his or her obligation to the lender. Since the lender will not be recouping all the money it lent and may forgive your neighbor of any deficiency, the lender will want to make sure they get the best offer for the house possible. It is not unusual for the lender to counter on an offer made by buyers.
Whatever you and your neighbor decide to do, however, make sure that you are seeking the assistance of experienced professionals. Good luck!
Please note that the response above is not meant to constitute legal advice and it does not establish an attorney-client relationship. You should contact an experienced attorney to assist you.