Stuck in hard money, need a solution

[Bob Malecki]

I've got a single family home in new condition (near Seattle, wA) that I puchased in May for 60-cents on the dollar and had to use a hard money loan to get it before it went to foreclosure. I've been trying like the dickens to get a conventional rate and term refi with no luck. I have one last mortgage broker work for me right now, but I'm not overl optimistic, since my stated income status is like kryptonite to the lenders. I have a new idea that I'd like to know if any of you think will work.

The house I have is valued around $350K and I owe $240K. Now, I have a relative who is gainfully employed and has around $70K cash liquid. What if I "sell" the house to him for let's say $300K, he gets a conventional mortgage to get the hard money first of $240K paid off and brings his 20% down payment of $60K + closing costs to the table, and then closes on the purchase. I then write him a reimbursment check for his $60K+ from the "proceeds" of the sale. I then purchase the home from him on either a land contract or sub-to and make the monthly mortgage PITI payments on his behalf. Then, of course let the rental income cover PITI.

Does anyone know if any of the above is outside of the law, or have any other thoughts? I know that I will be paying excise tax on the sale as well as potential short terms gains, but I cannot find any other solution to get myself out of this hard money first that is just depleting my bank account!

Thanks,
Bob