Short Sale With Leaseback & Option

[Jason S.]

I get this question, as do many of you I am certain, if I will complete the short sale and do a leaseback/option to the seller.

Of course, I always say, "that's not something we can do". But once again I am doubting myself so I thought I would field the question to the group.

Is there any legal model that you know of where we can do this in California?

Please spare me the advice on whether I want to do it or not from a investor point of view - I want to know from a transactional / legal point of view.

Can it be legally done or is there some deviation from a straight "leaseback/option"? I am not interested in anything that "pushes legality" if it is not completely straight and open and legal I will not do it.

The California Civil Code states:
[i]
(e) Whenever any equity purchaser purports to hold title as a result of any transaction in which the equity seller grants the residence in foreclosure by any instrument which purports to be an absolute conveyance and reserves or is given by the equity purchaser an option to repurchase such residence, the equity purchaser shall not cause any encumbrance or encumbrances to be placed on such property or grant any interest in such property to any other person without the written consent of the equity seller. Nothing in this subdivision shall preclude the application of paragraph (3) of subdivision (b).
[/i] (paragraph 3 subdivision b is not relevant to this inquiry)

So it appears that they are leaving it open. Yet we always say that a seller can not in any way benefit from a short sale - yet a leaseback option the seller does benefit.

Please advise. (and if you all come back and tell me you do it all of the time and that it is perfectly legal - it's OK to snicker at my ignorance)