How A Sale And A Leaseback Can Help An Owner Avoid Foreclosure


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George Arnold bought his bungalow in Chicago in 2009. This repairer needed a lot of thoroughness, but was in a good neighborhood. He had found a rough diamond. Arnold is set to work to revive the home through a series of major renovation projects. Shortly after, her mother's health deteriorated.

"I kept my mother out of the retirement home for two years before her death," he recalls. His dedication to his mother is admirable – but it has made him fall behind on his bills.

To avoid losing the house and all the money that he had invested, Arnold agreed to sell his house to an investor. He will rent it to this investor for two years with the opportunity to buy the house again at the fair market price.

Losing your home following a foreclosure or tax sale is not the only option for struggling homeowners. A leaseback agreement allows an owner to sell his house and lease it to the new buyer, forming a landlord-tenant relationship that lasts the entire term of the lease.

There are many ways to get a lease on your home. We will discuss three below.

Investor Leaseback

Distressed homeowners may be able to save their home by selling the house to an investor before foreclosure. Investors looking for a rental property benefit from a stable income and a potentially reduced purchase price. The short sale must be approved by your credit institution. Once approved, the landlord can avoid a foreclosure that is full of credits, replenish his credit in subsequent years and stay home.

In the future, the previous owner and investor will be able to negotiate a fair selling price. This allows the homeowner to reclaim his property and allow the investor to realize profits on the sale.

Leaseback in leaseback

Homeowners can also check the sale and leaseback agreements available from their mortgage lenders. Some mortgage lenders or creditors will accept a sale and leaseback agreement in lieu of foreclosure by delivering your deed. In this situation too, an appropriate purchase arrangement can be worked out in the future once the owner has been able to recover financially and can claim a loan on the original home.

Non-Profit Non-Profit Leaseback

Owners can also turn to non-profit organizations approved by the Department of Housing and Urban Development. These non-profit organizations approved by HUD have been given the green light to carry out sale and leaseback transactions after a change in the Making Home Affordable program in 2011.

Homeowners may be required to take financial management training in order to participate in a short sale leaseback program through non-profit organizations approved by HUD.

Beware of sellers

Homeowners facing foreclosure may be particularly vulnerable to scams related to mortgage bailouts or to people who will derive an undue advantage from the distress of a homeowner. Vendors who try to avoid eviction must be diligent in making sure that they deal with reputable people or companies.

Do your research

Check with your attorney's office, the Better Business Bureau, or the local Chamber of Commerce to find information about anyone before proceeding with the transaction. As in the case of predatory lending, unscrupulous investment companies quickly attack people in desperate and emotional situations, in which they fear losing their homes. A quick Google search can return company reviews to various discussion forums that you can use to help you make a decision. Try to locate people who have had personal relationships with investors to check whether the company is reputable or not. (See also: How to protect yourself from predatory lending)

Seeking a lawyer

Shawn Kunkler, real estate agent of the Paragon Real Estate Group and author of Insider's Guide to Buying a Home, San Francisco Edition, advises homeowners to work with a real estate lawyer to set up an appropriate leaseback agreement. "It's not difficult to include, but you have to follow the right protocol," he says. Each state may have specific requirements to respect. It is best to use a real estate lawyer experienced in the sale and leaseback transactions. Contact the bar of your state for references.

Keep your word

The owners are lagging behind for several reasons. If you are able to avoid foreclosure with a short-term lease-back agreement, decide to keep this new contract. Make it a priority. Kunkler notes that if an agreement fails, it is most often because the leasing party fails to comply with it.

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How A Sale And A Leaseback Can Help An Owner Avoid Foreclosure