Foreclosure Lease Back Option
Paul M. J. Suchecki - 11 12 2009
If foreclosure is pressing, and you've exhausted all your options, a major worry is where you will live. Since most landlords now require credit checks before offering a lease, a foreclosure can exclude you from renting anything but the meanest accommodations. Many dispossessed homeowners end up in motels paying too much for too little.
Last week, government backed real estate giant Fannie Mae said it would give its foreclosed homeowners a life preserver, allowing those who have lost their homes the option of leasing back their properties for up to a year at market rates, which is nearly always less than a mortgage payment. Some residents could be offered extensions when their leases expire.
This is a last ditch offer for you to keep your roof over your head.The program will only be offered to those who have been turned down for all other home saving programs like President Obama's Homeowner Affordability and Stability Plan. The home must be the borrower's primary place of residence. The prospective tenant would have to show that the rental costs are no more than 31 percent of his or her gross income. Any home equity loans or other liens must be released from the property.
In addition to helping homeowners transition to renting, the initiative keeps foreclosed homes from glutting the market, further depressing housing values. According to a Deutsche Bank analysis, nearly half of all American homes will have mortgages worth more than their home equity before the national housing market turns around. By deferring the sale of these homes for a year, Fannie Mae will be able to recoup a larger percentage of its loans. The “Deed for Lease Program” will also generate additional revenue for Fannie, which is sorely in need of it.
During the first half of 2009, Fannie Mae took back 57,000 properties through foreclosure. It reported a loss of $18.9 billion for the third quarter up from a $14.8 billion loss in the second quarter forcing it to ask for an additional $15 billion from the Treasury Department. It was the fourth time Fannie Mae asked for help since the government seized it last year along with its home loan sibling Freddie Mac.
According to Jay Ryan, Fannie Mae's vice president of equity investments, "If you keep more people in their homes, it's better for the community, and hopefully fewer vacant homes on the market will help stabilize those communities… If someone still wants to live in their home, be it for the kids wanting to stay in the school district or the family wanting to remain embedded in their community, this gives them another opportunity."
Not everybody backs the plan, Bruce Marks, executive director of the housing non-profit Neighborhood Assistance Corporation of America said, "Their mission is to provide home ownership and yet now they want to get into the landlord business. It is outrageous…The issue has to be to force these banks to restructure mortgages, not let them off the hook."
The effort parallels a program of Freddie Mac's which offers month-to-month leases to people who have lost their homes to foreclosure. Yet while those in Freddie's program must agree to show the home to potential buyers, moving out if requested, Fannie's gives its borrowers a full year to catch a breath and prepare for an orderly transition. Homes in Fannie's program will be maintained by a professional management company. Any sales will include a transfer of the year long lease to the new owner.
Although Fannie didn't estimate the potential participation in the program, two thirds of distressed borrowers offered monthly leases by Freddie have taken them.
Scam Alert: Lease back programs are a popular method of equity stripping. In some cases those who offer lease backs charge exorbitant rent, with terms nearly impossible to meet. In exchange for holding a deed, these scam artists are like vultures on a limb, waiting for tenants to be late with a single payment before swooping down and tossing erstwhile homeowners into the street. Before signing anything, have it thoroughly scrutinized by your attorney, or an HUD approved housing counselor.