One Way Out of a Mortgage: Sell Your Home and Rent It Back
You’ve heard about the high rate of home foreclosure in Michigan and other states. Many people signed off on mortgages they can no longer afford, and owe more than they can get for their homes on the current real estate market.
There is an alternative to letting the bank repossess your house: A sale-leaseback transaction.
Real estate agents are starting to see an increase in sales-leaseback activity. It involves selling your home, and renting it back from the new owner.
This type of leaseback strategy is usually employed when a home's value has dropped so far, the balance owed on the mortgage is more than the house is worth. The technique could make financial sense for some homeowners – especially those who are having trouble meeting their mortgage payments, or are close to defaulting on their loan.
There are issues to be considered before entering into a sale-leaseback, such as tax considerations. You may want to have a real estate attorney guide you through the transaction.
There can also be problems when family members get involved in a sale-leaseback. It's a lot easier for a son to avoid paying his parents, as opposed to a stranger, when the lease payment is due.
If you’re thinking about a sale-leaseback, beware of foreclosure rescue scams. They involve crooked investors who convince sellers to sign over their properties – promising they'll give the property back later. When the scam artists never actually pay off the seller's mortgage, it slides into foreclosure, and the original homeowners are left empty handed.
– By Ed Coury, senior editor and Midwest bureau chief for the Wall Street Journal Radio Network, Dow Jones & Co., and a reporter for WWJ Newsradio 950.
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