Foreclosure

Seller Leasebacks - A Good Fix for Foreclosure

Many homeowners in foreclosure are tempted to enter into an arrangement known as a “seller leaseback”. I have always answered no, as this arrangement, known as a “seller leaseback”, is often a bad deal for all parties.

At first it seems like a good deal for the buyer, because the property can be obtained for well below market value, and you already have a tenant that appears willing and eager to pay their rent. However, relief often turns to resentment in these situations and the sellers soon stop paying their rent and taking care of the property, once they realize it no longer belongs to them.

The IRS casts a suspicious eye on these transactions, and both parties are at higher risk to be audited. These transactions have been used to hide assets and change the appearance of ownership, so the IRS will likely take a close look at your finances and tax returns if you enter into this type of arrangement. The IRS may choose to “reclassify” the sale and leaseback, which could result in the buyer losing a great deal of money and being immediately foreclosed upon by their new lender. If the seller subsequently files bankruptcy, the bankruptcy could decide the seller leaseback was an attempt to hide assets. The court could confiscate the property to satisfy secured debt and tax liens.

Bank Foreclosure - REO scam artists often use a seller leaseback arrangement to orchestrate their deception. A homeowner in foreclosure normally is looking for a way to keep their home, not sell it. The scam artists presents a deal that seems fair ? they will stop your foreclosure and let you rent the house until you get back on your feet. But the paperwork you sign makes it difficult, if not impossible for you to get your home back. In some cases, the scam artist proposes to hold a deed ?in escrow? ? a fancy term that means nothing except he?ll put it in a filing cabinet at his office. The minute you are late on rent or miss a payment, he records the deed and evicts you. Now he owns the house and you have no legal repercussions. Other variations on the scam involve exorbitant repayment terms, hidden fees, or unreasonable terms that all add up to you losing your house.

You would be wise to cast a wary eye on seller leaseback arrangements. NOt all of these arrangements are illicit; there are good, honest people who engage in these types of deals. But in my experience, very few of these work out for the homeowner for one reason or another. The bottom line is this: seller leasebacks are a bad deal for both parties. You may decide to accept an investor’s offer to do this, but think carefully, read the fine print, and do so only as a last resort. Very few people end up buying their houses in these deals, and believe me, the investors ? or scam artists - know it.

Rich Pryor owns numerous Information Technology and Real Estate Businesses. Please visit Stop-Bank Foreclosure - REO-Manual.com for more tips on stopping foreclosure. The Credit Repair Boot Camp is now entering it’s 3rd edition. His latest work is Your-Disaster-Kit.com, a guide to family disaster planning and preparedness.

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Tags: fix, Foreclosure, Good, HUD, Leasebacks, Seller