Debate: Do sell and rent back deals help or hurt homeowners facing foreclosure?

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Do "sell and rent back" deals help or hurt homeowners facing foreclosure?

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Hurt		45%	126 votes	Total: 280 votes
Help		55%	154 votes	Total: 280 votes

Hurt

1 of 6

by GCM

Created on: March 27, 2008 Last Updated: October 24, 2011

Sale and lease back deals typically hurt homeowners facing foreclosure. They also are not an effective means to accomplish the goal of the sale and lease back, which is to remain in the home. Homeowners facing foreclosure should consider other better options to sale and lease backs.

1)Homeowners Can Lose Equity in Sale and Lease Back Deals
In sale and lease back deals hurt homeowners with equity in their home. Sale and lease back are used to engage in equity stripping. Equity stripping is a fraudulent scheme used by lenders to purchase homes that are in foreclosure, where there is a significant difference between the home's market price and the mortgage. For example, a homeowner has a mortgage of $80,000 on a home worth $200,000.00. In an equity stripping sale and lease back, the purchaser would buy the home for $80,000 and attempt to resell it to the homeowner or someone else for $200,000. For additional information on equity stripping see the Minnesota Attorney General's notice at http://www.ag.state.mn.us/Brochures/pubHomeEquityStripping.pdf.

2) They May Not Accomplish The Chief Goal of Sale and Lease Back
Sale and lease backs may not accomplish the homeowner's main goal of staying in the home. First, if the former homeowner could not pay the mortgage, the homeowner may not be able to pay rent either unless rent is significantly less expensive. Second, even if the rent is low at first, the new owner can raise it, perhaps to levels that are unaffordable. Third, the new owner can sell the home to someone else, eventually forcing the homeowner to move.

While a homeowner might seek to prevent these events from happening by carefully negotiating the lease terms, that is not realistic. Many homeowners may not understand fully the terms and conditions of the lease being offered them. Even if the homeowner understands the terms, a homeowner in foreclosure has a lot less leverage to negotiate lease terms than the purchaser.

3) Homeowners Facing Foreclosure Have Other Better Options

A homeowner in foreclosure should consider the following options: a) Offer to renegotiate the terms of the mortgage with the bank; b)Offer to bank to put the home on the market; and c) consider filing for bankruptcy.

a) The homeowner on a defaulting mortgage should contact their bank and attempt to try to obtain better terms that will allow them to avoid foreclosure. Homeowners re-negotiating their mortgages have significant leverage with banks because in foreclosure the bank will incur significant costs to foreclose the home and bank may be faced with selling the foreclosed home at a loss in the current real estate climate. These conditions make it favorable for the homeowner and the banker to work out a scenario that reduces the mortgage payment to allow the homeowner to stay in the home and the bank to lose less money.

For more on renegotiating the terms of the mortgage see: http://acornhousing.org/TEXT/wwa.php and http://www.virtuositypro.com/stop-foreclosure.html.

b) The homeowner should contact the bank and offer to list and sell the home. A bank is likely to accept as this allows the bank to avoid the costs of foreclosure. The homeowner stays in the home and has an opportunity to take any equity that they have in the home at the sale.

c) The homeowner should consider bankruptcy as a last resort, if the homeowner has large debts in addition to the mortgage. While bankruptcy will only temporarily stop foreclosure of the home, it does give the homeowner time to work out things out with their lenders. Homeowners burdened with high credit card debt or other debts may benefit from bankruptcy because after discharging those debts, they may be able to make their mortgage payments. Bankruptcy is not be taken lightly and the homeowner should seek counsel from a bankruptcy lawyer before deciding to file.

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Help

1 of 4

by Steven Martin

Created on: January 12, 2010 Last Updated: January 14, 2010

FSA Interim Regulation Sale and Rent Back

The Sale and Rent Back Process

Now that the sale and rent back sector has been regulated, each company has prescriptive guidelines, which they must adhere to. This ensures that the consumer is dealt within a consistent manner. However, whilst it is important to remember that the guidelines set out by the FSA ensure that the consumer is dealt with in accordance with the 6 consumer outcomes, it does not prescribe to the provider the purchase price of the agreement or the period the homeowner can remain within the property.

To ensure consistency, there are a number of documents you can expect to receive from the provider of your sale and rent back agreement:

The Initial Disclosure Document (IDD) or the Terms of Business - this sets out the terms of the agreement that the provider is willing to enter into. Initially, it will set out the fact that the provider is regulated by the FSA. It will also include indicative terms of the sale and rent back agreement, including; the purchase price, the percentage of the purchase price against the value of the property, any charges payable, the rent payable and the minimum length of time the seller may remain in the property.

The Initial Offer Letter - this is received after the IDD, and sets out the terms of the agreement, usually following an assessment of the property from the company or individual wishing to buy your property and rent it back to you.

The Final Offer Letter - this is received once your property has been inspected by a RICS (Royal Institute of Chartered Surveyors) surveyor. It will confirm the final details of the agreement.

It is important to remember that not all firms are able to proceed with the sale and rent back of your property in a timescale to suit your needs. They should be willing to complete the purchase as quickly or slowly as you require.

In addition to the above, make sure you are dealing with a company that has gained interim authorisation, will allow you to remain in your property for at least 3 years, charge either none or very low fees, and will allow you to cancel the proposed agreement at any time prior to the completion of the transaction with little or no outlay on your part.

Why Has the Financial Services Authority (FSA) Regulated the Sale and Rent Back Sector?

Sell and rent back has been in existence for many years. In the past, there have been a number of cases where companies or individuals have entered into a sale and rent back agreements, promising the owner the opportunity to remain in their property for as long as they wish.

However, the reality in a number of cases is that after a period of six months, the owners have been served notice, evicted from the property, and left homeless by unscrupulous landlords and the property sold at a large profit. In addition to this, there have also been cases where mortgage companies have repossessed the homes of these individuals as the landlords have been unable or unwilling to make mortgage payments on the homes in question.

In response to this, the FSA has taken the step to provide security to those wishing to sell their home whilst remaining in the property for the long term. The FSA have asked all companies and individuals that operate in the sector to apply for 'interim authorisation.' From the 1st of July 2009, all companies wishing to continue working in the sale and rent back sector had to apply for this authorisation by the 31st July 2009. Any company not submitting an application by this date is NOT permitted to conduct business in this sector from 1st August 2009.

As part of the application process, the FSA has requested information from each applicant relating to the whole of their business operations. This will allow the FSA to look at each individual and company within the sector, and decide whether or not to grant them interim authorisation. The FSA will pay particular attention to the financial workings of the sale and rent back provider to ensure they are in a position to meet any commitments in the long term. It will also look at the processes implemented by the provider to ensure that they deal with homeowners in an open, honest way, and ensure that the consumer is able to make a decision as to whether or not they wish to enter into a sale and rent back agreement.

The FSA has set a benchmark in the financial services sector to ensure that all consumers are treated fairly (Treating Customers Fairly)

The 6 Outcomes are detailed below

Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.

Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.

Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.

Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

If you are thinking about selling your home and renting it back, your first step should be to ensure that you are dealing with a company that has gained interim authorisation. This will provide you with a level of security, and the knowledge that you will be dealt with in line with the FSA's guidelines.

As a forward-thinking company, Quick Purchase Limited were one of the first companies to gain interim authorisation from the FSA. This means that if you consider selling and renting back your home through Quick Purchase Limited you will know that you are dealing with a professional company within the Sale and Rent Back sector.

Steven Martin, a http://www.quickpurc hase.co.uk

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