by Kathleen Couch

Created on: October 12, 2007   Last Updated: August 21, 2009

It is a natural desire to stay in the house you have purchased for your family. You and the children are comfortable with the home, neighborhood, friends, and schools in the area. When you are faced with the possibility of losing your home to a foreclosure action, or short sale, you will be tempted to do anything to stay in the house.

As a short sale negotiator for homeowners and agents, I have been asked this question many times. My heart goes out to them because the homeowner is just trying to keep the disruption and pain to their family at the lowest level. In the state of Georgia, it is against the law for someone who has been foreclosed on to continue to live in the home. However, in a short sale, because it is not a foreclosure, is a gray area that staying in the home would not be technically against the law.

The law was created, not because the system wanted to be mean to people who did own the home they live in, and continue to rent it after it was foreclosed and sold, but because of the many lawsuits resulting from such a practice.

So many times I have wanted to do this to help someone. But, after I think it through, and realized what the end result could be, I dismiss this as an option. Here are the reasons:

1. They have already had problems with keeping up with the payment amount.

2. Even if the house is bought at a discount, the interest rates on investor loans are higher, therefore rental payments will have to cover the payment, cost of future repairs, taxes (which are higher for an investor), insurance (which is higher for an investor), and some cash flow to make renting the home worthwhile.

3. Many times the previous homeowner will default on the rental payments also.

4. If the previous homeowner does not pay the rent, then the owner is forced to evict. This makes the landlord the "bad guy" instead of the bank. It gets a lot more personal.

5. When the homeowner is facing the problem, the person who allowed them to stay in the home and continue to rent it is considered a hero. But, with time, the previous homeowner will often forget how serious the situation was, and then accuse the new owner of deceptively stealing their house from them.

Even when it seems inconceivable that the people that are being helped could turn on the new owner in the future, it is a reality that continues to come up. Whether you are in a state that frowns upon this practice or not, a word to the wise says "a sell and rent back deal" hurts homeowners and everyone involved.

If you are faced with this situation as a homeowner, or an investor, the best choice is to not allow the person to stay in the house. If they qualify, they could rent a different house that you or someone else owns. Create a clear cut from the previous home, and it will not be so easy to develop bitter feelings in the future.

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