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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/Broc hures/pubHomeEquityStripping.p df.

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

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