Another homeowner has completed a short sale in which their lenders have allowed them to stay in the property as a tenant for three years.
The sale was closed through the Short Sale Lease-Back Program, a California pilot initiative focused on helping distressed homeowners find an alternative to foreclosure and regain their financial footing.
The short sale lease-back on the Riverside home, which was approved by two lenders, closed just days before the end of 2012. Two homes have now been successful in the program; the first sale closed in August.
The pilot program is monumental and game-changing, providing a more attractive solution for homeowners who cannot afford their homes but have valid economic hardships and steady incomes to afford a lease payment.
A short sale occurs when a property is sold for less than is owed on it and the bank agrees to a discounted payoff. In recent years, banks and servicers have required that a short sale be an “arm’s-length” transaction, meaning the buyer and seller could not be related and could not have a prior agreement for the homeowner to stay in the property.
Last year, changes to the federal Home Affordable Foreclosure Alternatives short sale program opened the door for a short sale without the arm’s-length requirement. The U.S. Treasury Department in March 2011 issued a supplement to its HAFA guidelines to allow “servicers the discretion to approve sales to non-profit organizations with the stated purpose that the property will be rented or resold to the borrower, so long as all other HAFA program requirements are met.” It further strengthened that option in a November 2012 supplement that smoothed the process for such a sale.
The Short Sale Lease-Back Program was inspired by the Treasury’s action and created to work with lenders to allow a qualified homeowner to sell their property, rent it back for three years and perhaps even buy it back at a pre-determined price.
Here is an overview of the Short Sale Lease-Back Program:
- Homeowners must work with a licensed agent who is trained and certified by the Short Sale Lease-Back Program.
- A qualified non-profit would purchase the home in a short sale.
- The homeowner’s lenders must approve of the lease-back terms — the intent of the sale and tenancy cannot be hidden from the lienholders.
- The seller would lease the home for a minimum of three years, allowing their credit to heal so that they could qualify for a mortgage.
- Homeowners must attend ongoing HUD and financial-literacy counseling and speak with legal and tax experts to ensure the program is the right fit.
- If approved, the former owner might be allowed to repurchase the home, perhaps at a giant discount from what they once owed on it.
Not all homeowners qualify for the program. Borrowers must have sufficient income to afford the monthly rent payments in addition to their other debt payments.
Homeowners who don’t qualify for this program can still proceed with a traditional short sale, which may include a relocation incentive from $2,500 to as high as $45,000, depending on their lender, loan amount and individual situation.
Either option is likely better than a financially devastating foreclosure, which can crush a consumer’s credit, hinder their ability to find a future rental, and perhaps even impact their jobs.
Banks prefer short sales over foreclosure and even loan modifications because they net more money from them.
DO YOU QUALIFY?
The Short Sale Lease-Back Program is now interviewing California applicants for qualification in this new program.
To qualify, homeowners must:
- Live in the property as their primary residence.
- Have steady, verifiable income.
- Have a valid hardship and be able to qualify for, and complete, a HAFA short sale.
Want to know if you qualify? Call us today at 951-778-9700 to make an appointment for an interview.