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Seller Leasebacks - A Good Fix for Foreclosure?
from: Rich PryorMany 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.
Foreclosure 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.
About the author:
Rich Pryor owns numerous Information Technology and Real Estate
Businesses. Please visit
nual.com for more tips on stopping foreclosure. The
Camp is now entering it's 3rd edition. His latest work is
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