Avoid Foreclosure and Stay in Your Home: Deeds for Lease Programs
We have heard news of deed for lease programs rumbling for some time, but Bank of America announced this week that it will begin making them a reality. What this means is that struggling homeowners will be able to turn their deeds over the the bank, and then sign a lease to stay in their homes as renters. There is a lot of controversy over these programs, but lenders are attempting to find ways to avoid more foreclosures and feel this may be one way to do so.
Here’s how the plan would work: the bank would approach troubled homeowners before a foreclosure to see if they would be interested in staying in the home as tenants. The bank would then short sell the home to investors, who would handle the leases. The owners would have less of a credit impact because they would have a short sale instead of a foreclosure, but they would also be able to build up their credit because they would be instant tenants.
Those who are against these programs argue that homeowners, who cannot afford their mortgages any longer, are being rewarded by not having to go through foreclosure and then being able to stay in their homes as renters. [In typical short sales most lenders forbid homeowners to rent back the homes after a short sale because they do not want the homeowner to benefit in any way from the sale.] They are afraid it will encourage many others to do the same.
Those in favor of these programs say that it will prevent so many foreclosures and will help to build the market back up – with less foreclosed properties and vacant properties, values will stop falling. Plus, the lack of vacant homes will strengthen those neighborhoods hard hit by foreclosure.
No matter what side you are on, this is one program that may actually help build the market back up over time, if enough homes can make the cut. It will be interesting to watch and see what happens.