Maybe you’ve heard of a Short Sale & Stay (often referred to as a Short Sale Buyback). Basically it is a way for a homeowner to remain in their home even though they will no longer be the owner. It also allows for the previous homeowner to buy back the property at some designated time in the future at an already agreed upon price. Naturally the buyback price will be more than what the home originally sold for.
Basically, this is a type of “Hail Mary” plan for someone that has no way to keep their home but would like to opportunity to own it again in the future. Usually a group of investors will purchase the home and make this type of arrangement with a financially distressed homeowner. The original homeowner will then agree to rent back the home for a specific period of time and then to re-purchase it at the end of the rental agreement – usually for 10% - 20% more than they sold it for originally.
Is this a good plan for someone that really doesn’t want to lose their home forever? Well, I’m not so sure. Keep in mind that once the homeowner becomes a renter they are subject to eviction the same as any other renter would be in a more typical situation. If evicted the agreement would be broken and the ability to buy back the property would be lost. Also, many times the rent being charged to the former owner is higher than comparable properties in the same area.
Also, these types of agreements are not always approved by the mortgage lender and in some cases may be considered a felony mortgage fraud if pursued without the lender’s permission. That’s the last thing that a person needs when trying desperately to keep their home. Finally, the original homeowner must still be approved for a new home loan when it is time to buy back the property and if they cannot attain approval they will still not be able to re-purchase their home again. In short, they will have been paying a higher than necessary rent for years and never be able to salvage the home they so desperately wanted to keep.
I strongly suggest that anyone considering this type of arrangement consult an attorney before signing anything. I’m not saying that this type of arrangement has never worked out for anyone in the past but it seems to me that the “cards are stacked against you” and there are a lot of things than can go wrong in these types of scenarios. Caution is the word to remember if you are considering this type of agreement in hopes of buying back your home in the future.