Can I sell my house and rent it back to avoid foreclosure?

Bona Fide Bankruptcy Attorneys, PLLC, Foreclosure and Rent-Back Schemes

Yes you can, but learn about these four downsides before you sell.

During the 2008 foreclosure crisis, nearly 10 million Americans lost their homes. And now in 2020, the number of seriously delinquent mortgages is at its highest level in more than five years. Arizona in particular is vulnerable to housing problems, as it had the highest rate of housing loss in the country.

It’s not just you.

With the economic downturn and high unemployment caused by Covid-19, many people find themselves unable to pay their bills and having to choose between necessities like food and medicine and mortgage payments. As the bills continue to flow in and debt and penalties add up, it becomes time to consider what will happen when the bank decides to foreclose, and how to deal with it in the best possible way.

What are Rent-back Schemes?

Most of us love our homes and don’t want to leave. So it sounds good when someone offers us instant cash and says we can stay on as renters. These companies do seem to solve a lot of problems:

  1. Take over mortgages we can no longer afford
  2. The company pays most of closing costs
  3. You can access equity and get cash
  4. You won’t be responsible for home ownership costs
  5. You get to stay in your home


However, the picture isn’t as rosy as it seems. For each of these good points, there are downsides to match.

What are the four downsides to Rent-back Schemes?

The first issue is that this sort of buyer is looking for a deal. You would get more just selling your house on the open market.

Secondly, in most cases you can’t buy your house back. Read the fine print and you will discover how difficult it will really be to buy your house back. Their marketing copy is unrealistic.  

You will go from being an owner to a renter, so instead of a mortgage, you’ll now be paying rent. Also consider that the company gets to choose what it wants to charge. You may find yourself paying as much or more in rent as you ever did for a mortgage, except now that money’s going to a hedge fund instead of your nest egg.

Finally, even if you can afford the monthly rent, the company may not let you stay in the house as long as you want. They may decide they want to sell it. It’s up to them if they want to rent to you.

What is really going on behind the scenes with rent-back schemes or wholesalers is that the wholesaler enters an agreement with the pre-foreclosure seller, markets the property, and then assigns the deal to a flipper or someone who will rent it. The house will sell for below market value, and the pre-foreclosure owner might make 3-5K and the wholesaler will take 20 or 30K in equity that the owner had built up. It is a scheme to take advantage of desperate or uninformed people.

Be Careful Who You’re Dealing With

Companies that say they’re going to help you by buying your house and rent back are not always playing fair. They have a history of problems. 

Basically, most of these are giant corporations–two companies control 60% of the market– using money they borrowed from Wall Street to buy up normal people’s houses and rent them. They are not everyone’s idea of a great landlord, either.

They are characterized by “aggressive rent hikes, fee gouging, and high rates of eviction.” A study in 2016 said that Wall Street-backed firms were up to 19% more likely to issue eviction notices than smaller companies. 

For example, one of the leaders in the field began charging “pet rent,” a monthly fee on top of normal deposit and rent, in order to keep adding to the bottom line. This kind of behavior might be hard to adjust to when you’re living in what used to be your own property.

Another main company in the field said, “It’s up to us to educate tenants in a new way that there will be annual rental rate increases.”

Coming To A Neighborhood Near You

One company, the creator of “pet rent,” has 7,500 single-family rental homes in Arizona alone, and they may be gearing up to go on a spending spree. Phoenix was a hotbed of corporate home rentals back in 2008, when the big companies bought up tens of thousands of foreclosure homes at bargain prices.

And don’t look now, but they are beginning to raise funds for what may be another spree.

“Coronavirus distress is the ‘opportunity of the century’ for real estate investors,” reads the headline in the April 7, 2020 issue of The Real Deal, a real estate news site. David Schechtman, from Meridian Capital Group, said, “But I will tell you, real-estate investors — when you take the emotion out of it — many of them have been waiting for this for a decade.””

Why a Fresh Start with bankruptcy is better:

When you sell your home to a rent back corporation, you lose all control of your largest asset and your residence for the sake of convenience and the hope that they’ll let you stay there. You should investigate very carefully to analyze how realistic that is. 

On the other hand, bankruptcy is a legal protection given to you by the government, and was created to help exactly people like you who’ve been hit by difficult circumstances.

By filing bankruptcy, you will get an “automatic stay,” which prevents banks foreclosing on you for the time being. You will have time to get your affairs in order and make plans to go forward.

By filing Chapter 13, you and your creditors can come up with a debt repayment plan that will have you continuing to pay manageable amounts to your creditors. This will allow you to stay in your home and give you 3-5 years to catch up on back payments.

If your house is worth less than what you owe, you may be able to “strip” the second mortgage or any home equity loan.

You may be able to “cram down” loans you have on vehicles or sometimes rental properties, which can result in being able to renegotiate your loans to a much lower amount. Since cars depreciate so quickly, this is usually a great benefit.

If you file Chapter 7, your mortgage loan will be wiped out. You can stay in the house until the bank forecloses, which oftentimes will not be until you stop making payments. It is also possible to make an arrangement with the bank and reaffirm your home loan, which means you might be able to keep the house while having the rest of your debt discharged. You’ll be in the position to deal with your future without an impossible debt load.

Plan Your Next Move With A FREE Consultation

Bona Fide Bankruptcy Attorneys, P.L.L.C., is here to help you weigh your options and decide your next best move.

Call us for your FREE Confidential Consultation, at (480) 477-3208, or fill out our contact form.

Bona Fide Bankruptcy Attorney’s P.L.L.C., will give you the legal information you need to make the best financial decisions for your unique situation during these complicated times. We are licensed in Arizona and practice law in Tempe and all of Maricopa County. 

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*Our firm practices bankruptcy law and is considered a debt relief agency by federal law. We help people file for bankruptcy relief under the Bankruptcy Code.

**Disclaimer: This article provides general information and should not be taken as legal advice.  Answers to questions or comments do not form an attorney-client relationship.


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