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Banks to do Buy Backs?

There's a couple of great ideas floating around: (1) allow homeowners to remain in & lease their home after foreclosure, and (2) offer a buy back in which the homeowner could purchase the home after a specific term (3 years? 5 years?)

Buy backs are not a new idea, buy backs have been around for years including during the boom. Back in the boom-time, investors saved many homeowners from foreclosure by purchasing the property, renting it back to the homeowner with an option to buy it back. One notable difference is that back then, these investors were often referred to as scam artists as they were blamed for taking advantage of distressed homeowners.

The St. Petersburg Times ran a good article House: Let Foreclosed Homeowners Rent on August 15, 2009. The article offers a nice snapshot of the pros and cons of buy backs.

The idea is great, but as most homeowners and agents would agree, not if banks run the program. Currently I am working a seamless short sale. The key is disclosure otherwise the buy back could be deemed not to be an arm's length transaction and possibly considered fraud. Some banks will not approve a short sale that includes the homeowner remaining in the property - buy back option or not.

A buy back program has the potential for huge success and win-win opportunities for all parties....again, as long as the banks don't run it.

Posted by Wendy Smith on 08/24/2009 04:59 PM

Comments (6)

foreclosure, foreclosure assistance, default, mortgage default, behind in payments, buy back

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6 Comments on Banks to do Buy Backs?

AUG

Wendy,

That's an interesting idea but what's to stop an upside down homeowner from defaulting on purpose so they can buy it back at a lower price?

You are absolutely right. Just like any other program, there is the potential for abuse. Remember the buy-and-bails before the banks got wise to that little quick step?

I read an article not long ago that there have been abuses to the $8000 tax credit program.

Geez! Maybe cheaters/crooks should be hired to help draft the program - honest people aren't so quick to see the holes & potential for abuse but cheaters always seem to find the loop holes.

I read an article that explained one reason short sales take so long.......it's because the servicers collect late fees & servicing fees right off the top when an investor accepts a short sale offer. Yep, banks go on collecting their fees even with non-performing loans. No wonder shorts take so long!Imagine that!

AUG

WENDY,

I see this as another mechanism that will help everyone except the homeowners.

1-The program is voluntary for the Lenders, which is why ALL the other programs failed. They let the Lenders chose when they want to participate.

2-If doing this, why wait until the home is foreclosed? How many loan mods and Short Sales will be denied in order to enter into a potentially more lucrative deal.

3-An investor is going to come in and the homeowner is going to pay for the investors expenses, such as insurance AND taxes, then the homeowners are supposed to purchase property for MORE than it could have sold for in a Short Sale (and short sales are supposed to be market value)

4-Who establishes fair market rent...a Lender compensated BPO agent?

5-If Lenders are going to take care of this transaction and future sale then I would suppose that they will be collecting service fees from the investor, more money in their pocke--less incentive to prevent a foreclosure.

Wendy- what an interesting concept. As an investor- it sounds great. But I agree with Sidney- in the long run this cant be good for the homeowner.

I believe it could be good for the homeowners if the banks will go along with it -

e.g. allow the investor to purchase the property short sale with the intent of renting it back to the homeowner who has an option to buy it back.

The concept works - it's just that there are many investors that are not making full disclosure which may be setting them up for accusations of bank fraud (not arm's length).

Once the short sale is complete - there shouldn't be any concern to whom the buyer chooses as a tenant. There also shouldn't be any concern if an investor flips a house shortly after buying a short sale either but we've seen restrictions on re-sales of purchased property (who would ever imagine a bank can dictate how long we must hold a property once we buy it?)

Sidney makes some good points but I am in favor of the banks NOT being involved at all - nothing more than a regular (is there such a thing?) short sale.

As to Sidney's #3 - isn't that the way rentals work? The tenant pays the landlord's debt service on the property, typically though the renter doesn't ever see anything to show for all the money paid. The investor is entitled to a ROI - hence the increased sales price - remember, the homeowner makes the re-purchase FIVE years later. Not the same as a flip (the h/o would never get financing!)

WENDY,

As I read the article included it says the homeowner will have to cover the insurance, taxes and utilities (Triple-Net) for two of the five years AND the market value rent. In a regular lease the amount paid is the agreed amount with the landlord taking care of his taxes and insurance.

This is actually going to have an investor come in and buy a Short Sale, have the former homeowners pay insurance, taxes, and utilities plus their rent? If they could have done that then they would have been paying their mortgage. I just see this as another slap in the face of the homeowners and another scheme to make money off their backs.

I just don't see how this benefits a homeowner that has already been foreclosed and is now asked to subsidize a purchase for an investor.

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