Teaming Up with an Investor to Stay in Your Home
4 of 9 in Series: The Essentials of Loan Modification
Real estate investors are sometimes willing to team up with homeowners to help them keep their homes — either permanently or temporarily. Although these investors normally purchase properties with the expectation that the previous owners vacate the premises, this isn’t always the case.
You can usually find reputable investors through trustworthy real estate agents, attorneys (especially foreclosure and bankruptcy attorneys), and perhaps even local banks.
Never deed your property away to a third party as part of a so-called foreclosure rescue. These are usually scams in which the third party claims to be able to save your home for you. Have your attorney review any and all documents before you sign.
Selling your home and buying it back
Assuming you’ve been a good steward to your home, an investor may be willing to purchase it at the foreclosure auction and then sell it back to you on contract. You can buy back a home using either of the following contracts:
Contract for deed or other seller financing vehicles: With a contract for deed, the seller (in this case, the investor who purchased your property and is selling it back to you) acts as the bank. Instead of using a mortgage to secure interest in the property, the seller/lender retains possession of the property until the buyer fulfills the terms of the contract.
Lease option agreement: With a lease option, you rent the property for a time (usually no more than about two years), at the end of which you have the option but not the obligation to purchase the property. This arrangement usually gives you some time to improve your credit rating so you can afford a conventional mortgage to finance the purchase of the property.
Buying the property back on either type of contract is usually an option if you have some equity in the property and run out of other options; for example, your lender won’t modify your loan, you don’t have enough time to sell it, and you can’t qualify for refinancing.
Work only with reputable investors in your area, and have your attorney review all the paperwork and explain it to you until you fully understand everything in the contract before signing it. Most land contracts and lease option agreements contain a forfeiture clause that could prevent you from purchasing the property unless you meet all the conditions specified. You want to make sure that those conditions are reasonable before you agree to them.
Under certain circumstances, any liens against the property at the time of foreclosure could reattach to it when you buy it back, making you again responsible for paying off the lien holders. To prevent this from occurring, the investor must negotiate with the junior lien holders to release their liens.
Selling your home and renting it back
Bad stuff always seems to happen at the worst times, and foreclosure is no different. Maybe your kids are still in school, or you found a new job in another state but it doesn’t start for two months and you need a place to stay until then. In situations like these, selling to an investor and then renting the property for a short time can be a very attractive solution. Simply put, you sell your home now and move when it’s convenient for you.
As long as you haven’t trashed the premises, an investor may be willing to go along with a deal. After all, it prevents him from having to line up tenants right away.