Foreclosure Scams: The Leaseback

A few weeks ago, I submitted a post about foreclosure scams that was a RE-post from an earlier series. Now, with the government attempting to crack down on foreclosure con-artists, I thought it might be helpful to repost the whole series! You MUST know what to look for when it comes to scams... I had a woman contact me the other day because she was approached by a "service" that would help her apply for the new Obama housing plan for $2800. She asked me if that was a good deal.

*heavy sigh*

EVERYWHERE ON THE NEW HOUSING PLAN WEBSITE... EVERYWHERE... IT STATES THAT IT IS FREE TO APPLY FOR THE PLAN AND THAT ANYONE ASKING YOU FOR A FEE FOR THEIR SERVICES IS PROBABLY A FRAUD.

Now, I am not one to use capital letters excessively, but I really need that point to be driven home. Scam artists are making money hand over fist in this panicked environment. Do not - DO NOT - be a victim!

So, here's the first scam we will review in the series: The Leaseback

Unfortunately, the Leaseback is one of the most popular of the foreclosure scams, because it fills the most common need of the homeowner in distress – the desire to stay in the home they have built.

The Leaseback is also referred to as “selling your home and renting it back” or just “a rent-back option”. The scam works like this:

You deed your home to an investor.
You sign a rental agreement.
The investor may offer you an option of buying the house back in the future (for a higher price than you sold it to them).
The investor takes over the payments – they may even bring your loan current.
The investor pockets the rent you pay.
The investor waits for you to make a mistake.

The slightest mistake, and you are evicted IMMEDIATELY. If you fail to pay your rent on time, or are one penny off the agreed-upon payment amount, you are evicted. If the lease says you cannot hang pictures on the wall, and you hang a photo of your beloved pet, Skippy, you are evicted. If the rental agreement says you need to hand-deliver the rental payment, but you decide to mail it, you are evicted. Any diversion from the lease, you are out on the street. You are legally obligated to leave.

A leaseback, while not always advantageous to the homeowner, is not illegal. There are some states (Maryland, Colorado, Illinois, and Minnesota to name four), however, who have strict regulations to how a leaseback must be structured and documented. Any violation of those regulations, and the vulture is caught!

We'll talk about those regulations in a later post. First, we'll continue reviewing the common foreclosure scams!