Foreclosure 101: The Sale-Leaseback Option

by Donald Hanz on General

Investing in a foreclosure property is currently the rave right now as more and more buyers discover its greater return potential. Among the things you will come across in this field is the sale-leaseback option. Although the idea behind this scheme sounds good, you must first understand it in its entirety if you do not want to be mistaken as a predatory buyer.

Basically, a sale-leaseback option is an agreement between a buyer and a distressed homeowner wherein the buyer will purchase the property but with a provision that allows the homeowner to buy it back after an agreed period. Usually, the homeowner is allowed to stay at the property as a renter.

Although this seems perfectly acceptable, there are certain details that might give you headaches in the future. If the homeowner goes to court, after the period to re-purchase the property has expired, claiming that the agreement was in fact a loan and requests for a re-characterization, you might be charged with violating the Anti-Usury Law. To make matters worse, the ownership of property will be reverted to the homeowner if you are found to be guilty.

In this case, necessary precaution should be practiced when entering into this kind of agreement with the homeowner. Most experts advise that you simply buy the property and get the homeowner to leave. If the homeowner wants to stay, make sure that he will only do so under a lease agreement. This means that no option to re-purchase will be given to him.

In the world of foreclosure investing, there are some things that need to be understood completely if you do want to avoid a costly and inconvenient mistake. It is always best that you study a bit more about the foreclosure process and learn about insider tips from foreclosure experts.