Foreclosure Home News and Opinion Avoid Foreclosure with Deed for Lease

Lose Your Home, Lease it Back from the Bank

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Banks are getting more creative in their quest to avoid the f-word.

First it was short sales as an alternative to foreclosure, with banks offering anywhere from a few thousand dollars to tens of thousands of dollars to motivate some underwater homeowners to agree to a short sale — which allows the bank to wash their hands of the non-performing loan and not go through the increasingly long and costly foreclosure process.

That short sale strategy seems to be working, at least to a certain extent. Pre-foreclosure sales — typically short sales — hit a three-year high in the first quarter of 2012, and continued at a relatively high level in the second quarter.

But lenders are certainly looking at other options. One of the more recent of these is a deed-for-lease option where the distressed homeowner agrees to give ownership of their home to the bank — or other mortgage holder —in return for the right to lease back the property for a set period. Bank of America and Citi are both testing different variations of this type of program, and in the video clip below CBS News interviews one former homeowner who is participating in the BofA program.

I say it in a nicer way in the video segment, but at the end of the day these types of programs basically amount to putting lipstick on a pig. While these programs may be a good alternative for some severely underwater homeowners who have no hope of ever regaining the equity in their homes, ultimately the end result is the same as foreclosure: the homeowner loses the property.

Meanwhile, short sales completed before the distressed homeowner even started the foreclosure process increased 18 percent in the first five months of the year compared to the same timeframe in 2011. That’s a sign that banks are even more aggressively promoting short sales to distressed homeowners even before the foreclosure process has begun.

Loan modifications as an alternative to foreclosure have also gained some traction in recent years, but banks still prefer short sales as a method to forgiving any debt owed them. Just look at the recent national mortgage settlement progress report issued by the Monitor of the mortgage settlement, which required the nation’s five largest lenders to provide $25 billion in various form of relief to distressed homeowners — including $17 billion in mortgage debt forgiveness.

Of the $10.56 billion in consumer relief already offered by the banks in the first four months since the settlement was finalized, the vast majority, $8.66 billion has been in the form of completed short sales.

Search pre-foreclosure short sales, scheduled foreclosure auctions and bank-owned homes nationwide on RealtyTrac.

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