A long time ago, I discussed the requirements in New York for a successful deed-in-lieu of foreclosure agreement, also called a mortgage release. The benefits of such an agreement are that the lender is able to resell the property and the borrower is no longer obligated to pay on an ultimately unaffordable mortgage. The question, though, is: What happens after that? Usually the borrower moves out of the house, but sometimes the lender (or whatever entity it sells the home to) will lease the property back to the former owner in a kind of “deed-for-lease” agreement. Is such an agreement a good idea?
Superficially, the answer is yes. Just as with a deed-in-lieu of foreclosure, in a deed-for-lease, the borrower and lender are spared the setbacks of a foreclosure—one that might be needless if there aren’t any buyers around to take the house off the bank’s books. In fact, back in 2012, Citigroup tried such an arrangement with several hundred borrowers, including some in New York, but with a twist: It sold the homes to third-party investors beforehand.
It was a strange setup. The investors it sold the loans to offered the owners the opportunity to lease their homes in exchange for their mortgages, with the typical lease term lasting at least three years. The catch was that nothing motivated the investors from further negotiating with the former owners, giving the investors all the leverage. They had acquired the mortgages for a fraction of their face values, and they had every incentive to put the homes on the market once the leases expired. A few years’ reprieve for the homeowners may have given them time to consolidate their finances or look for new homes, but investors do not have the same kind of needs that homeowners do and they could afford to wait to resell the properties.
The reason Citigroup sold the loans rather than lease the properties itself is that its internal regulators would not allow them to accept the deeds themselves, which was odd because Bank of America created a similar program and kept the loans for itself. It’s possible Citigroup was more concerned with transferring away accountability for its program. It’s not clear what happened to the homeowners in the program.
An article in Fortune discusses Citigroup’s “Home Rental Program.”
Although many struggling homeowners might benefit by offering their deeds for leases, the resulting agreements will be to the landlords’ advantages in the long run. If you are having trouble paying your mortgage, then talking to an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.