If you're talking about buying a property and then leasing it back to the original sellers, then I can help.
It's simple really. DON'T DO IT!
I hope that is clear enough. Though this may look like a good idea on the surface, there are simply too many potential problems (both legal and financial) to ever make it a good deal. Yes, some people do do this, but the only investors that I've personally known that has had any success with it (ie not getting burned, or worse, their butts sued off), have been very experienced investors (who also have enough insurance/protection to cover the possible lawsuits)
Right question, John. Sale/leasebacks are done all the time in commercial real estate and even occasionally in residential without problems. I think SSP and the Raj have jumped the gun to advise against this deal without any info about what the deal is.
As to how to structure such a deal its basicly very simple. A sales contract and a lease contract. Both are standard forms both are negotiated at the same time (sales price is often at least in part a function of the lease price). The lease is executed at the closing table for the sale/purchase.
I've got the same question as the previous poster. Is this residential or commercial? For a commercial property, with a decent tenant, sale-leasebacks are money! Little or no risk at all, tenant takes care of everything, you just collect the rents...
I suspect that SSP and the Raj are reacting out of experiences of homeowners who are loosing their houses from one form of foreclosure or another (I see this deal most often with tax buyers). The investor buys the house (either from the seller or as a result of judicial action) and then leases it back to the prior homeowner as a tenant usually with an option for them to purchase at a price which makes the investor a decent return.
Unfortunately unless something has happened in the homeowners situation to cure the causes of the original default they are almost never able to perform under the leaseback agreement either. So the investor ends up trying to evict. Only now the tenant/previously homeowner makes all sorts of counterclaims and affirmative defenses arising out of the original transaction. It does tend to get messy.
None-the-less I know a number of companies that continue to do business this way. As I said most of them are tax buyers and I susupect that part of the situation is that their basis in the deal is so relatively small that they can afford the legal hassles.
But perhaps I should let SSP and the Raj speak for themselves.
This is a residential single family home. The owner is in foreclosure and is about 6 months in arears. The owner has now started working again and can afford to make payments but cannot afford to cure the loan which is over 20K. There is about 100K worth of equity in the home which makes for a good cushion incase I need to evict.
I don't really understand what issues or recorse the owner has? If she sold the home and title is in my name, it is no longer her home. She now only has the first option to buy the home within a specific agreed upon time frame and price. Or so I think? If she does not excersize her right to buy the home back, doesn't she forfit her option?
Some other questions:
Why would it get messy?
Are there any legal forms on this site that you think I can use to help me structure this deal?
Is there anyone on this board that has done a Sale Leaseback successfully that I can contact?
I am not arguing for the lender here, I am an investor.
When the property goes to auction because the seller broke the terms of a "legal and binding contract" with the lender and is recognized everywhere as such.
The property may sell for more than the payoff balance at auction, this money goes to the person who was foreclosed on. This would be only one point that had they let it go to auction they would have come out farther ahead than the deal the investor offered them.
You as an investor are not in the same postion as a lender, your argument for investors does not apply in this situation.
I am only pointing out that this has happened in cases similiar to yours, this is all anyone who has done creative investing is trying to point out.
Some states have viewed this as a violation of usury laws (though I'm unsure of how they calculate this and reach that conclusion). I would not risk it if dealing with a residential client, especially if a preforeclosure. Some earlier RE GURUs have gone to prison for teaching this method.
I'll chime in. I stand by my intial comment. Sure, a SLB is possible.
I've done them, though none recently.
In the case of preforeclosure, short sales... proposed SLBs are in violation to short sale approval.
My recent experience includes working with my state's attorney general's office, and US Attorney's office investigating allegations of untoward realty and financial transactions.
Are SLBs wrong? No. Are they illegal? No. Are they viewed favorably by Judges who hear complaints from (former) Homeowners who now face eviction?
No. Judges aren't investor friendly in these situations.... and review with a fine tooth comb....looking for any reason to rescind the transactions as 'predatory'.
I concur. What you said makes sense. My take is that, in the very least, if something goes wrong, you will have to foreclose. Who would have more of an equitable interest claim than the former owner???
SLBs can be problematic.. and unless as last resort, and/or with a family member... should not be considered.
Feel free to email me to prequalify the situation.
[addsig]
If you're talking about buying a property and then leasing it back to the original sellers, then I can help.
It's simple really. DON'T DO IT!
I hope that is clear enough. Though this may look like a good idea on the surface, there are simply too many potential problems (both legal and financial) to ever make it a good deal. Yes, some people do do this, but the only investors that I've personally known that has had any success with it (ie not getting burned, or worse, their butts sued off), have been very experienced investors (who also have enough insurance/protection to cover the possible lawsuits)
Roger
Is this a residential or commercial deal?
John
[addsig]
Right question, John. Sale/leasebacks are done all the time in commercial real estate and even occasionally in residential without problems. I think SSP and the Raj have jumped the gun to advise against this deal without any info about what the deal is.
As to how to structure such a deal its basicly very simple. A sales contract and a lease contract. Both are standard forms both are negotiated at the same time (sales price is often at least in part a function of the lease price). The lease is executed at the closing table for the sale/purchase.
I've got the same question as the previous poster. Is this residential or commercial? For a commercial property, with a decent tenant, sale-leasebacks are money! Little or no risk at all, tenant takes care of everything, you just collect the rents...
Chet,
I suspect that SSP and the Raj are reacting out of experiences of homeowners who are loosing their houses from one form of foreclosure or another (I see this deal most often with tax buyers). The investor buys the house (either from the seller or as a result of judicial action) and then leases it back to the prior homeowner as a tenant usually with an option for them to purchase at a price which makes the investor a decent return.
Unfortunately unless something has happened in the homeowners situation to cure the causes of the original default they are almost never able to perform under the leaseback agreement either. So the investor ends up trying to evict. Only now the tenant/previously homeowner makes all sorts of counterclaims and affirmative defenses arising out of the original transaction. It does tend to get messy.
None-the-less I know a number of companies that continue to do business this way. As I said most of them are tax buyers and I susupect that part of the situation is that their basis in the deal is so relatively small that they can afford the legal hassles.
But perhaps I should let SSP and the Raj speak for themselves.
Thank you so much for responding.
This is a residential single family home. The owner is in foreclosure and is about 6 months in arears. The owner has now started working again and can afford to make payments but cannot afford to cure the loan which is over 20K. There is about 100K worth of equity in the home which makes for a good cushion incase I need to evict.
I don't really understand what issues or recorse the owner has? If she sold the home and title is in my name, it is no longer her home. She now only has the first option to buy the home within a specific agreed upon time frame and price. Or so I think? If she does not excersize her right to buy the home back, doesn't she forfit her option?
Some other questions:
Why would it get messy?
Are there any legal forms on this site that you think I can use to help me structure this deal?
Is there anyone on this board that has done a Sale Leaseback successfully that I can contact?
Thanks so much everyone!!!
dshnaidman,
Maybe what SSP and Raj were referring to is:
"Unjust Enrichment"
In contract law, when one party has gained a windfall at the expense of the other party. The unjustly enriched party can be forced to pay restitution.
This may or may not apply, but it could happen when $100K is at stake.
John $Cash$ Locke
[addsig]
So...the bank taking the house over is "just enrichment?"
The owner has no other option at the moment. Lose the home and equity to the lender or get help from an investor.
dshnaidman,
I am not arguing for the lender here, I am an investor.
When the property goes to auction because the seller broke the terms of a "legal and binding contract" with the lender and is recognized everywhere as such.
The property may sell for more than the payoff balance at auction, this money goes to the person who was foreclosed on. This would be only one point that had they let it go to auction they would have come out farther ahead than the deal the investor offered them.
You as an investor are not in the same postion as a lender, your argument for investors does not apply in this situation.
I am only pointing out that this has happened in cases similiar to yours, this is all anyone who has done creative investing is trying to point out.
John $Cash$ Locke
[addsig]
Some states have viewed this as a violation of usury laws (though I'm unsure of how they calculate this and reach that conclusion). I would not risk it if dealing with a residential client, especially if a preforeclosure. Some earlier RE GURUs have gone to prison for teaching this method.
I'll chime in. I stand by my intial comment. Sure, a SLB is possible.
I've done them, though none recently.
In the case of preforeclosure, short sales... proposed SLBs are in violation to short sale approval.
My recent experience includes working with my state's attorney general's office, and US Attorney's office investigating allegations of untoward realty and financial transactions.
Are SLBs wrong? No. Are they illegal? No. Are they viewed favorably by Judges who hear complaints from (former) Homeowners who now face eviction?
No. Judges aren't investor friendly in these situations.... and review with a fine tooth comb....looking for any reason to rescind the transactions as 'predatory'.
I concur. What you said makes sense. My take is that, in the very least, if something goes wrong, you will have to foreclose. Who would have more of an equitable interest claim than the former owner???