Massachusetts Family Short Sale Leasebacks--A Viable Solution for People Who want to help family members in mortgage-distress

In recent posts, I have suggested that concerned parents or concerned children might help their kids, or parents, by assuming their mortgages to help them out until their fortunes improve. I still believe that this type of approach makes sense, and I am currently working on some mortgage assumptions which do take the pressure off the affected parties.

My firm also has expertise in negotiating, and obtaining, short sales for "under-water" mortgages.

With those type of experiences as a backdrop, it occurred to me that the best of both worlds might be a short-sale accompanied by a lease back to the struggling owners. Perhaps, even a coefficient of having some portion of the "rent" (say 60%) being able to be applied to building up a down payment for a repurchase, and there is a viable solution for all parties involved. It goes without saying that the specific terms of the arrangement will need to be disclosed to the Lender. On the other hand, the Lender is saving a Realtor's fee, and that makes the deal sweeter on a "net realized" basis.

A non-performing loan is off the books. The former Borrower is now a renter, which is probably what he, she or they should be at this point in time. Certainly, the specter of foreclosure is gone. So is the disconnecting effect of moving and changing schools for your children. Perhaps, without the sword dangling over their throats, the Borrowers can be more confident at job interviews and get started with the rest of their life.

On the purchase side, the person helping out is doing so, but leaving the distressed Borrower with some dignity. This is not "something for nothing". The tenant will be expected to pay rent and adhere to the other terms of the Lease, which I would suggest be in writing, and provide for a Security Deposit.

I know this is not a solution for everyone. But, it can make sense for some families, and perhaps, give the Purchaser some tax benefits. It is certainly a far better solution than foreclosure, and it provides practical solution to the "short sale" without a place to move to scenario.