Citigroup has been rolling out a new ‘deed-for-lease’ program to delinquent homeowners. Will it help, who will it help and why are they doing it?
Despite improving numbers in the housing market and REO prices rising foreclosures have continued a dramatic surge in many areas of the country. Palm Beach County, FL is a great example of this where foreclosure filings surged over 24% year over year in July and saw an 80% increase in real bank possessions.
While mortgage lenders are speeding up the foreclosure process and are taking back more properties and getting more when they sell them as REOs a glut of vacant and neglected properties isn’t good for anyone. This has lead for many calls to do whatever it takes to keep people in their homes. While lenders may not care about keeping homeowners in their homes, doing so can mean keeping income coming in until these properties can be sold for a large profit.
Bank of America rolled out a program which offered to lease homes back to homeowners if they turned over the deeds to them without a fight. While incredibly controversial in real estate investing circles, Citigroup is now piloting its own similar program in several states.
The mortgages on these homes have often already been sold or plan to be sold or the properties will be sold as rentals once homeowners are converted to tenants. This may appeal to some real estate investment funds that are desperate to put their money to work and desperately need inventory in mass. Plus it helps them eliminate many of the hassles of rehabbing and finding tenants, at least in theory. Unfortunately it still puts a lot of liability on them, doesn’t guarantee property quality and will no doubt result in endless legal battles when ex-homeowners don’t want to leave when these investors cash in on their blooming equity for big profits.
For homeowners the decision to accept such an offer needs to be approached with extreme caution and without the expectation of ever being able to own those homes again.
