Renting Back To People In Foreclosure.

[Keith Schulz]

I had somebody that called me today who is in foreclosure, and there's no way they can get caught up on payments. They tried a loan modification and a refinance, and couldn't get either. In any case, they owe $170,000 on a house worth about $220,000. They won't sell there house for $175,000 or less if they have to move out. However, they would be willing to sell it for $175,000 if they can rent it from me, and possibly buy it back a year or two down the road. So, I told them their rent would have to be enough to cover all the PITI in order to make that work.

Has anyone done something like this? I'm thinking I can buy it for $175,000, they come out ahead by $5000, I'll ask for 1st months rent option payment out of that $5000, and then have a 12 month lease option agreement?

Now here's the thing, if they give up all their equity to me they aren't going to want to pay full market value for their house 1 year later. What if I tell them the option amount will be 10% less than appraised value at the time of purchase. Even in a flat market (no appreciation), they'd buy it for $198,000, they'd get to keep there house for a good price, keep the foreclosure off their record, and I'd make $23,000 for doing nothing other than carrying a mortgage.

My concern is if they couldn't keep up with the mortgage, can they keep up with rents. They have been in the house for 7 years though, refinanced a couple of times, and the husband lost his job, but is now working again.

What are your thoughts? Any advice, tips, ideas, or things to watch out for?

Thanks,
Keith