This article is written by Peters and Associates.
I keep seeing ads on television for “Short Sale and Stay.” Can you please explain how that works? — Steve W., Las Vegas
Sure, Steve. Short Sale and Stay (SS&S), also known as Short Sale Buyback, is a program that may allow a person to keep living in the house he or she used to own.
The quick version: You short sell your house to a nonprofit organization, usually a group of investors. That nonprofit rents it back to you for a set amount of time, usually one to six years. Then, if you qualify, you buy it back at an already agreed-upon price, usually 10 to 20 percent more than what you sold it for.
There are some pitfalls to this plan, which is why it is strongly recommended you have an attorney working for you throughout the process.
At our firm, we handle SS&S, but we usually recommend it only as a last resort when all modification and principal reduction options have been exhausted and the homeowner wants one last chance to keep the property.
•After you short sell to the nonprofit, you no longer hold title. In other words, you’re not a homeowner anymore. You’re a renter.
•As a renter, you do not have the same rights as a homeowner. For example, renters can be evicted much easier than owner-occupants.
•The “rent payment” usually is higher than similar rentals in the neighborhood. So you’re paying more rent than you should for the duration of the lease.
•The rent payment is not a house payment. You’re not building equity in the property, and there’s no mortgage interest tax deduction.
•There is no guarantee your bank will let you SS&S, and your lender’s approval is required. Without lender approval, SS&S may be felony mortgage fraud.
•There is no guarantee you can buy your home back.
This last one is the stickler for most people. To buy your home back at the end of the lease, you must qualify for a home loan (or pay cash). That means you’ll need good or great credit, a down payment and meet any other conditions your lender sets for financing.
In addition, the short sale alone will affect your credit score for up to seven years, so you may start at a disadvantage.
The simple fact is this: If you qualify for a short sale via the Home Affordable Foreclosure Alternatives Program (HAFA), which is a requirement for SS&S programs, you probably also qualify for a loan modification and possibly even a principal reduction.
Before you sign over your title, make sure you’ve tried all the other options.
Remember: Attorneys rarely work for free. Someone is paying them, and whoever is footing the bill may influence your case. That means you should be cautious of anyone offering “free attorney-negotiated short sales.” If it sounds too good to be true, it probably is.
Your bank isn’t required to let you short sale and stay. It can force you to short sell and leave.
Please note: The information in this column is intended for general purposes only and is not to be considered legal or professional advice of any kind. You should seek advice that is specific to your problem before taking or refraining from any action and should not rely on the information in this column.