Not all buyers of short sales are families who are simply searching for a good deal. Many short sale buyers are investors who intend to either fix up and sell the property or use the home as a rental. If you're facing a short sale yet hate the idea of leaving the home you love, it may seem prudent to ask the buyer if you can remain in the home and pay him rent after the deal closes. If the buyer intends to use the home as a rental, he gets a built-in tenant and you get spared the stress of moving. Unfortunately, banks rarely see it that way, and your lender will likely do everything within its power to prevent this from happening.
Renting After Closing
A bank may agree to your short sale, but that doesn't mean it benefits from it – quite the opposite. The bank allows you to sell your home for less than you owe on the mortgage merely to spare itself the time and money involved in foreclosing on the home. Although the bank can pursue you for the remaining mortgage balance after the short sale is complete, the bank has no guarantee that it will be successful. From a financial standpoint, your short sale is a loss for the lender. Banks do not allow homeowners to remain in their homes after a short sale transaction is complete, nor will they approve a short sale if the homeowner intends to rent from the buyer.
Agreement to Vacate
Even if the bank's intentions are clear, that alone doesn't stop homeowners from attempting to rent back their own homes after a short sale. Thus, your bank will provide you with an addendum certification to sign. In the addendum certification, you must agree to vacate the home prior to closing. Your bank is likely to take this a step further to prevent you from moving out of the home and then moving back in after closing. Before the short sale can close, your lender will generally require that both you and the buyer sign agreements noting that no transaction will take place between you after closing is complete.
Your lender's unwillingness to let you remain in your home and rent after a short sale isn't personal – its a matter of fraud prevention. Short sale fraud comes in many forms, but often requires the cooperation of both the buyer and the seller to dupe the bank. Banks reduce the likelihood of short sale fraud by insisting that the short sale remain an “at arms length” transaction. Such transactions require that the buyer and seller are not related in any way and have no private agreements. By keeping the transaction as transparent as possible, banks can reduce fraudulent transactions and minimize losses.
Your lender may not allow you to rent back your home from a private buyer, but that doesn't mean that you can't rent back your home at all. In 2011, the U.S. Treasury approved modifications to the Home Affordable Foreclosure Alternatives program allowing banks to approve short sales to non-profit organizations that would then rent the homes back to the former homeowners. If your bank approves a short sale under the new guidelines, you must agree to remain in the home for a minimum of three years. You must work with a real estate agent who is certified by the Short Sale Lease-Back program and attend financial literacy classes to ensure you understand the process before moving forward with the sale. After your credit recovers from the short sale, you have the option of repurchasing the property.
- CNN Money: You Lost Your House – But You Still Have to Pay
- Realtor.com: Is it Legal to Rent My Home Back From the Buyer After a Short Sale?
- Real Estate Insider News: National Association of Realtors Alert – Short Sale Fraud Warning
- The Press-Enterprise: Short Sale Lease-Back Program Ramps Up
- Internal Revenue Service. "Home Foreclosure and Debt Forgiveness." Accessed Mar. 3, 2020.
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.