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Sale leasebacks offer homeowners a chance to retain their properties


By Charles J. Kovaleski

In 2007, 1.5 million U.S. homeowners began the foreclosure process and that number may hit nearly 2.5 million this year. Many borrowers, who also are under pressure from increasing food and fuel costs, are unable to keep up with the combination of ever-rising mortgage rates and declining prices. In many instances, consumers owe more than their homes are worth.

In an effort to find economic stability, many home and business owners are turning to sale leasebacks as one option to retain ownership of their properties.

The idea is simple: an owner sells his or her home and then leases it back from the new owner in hopes of paying a smaller monthly rent compared to the existing mortgage cost, thereby avoiding foreclosure and keeping a place to live. Sale leasebacks have been taking place for decades, however, more people have been choosing this option in recent months.
 Homeowners often make a deal with family members or investors to let them stay put after selling their property. Consumers can obtain maximum protection by having their real estate attorney review the paperwork.

According to National Real Estate Investor magazine, this trend especially was popular in corporate America in the mid-1990s when companies became more aware of financial expansion opportunities for their business and purchased new equipment, invested in new business opportunities and/or managed debt to improve the company's balance sheet.

Here are a few key points to consider when considering a sale leaseback:

Feasiblity: The financial incentive for the buyer will only be realized if the rent charged is sufficient to cover the expense involved. A homeowner who has trouble making a mortgage payment may not be able to afford a rent that's high enough to cover the new buyer's own mortgage payment—especially in a climate of rising mortgage rates.

Tax implications: Homeowners definitely need to consider the tax implications before choosing a leaseback option. Before opting for a sale leaseback, the homeowner should figure out how much tax needs to be paid from the proceeds of the sale and then incorporate those numbers into the decision.

Personal relationship feuds: Sale leasebacks often are executed between family members, so it's important to create and maintain solid legal contracts. A real estate attorney can help. Disputes often arise in such arrangements because one party member fails to uphold his end of the agreement. Without legally binding agreements, this can become a relationship nightmare.
CHARLES J. KOVALESKI
is president of Attorneys’ Title Insurance Fund, Inc. (The Fund), the leading title insurer in Florida and the sixth largest title insurance company in the country. Acknowledged as the Florida residential real estate expert, The Fund has been in business for more than 50 years and supports a network of more than 6,000 attorney agents statewide who practice real estate law. The Fund, based in Orlando, underwrites more than 300,000 title insurance policies for owners and lenders in Florida every year. For more information, visit www.fundhomeinfo.com.
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