CMPS News Flash!!

Chances are that someone you know has either lost their home or is facing the prospect of losing their home to foreclosure. Here are three creative housing solutions that can be explored in these situations:

Temporary Gifts or Loans from Loved Ones
If the cash flow problem or financial turmoil is temporary, a gift or loan from friends and relatives could be just the right solution. In the case of gifts, make sure the transaction is structured in such a way as to avoid the gift tax. This can be done by utilizing the $13,000 annual gift tax exclusion and/or the $1 million lifetime gift tax exclusion.

In the case of inter-family loans, make sure the transaction is structured in such a way as to avoid being classified as a gift for tax purposes. This can be done by agreeing to have the funds repaid over a certain period of time, at a certain interest rate that is at least equal to or greater than the "federal rate".

The federal rate is updated periodically by the IRS and is currently in the neighborhood of 4.3% for long term loans.

Sale-Leaseback
If you currently own the home and are simply experiencing some cash flow difficulties, you may consider selling the home to an investor and then leasing it back by paying rent. One benefit of this strategy is that you can potentially cash out some of the equity remaining in your home even though you may not qualify for a refinance. For example, consider a home that is worth $200,000. If you currently owe $100,000, you have $100,000 of equity remaining in the home. However, if you recently lost your job, or had an unexpected financial disaster occur in your life, you may not qualify to access that $100,000 of equity by refinancing your mortgage. Why should lose all that equity, go into foreclosure, or otherwise be forced to move?

One option could be to find an investor who is willing to buy the home for say, $180,000, and then lease it back to you over a 2-3 year timeframe. You could pay rent for the next few years, continue living in the home, and then purchase the property back from the investor at say, $200,000. The benefit to you is that you cashed out some of your home equity now, you don't have to move and uproot your family, and you have the option to buy back the home when your financial situation improves. The benefit to the investor is that they are buying a property slightly below market, they already have a built-in tenant, and they have an exit strategy by agreeing upfront to sell you the property back at a profit within a few years.

The risk to the investor is that you walk away and stop making your rent payments. The risk to you is that the investor defaults on their mortgage and goes into foreclosure, causing you to lose your ability to buy back the home or otherwise leaving you with the prospect of having to move out. In either case, it is smart to structure this type of transaction with the help and guidance of a qualified real estate attorney who is familiar with the laws of your state.

Rent-to-Own
If you've already lost your home and are currently renting or living with friends or relatives, you may consider a rent-to-own opportunity. This is where you rent a home with the option of buying it a pre-determined price at some point in the future. A qualified mortgage or real estate professional can help you implement one of the many variations of this strategy that would work best in your situation. Again, it is always smart to structure this type of transaction with the help and guidance of a qualified real estate attorney who is familiar with the laws of your state.