Can You Rent From The Bank To Avoid Foreclosure? What Underwater Homeowners Need To Know

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Homeowners who are seeking underwater mortgage help might be intrigued by a new program from Bank of American (BOA) designed to help people avoid foreclosure. BOA's mortgage-to-lease program is an initiative that allows certain homeowners to hand over the deed to their property to the bank while remaining in the home as a renter. It's an interesting approach addressing the problem of mortgage default, but it's not for everyone. Here are some answers to some commonly asked questions about renting from the bank.

How does rent-to-lease work? Basically, if a homeowner is facing mortgage default, they may have the option of handing over the deed to their home to the bank. (This is called "deed-in-lieu" of foreclosure.) In return, the homeowner gets to sign a lease that allows them to rent the home at a market rate from the bank, which is usually less than the homeowner's monthly mortgage payment.

What are the advantages of rent-to-lease? Depending on your situation, renting from the bank could have a number of advantages. If you want to stay in your home because you like the neighborhood or want to keep your children in the same school district, turning over the deed to the home and becoming a renter could allow you to get out from an underwater mortgage and avoid foreclosure while maintaining stability for your family. Rent-to-lease also helps prevent the problem of vacant foreclosed homes, which tend to drag down surrounding property values and attract crime. In theory, mortgage-to-lease could promote safer, more stable neighborhoods, which is a plus for everyone.

What are the disadvantages of rent-to-lease? Handing over the deed to your home in lieu of foreclosure is going to hurt your credit. While the impact won't be as negative as a foreclosure, your credit score is still going to drop. In addition, a mortgage-to-lease agreement may come with certain restrictions, such as time limits on how long you can rent the home from the bank. Be sure you understand what you're getting into before you sign any agreement with your lender.

Who is eligible? Bank of America's mortgage-to-lease initiative is a pilot program. It's been rolled out to about 1,000 struggling homeowners in three states (Arizona, Nevada and New York) so far. More people seeking underwater mortgage help may be eligible in the future, but as it stands now, BOA has to invite you to participatethere's no way to apply.

Do other lenders have a rent-to-lease program? You'll need to check with your lender yourself to find out if rent-to-lease is an option for you. For example, if your mortgage is owned by Fannie Mae, you may be able to participate in its deed-for-lease program, which is similar to the program offered by Bank of America.

While becoming the bank's tenant could be a good choice for some, it's not a decision to be made lightly. That's why Homeowner 101 offers the Underwater Homeowners Assessment and Action Plan. We'll work with you to evaluate all your underwater mortgage options and help you choose the path forward that makes the most sense for your situation.

Homeowner 101 is an organization designed to give underwater homeowners Answers, Information, and Resources (A.I.R.). We offer the Underwater Homeowners Assessment and Action Plan, a resource for every homeowner who owes more than her house is worth whether youre having trouble making your mortgage payment or not.

by: Molly Castelazo

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