73% of first tuesday readers (145 voters) believe Bank of America (BofA) and other private lenders should allow buyers and investors to lease real estate owned properties (REOs) back to former homeowners. 27% of voters (53 votes) disagreed.

In an effort to address the rising backlog of REOs, BofA is discussing:

  • the sale of REOs to investors who will lease them back to the owners/now-turned tenants with no possibility of repurchase; or
  • a deed-for-lease with former owners, selling the properties through shortsale transactions and leasing them back to the former owners without the possibility of repurchase to keep the properties from going through foreclosure.

BofA currently holds 1.1 million mortgages on properties nationally that have been delinquent for 60 days or more. Keeping these homes occupied is a smart idea for all parties involved. Neighborhoods with high foreclosure rates will avoid the blight associated with increased vacancy, and struggling homeowners treated with dignity by lenders through a leaseback agreement with investors will be more likely to buy a home again in the future.

The sincerity of the Federal Housing Finance Agency’s (FHFA’s) recent interest in developing an REO rental program will serve as a litmus test for how seriously this option is being taken by lenders. But since the FHFA has yet to outline the parameters of such a program, don’t expect a leaseback arrangement from any lender anytime soon. [For more information regarding the FHFA’s plans for REO inventory, see the November 2011 first tuesday article, Frannie’s REOs lying around with nowhere to go and the September 2011 first tuesday article, REOs for rent.]

Agents and brokers can raise awareness and show support for an REO rental program by:

  • collectively petitioning (making a demand on) each lender for the elimination of the Affidavit of Arm’s Length Transaction included in all shortsale transactions, which prohibits the lease of a sold REO to a former owner; and
  • pressuring the FHFA to develop a plan to rent REOs to former owners by contacting local congressional representatives. [For more information on the Affidavit of Arm’s Length Transaction, see the November 2011 first tuesday article, Undue restriction: the shortsale leaseback prohibition.]

To cast your vote and read more about BofA’s plans for their REOs, see the January 2012 first tuesday article, BofA: the wayward return of the leaseback.