rent back to owner?

I’m itching for my first deal so I may be a bit blind here. Hopefully you all can help me see the light.
Got a call from a lady whos house is scheduled for sale in about 45 days. The house is worth about 160k ARV (10k-15k fix up) and she owes 75k plus 9k in arrears. I spoke to the bank and they want 4k right now and the rest over 12 months. This will bump her payments from about 750 to 1050. She claims she will be able to make those payments, but I get the impression she is not very financially responsible.
My thought was to buy the place sub2 and then rent to own it back to her for 1350 per month, 1050 mortgage+300, for my outlay of 4k. Then at the end of the year sell it back to her for 15k more than what I paid.
Am I crazy or would this work? I have always heard “dont let the owner stay”. And I guess I understand the reasoning behind that. It’s just finally I get a call where the numbers work out. I understand that I would need a CYA/disclosure statement that spelled out every last detail in 3rd grade english terms, as well as a separate rental agreement spelling out the exact terms. If I went through with this I am about 99% sure I would have to evict this tenant before the term was up, which I have no problem doing. At that point I guess I would lose the sub-2, and have to come up with some cash?
I would like to hear some pros and cons for doing this type of deal. Should I just let her goto foreclosure, but hat does not seem right. What would be the best way to structure this transaction so that all involved will be protected? Thanks.

what will you do if she misses payments? I don’t think you’ll have any means to evict her and u won’t be able to foreclose on her.

charge her for a loan modification and move on imo

If she missed a payment could’nt I simply evict since she would be a renter? Please explain further. Thanks.

She is in arrears and you think she’ll pay you MORE each month than what she is currently obligated to pay?

I’d just see if she would Sub2 and give her some u-haul money to move out. Then get a TB’er you know will be able to make the payments.

You had better check the “pre-foreclosure” laws in your state. U-Haul money could land you in big trouble in certain states. This is not true with standard deals, but foreclosure laws are springing up all over. Be careful. In this particular case, I would definitely NOT rent back to this lady.

Da Wiz

Set up a forbearance and RUN not walk RUN! I have done rent backs to people in foreclosure and had the same success rate every time. And that rate has always been 0%

What are the specific reasons why this would be a bad idea? Or perhaps ways in which it did work out.


The first thing that comes to mind is this seller has a history of missing payments. Why would she all of a sudden change her past ways? Too much uncertainty over whether she will all of a sudden change her past ways. There are too many deals without the risk of reselling to someone who has shown she doesn’t make her payments on time.

Right again Bobo! not to mention theres a fine line that you are crossing called equity skimming! And that can be a Felony.

I have little doubt that she will miss her payments once again. To cover my a$$ I would only charge her whatever the mortgage payment would be and the buy back amount would only be 8% above appraised price. That way when it comes time to evict her equity stripping should not be an issue. I figure I would lose 3500-5k total in the eviction process. By that time I would be into a 160k home for about 105k.
As I write this and read about equity stripping and the eviction process the less and less I want to deal with this. Its just with 55k in equity sitting there one gets tempted.
And Bobo since there are too many deals out there for you, just remember I love leftovers.

With almost 33% in equity, I would be hesitant doing this deal even if the lady was making her payments. This type of deal is getting a lot of attention. I can’t speak for anyone except myself, but I just won’t let an owner buy or lease or rent back the property, no matter what. Too many red flags and too many problems. If you do a deal like this, proceed with caution and definitely have a qualified attorney checking the paperwork. Make sure you check your state laws regarding a deal like this. The large amount of equity is a major red flag. Good luck.

Bobo Thanks for the heads up on equity stripping. As I read further I found out the great state of Illinois (home of the land trust…thx Gary) has a law that passed June 1 called the Mortgage Rescue Fraud Act, Il SB2349 (link below). This law will effectively make what I wanted to do illegal and punishible with jail time. Spent two nights in jail and 10’s of thousands in fees. I will never do anything again to put myself in that position.

I can’t believe its legal for the state government to tell a homeowner how much they can sell their private property for. I hope somebody challenges this law as soon as it goes into effect. I wont believe this could stand up in court.

It seems the way around this law which goes into effect Jan 1 2007, is to not let homeowner stay. I am reasonabily sure that I can make the numbers work and be in compliance with the law, but I’m too new to this game to take such risks. I’ll try to get her to move out and if that does not work I’ll wish her luck and tell her my phone will always be on for her…at least until Aug 2 when the bank sells her home.

p.s. If a bank is owed 100k on a 200k home and nobody bids over 100k does the bank have to give the homeowner 82% of fmv. I dont think so.

The way it reads is that if the bank sells the property for say $110k and the home owner owed 82k the bank refunds the difference but after the Realtor fees and the Attorney fees there is nothing left. I have never heard of the home owner getting squat back from the bank has anyone else?

Be very careful, this is a dangerous territory and most likely will hurt your claim against the property in the future. We have seen far too many situations similar to this one with investors trying to do the right thing, and end up on the wrong side of the deal. It rarely, if ever works out.

Best wishes.

Michael Burke