The Rental Alternative to Foreclosure

FOR homeowners who have been buffeted about by the foreclosure process, the suggestion that they willingly hand their deed to the lender and rent the home instead may only add insult to injury.

But such an alternative to foreclosure — variously called “deed for lease” or “mortgage to lease” — is an option for a select few. Fannie Mae introduced a rent-back program in 2009, and this year, both Bank of America and CitiMortgage announced that they would try a similar approach in a handful of markets.

The programs are basically an extension of what’s known as “deed in lieu of foreclosure.” In this process, the lender agrees not to foreclose if the homeowners simply hand over the deed to their property.

The new element is a rental option: after relinquishing the deed, homeowners who meet certain requirements may sign a lease to stay on as renters for one to three years (depending on the lender).

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