Underwater Homeowner Uses Short Sale, Leaseback Deal To Shed Onerous Bank Debt While Retaining Possession Of Property & Future Right To Repurchase

In Akron, Ohio, WKYC-TV Channel 3 reports:

• Dave Droge had few options when he lost his job in 2008. So he took a chance, a risk that not only kept his family from losing its home to foreclosure but also helped reduce a mammoth debt he likely never would pay off. "I had to either refinance or sell the home or I'd lose it," he said.

• Droge applied for help with American Homeowner Preservation (AHP), a private group that came to Akron 18 months ago offering to help whose mortgages were under water -- owing more than their homes were worth -- a chance to reduce their debt. AHP's plan, which was called too risky by Summit County leaders and others,(1) allowed the group to negotiate a buyout of underwater mortgages with a written commitment to sell the home back to home owner at a reduced rate within five years.

• Droge owed nearly $200,000 on his home, valued at just $160,000. After taking a risk with the AHP program, Droge's home recently closed on a short sale at $51,000. While it's now owned by a private investor, the home is under contract that allows Droge to buy it back within five years at a cost of $59-65,000, less than a third of what he once owed.

For more, see Akron man takes chance, saves home from foreclosure.

(1) Presumably, the plan was considered risky because lenders who OK short sales combined with a leaseback and buyback option are probably doing so unwittingly, being kept in the dark about the short sellers' continuing possession of the premises, and their retention of an option to buy back the home in the future at an amount significantly lower than what the lender is owed. Failure to fully disclose any contemporaneous side deals to the lender/loan servicer approving the short sale, or any lender financing the short sale, could land the participants in these deals in hot water. See:

• U.S. Attorney (Bridgeport, Connecticut) press release: Two Connecticut Real Estate Agents Charged with Engaging In Short Sale Mortgage Fraud Schemes (Feds indict two in alleged short sale flipping scam using straw buyers to dupe lenders into accepting less than full payment on underwater loans),
• U.S. Attorney (Manhattan/NYC) press release: Four Indicted In $3 Million Mortgage Fraud And Foreclosure Rescue Scheme (Feds describe short sale flipping deals and sale leaseback foreclosure rescue arrangements in one recent indictment of ten suspects; for the indictment, see U.S. v. Bills, et al.),
• U.S. Attorney (Phoenix, Arizona) press release: Foreclosure-Rescue Schemers Indicted (Feds indict pair in alleged scheme abusing HUD "short sale" program to pocket illegal profits by flipping homes facing foreclosure).

See also, The Stockton Record: Home program savior or sketchy? (Buyback investor deals risky, some experts say).