Foreclosures are Avoidable Part 2

So now your behind on your house payment.  That job with the big commission is now further delayed till next year.  You open the mail to find that you owe tens of thousands of dollars on credit cards and your bank account balance just dropped below a thousand dollars.  Your getting the picture.  This was the scenario that my customer Jerry and his family were facing (I changed the names and dollar amounts to protect the innocent).  As an artist, Jerry earned commissions when he sold his works of art.  His wife Diane had a steady office support job that she had been working for over twenty years.  With the downturn in the economy (for Jerry) Diane soon found herself the breadwinner of the family.  Behind on their house payments, the threat of foreclosure seemed inevitable.  Through a mutual colleague I met Jerry at the brink of financial disaster.  Only it wasn’t.  You see Jerry had several patrons that, through the years, had kept his business thriving.  Jerry had done a great job keeping in close touch with his business patrons.  Our  discussion also revealed that Jerry was waiting on five (5) years worth of work that could be commissioned any day now.  Even if only one project was funded it would bring enough income to last for more than a year!  Based on our conversations I believed his best opportunity was two fold.  First, Jerry had to get out of the original loan.  It was in default and the bank was not receiving timely payments.   Second, I requested Jerry reach out to his patrons and ask for a private equity loan.  Based on his earnings projections he we was to ask for a five (5) year loan with a modest 6% interest rate and a payment schedule that would start out low but increase each year till the end of the 5 years.  At the end of the five years Jerry would refinance the loan into his and Diane’s name and the patron would be paid back all of the interest and principal accrued to date.  Although the patron liked the idea, at the last minute they changed their mind.  The patron was concerned that if Jerry got behind in payments again, the patron would be forced to foreclose on  Jerry and Diane.  A scenario the patron could not stomach.  So the patron contacted me and made the suggestion that instead they would buy the house outright, put the house in the name of a trust and then would rent the house back to Jerry and Diane with the right to buy back the property at an agreed upon sum at the end of five (5) years.  That way if Jerry got behind the patron could adjust the rent and would not be forced to foreclose on the couple.  After discussing with Jerry and Diane it was agreed.  I soon drafted a purchase and sale contract for Jerry and Diane to sell the house to the patron’s trust, then executed a lease-with-option-to-buy in the amount that Jerry had just sold the house.  The lease payments were small enough for Diane to cover and, five years and one month later, Jerry and Diane were able to purchase the property back by obtaining a new bank loan.  Will this method always work?  No.  But it did because it was a STANDARD SALE.  You see the banks do not allow a SHORT SALE transaction to occur where the buyer then leases the property back to the debtor (the debtor was Jerry and Diane in this case).  But there is no such restriction with a standard sale.   In my next segment Foreclosures are Avoidable Part 3, I will share a scenario that involved a short sale scenario.

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