Sale and rent back, also known as mortgage rescue, leaseback, and repossession prevention is not suitable for all people but it can offer a lifeline and the best solution for those in financial difficulty. Owner occupiers who are struggling to pay their mortgage and other debts may find sale and rent back as the best solution to get back on top of their finances and avoid eviction.
However, unfortunately some isolated instances where ‘cowboy’ operators have ripped off property owners have given the industry a bad name. Selling your home is a massive emotional undertaking and the threat of repossession can put a lot of stress on a home owner. The vast majority of sale and rent back operators try and reduce this pressure and offer the best solution for the owner even if it means not selling to them.
However, people in financial difficulty can also be exploited by those unscrupulous operators who see the opportunity to make a quick buck. There are a small number of cases where the transactions have run into difficulties which are either intentionally or unintentionally caused by the sale and rent back company. Some have gone bankrupt after buying and renting back several properties as they were ill prepared for the financial responsibility of owning the property. The result is that they lose ownership of their properties and their tenants may have to move if the new owners want to get new tenants in. Not an intentional outcome, but very stressful to the tenants who thought they could rent their house for as long as they want.
The other type of bad practice is generally lack of transparency through ignorance or telling outright lies. Some operators fail to explain the detail of the transaction so they are understood by the vendor. Fees many be added on to the transaction and a discount larger than that agreed may be taken of the market value of the property. On rare occasions, future rents have not been agreed before the transaction or the length of tenancy made clear.
Whilst these instances may be isolated, they are obviously terrible for those involved. They also do reputation of the industry a great deal of harm. So what can be done? Most people dealing with people who use sale and rent services, including charities and organisations representing tenants, acknowledge that rent back solutions can offer a viable alternative to repossession for some people in some circumstances.
Vendors need to know that the majority of operators are ethical and professional. However, they also need to make sure they look at the detail of the deal and seek independent advice if they are not sure. They should also check if the sale and rent back company is adhering to any code of practices as the one recently put together by the National Landlords Association.
