Sale-Leaseback

Sam · Posted: Sun Apr 04, 2004 11:23 pm Post subject: Sale-Leaseback

Sale-Leaseback is a financing technique in which a property is sold off to an investor who holds the title of ownership and leases the property back to the previous owner. The seller has the option of repurchasing the property after a long period. The landlord or the buyer gets the tax benefit of depreciation in this regard. He also receives guaranteed rental payments for the entire period of lease.

Recharacterization when the seller or tenant is in heavy debts:

In case the seller fails to make the monthly payments on the lease, the buyer may force him to leave the property and also take away his interest in the property. In such situations, the seller may file bankruptcy under the provisions of which, the sale-leaseback will be converted into a financing transaction. At the agreement of the Bankruptcy Court, the transaction will be taken as a mortgage with the buyer being the mortgagee. After the mortgage is paid off, the seller will get back the title of ownership of the property.

The Bankruptcy Court considers a number of factors to determine whether the sale leaseback can be transformed into a financing arrangement.

Whether the seller had previously been offered a loan from the buyer.
Whether the situation demands a normal sale and lease arrangement or it requires a lender/ borrower transaction.
Whether the purchase price is similar to the fair market value of the property or if it was increased to finance the transaction.
Whether the lease reflects the fair market value of the property or if it was based on amortization and the rate of return on the buyer's investment.

Recharacterization for tax payments:

When either party in a sale leaseback is audited, the Internal Revenue Service (IRS) will recharacterize the sale-leaseback as a financing mechanism. In that case, there will be no tax deduction for his rental payments; rather the payments will be treated as principal repayment of a home loan.

Guest

information concerning a quick sale of property to stop foreclosure and then a bond for title in order for the seller to keep property. can you explain this? Very Happy

Guest

Hi,

A Foreclosure Prevention Service can help to deal with the foreclosure process. By the law, you have the right to occupy the property for a certain period of time. If you fail to pay the total amount owed, then you need a legal review of your situation, your rights, and your choices before you take any decision. You can consider the following options to prevent foreclosure and protect yourself and your family.

Forbearance:

The lender stops or postpones the foreclosure. This is usually done when the homeowner makes satisfactory arrangements in order to pay off the overdue mortgage payments.

Modification in the loan:

You can negotiate with the lender in order to modify the terms and conditions of the loan. The lender may adjust the interest rate, extend the loan period or add the overdue payments onto the principal loan balance that is to be repaid over time.

Sale Of The Property:

If a homeowner is unable to negotiate with the lender, or find a suitable solution to avoid foreclosure, then he should consider selling his property to an investor who can make a "quick closing". But the sale price of the home will be less than the fair market value. Even then, it will benefit him because it is a quick sale requiring no real estate commission. The homeowner in this case does not have to provide the money for doing the repair work, or spend time putting the house in perfect shape. This kind of a sale is called "As is" sale. By selling the house "As is" to an investor, homeowner gets a quick sale that allows him to avoid foreclosure and hence prevents his credit score from getting a negative impact.

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