Paul (not his real name) had to relocate for his job. He had planned to sell his house, but it sat vacant for nearly a year.
Meanwhile, home values have plunged in Paul's subdivision since he first put the house on the market.
So, rather than sell now for a rock-bottom price, Paul decided to lease his house until the market recovers.
It sounded like a reasonable approach ... until the Homeowners Association (HoA) got wind of his plan.
The HoA for Paul's subdivision voted a few years ago to prohibit ALL leasing. This anti-leasing provision may have seemed reasonable back when homes were selling fast and mortgages were easy to get. However, in a soft real estate market like this, the "no leasing" rule handcuffs homeowners like Paul who can't sell their home.
Paul asked for our advice.
Two Possible Solutions
We suggested two possible solutions that might be helpful to any homeowner facing a similar situation.
Solution 1 - Request a "Hardship Exception": Many Associations will approve a one-time exception to a rule if the homeowner can demonstrate a compelling reason for the request to be granted.
In this case, Paul showed just how long his house had been on the market while he diligently attempted to get it sold. Also, while the monthly payments and utilities on his vacant house were not completely crushing him, he explained why he could not continue to bear the cost for much longer.
Paul reported back to us. After careful consideration of Paul's request, the HoA told him "No Leasing, No Exceptions!"
Frankly, we were surprised. The Association's decision exposed Paul to the high costs and risks of a vacant house -- no matter how long it took Paul to find a buyer -- when leasing his house for just the next year or two could have solved his problem.
We suggested a second solution.
Solution 2 - Sell with owner financing: Rather than have the house sit vacant, we suggested that Paul SELL his house with owner financing. A sale, not a lease, would present no problem for the HoA.
Paul could sell his house to a would-be-buyer to whom Paul might have considered renting. Let's call them Mr. and Mrs. Goodpayer.
The Goodpayers have solid income, good stable jobs, and an impeccable rental history. They love Paul's house, but they cannot qualify for a bank mortgage right now. Paul could sell his house to the Goodpayers and finance them until they are able to get a bank mortgage. Once Mr. and Mrs. Goodpayer can get a mortgage from a bank, perhaps in 18 – 24 months, then they can refinance to pay Paul off in full.
Meanwhile, the Goodpayers pay Paul every month as their lender, rather than as their landlord.
This is a sophisticated solution, so Paul should have his attorney guide him. He'll need help with structuring the terms for the sale with owner-financing, specifying what both parties are obligated to do, and describing in detail what happens in case something wrong, along with other closing details.
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