The Foreclosure Lease Back Goes Hollywood

Today Donald Trump announced that he was going to save Ed McMahon from foreclosure. Ed had previously announced that he was losing his house because of lots of divorces basically.

So in a foreclosure lease back what happens is the investor (The Donald) steps in and either buys the house or brings the note current and does a subject-to deal. ( Click here for Kevin’s class on Lease Options and Subject To Investing.)

Then he rents the house back to the original owner (Johnny Carson’s sidekick).

This is a great strategy BUT, like anything, comes with some baggage. The biggest being that some areas are trying to outlaw this type of investing because it has been abused.

In fact, there was a guy here in Denver named Ryan Searle that did this strategy on a big scale and got in big trouble a few years back. He would advertise a foreclosure “cure” then get the homeowner to sign over the deed to the property and sign a rental agreement.

The problems happened when the “tenant” was late on their rent and were evicted. Ryan kicked them out of the house and sold their properties keeping all of the proceeds.

Ryan said he made up all the back payments to bring the loan current and he was entitled to give them the boot when they didn’t pay.

The homeowner/renter said that he stole their house and their equity.

So, moral of the story is that this is still a good strategy if you are a foreclosure investor with some money to put into deals IF you tread very carefully with the tenant. Maybe some sort of an equity sharing agreement would cast you in a better light if you ever had to go before a jury.

Let’s just hope for Trump’s sake that McMahon pays his rent!