Bulletin: MU2019002

Dear Associates:

Recently, a new financing option has emerged for residential homeowners seeking to access cash from the equity of their home, but who may not have access to traditional financing options offered by institutional lenders in the form of mortgages, reverse mortgages or equity lines of credit. This concept, called a “sale-leaseback” transaction, is currently being offered by several companies throughout the United States. The transaction works as follows: 

The buying entity purchases the property and leases the property back to the seller/occupant for a specific term and may offer the seller/occupant an opportunity to re-purchase the home at a future date. The seller/occupant may not receive all the equity at closing. The portion of equity that the seller/occupant receives at the time of sale depends on the terms of the contract and a portion of the equity may be withheld until the seller/occupant moves out of the property or repurchases the property. Although a sale-leaseback transaction may be marketed to a consumer as a financing option to extricate cash from the equity in the home, it is a sale transaction and the seller/occupant divests title ownership of the property at the closing.

These transactions present risks which may not be present in a traditional residential sale transaction. For example, as the transaction is marketed as financing option for a residential homeowner in need of cash, the homeowner may not recognize that the transaction involves a divesture of the fee title to the property. Additionally, as these transactions may be more apt to close as a mail-away transaction with the parties in the transaction not attending an in-person closing, the risk of equity stripping fraud is heightened, whereby a fraudster poses as a homeowner with significant equity in their home and engages with the sale-leaseback company to fraudulently obtain funds. These examples identify just some of the risks involved in the residential sale-leaseback programs.

Accordingly, prior to insuring any transaction involving a sale-leaseback transaction, written Senior Underwriter approval must be obtained.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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