If you’re struggling to make your mortgage payments, you may want to look into buyback claims and buyback options. You can preserve your credit rating if you work with your lender or a financing company to develop a buyback solution.

What is a Buyback?

A buyback is a contract through which your lender or a financier buys back your home from you, relieving you of your financial obligation. In most cases, you won’t get fair market price for the home, but you can save yourself from serious credit damage.

What is a Buyback Claim?

A buyback claim is what the lender files when it buys back a mortgage that is under water, discounted, or otherwise considered “bad debt”. Since the housing market bubble burst back in 2008, the news has been full of stories of Fannie Mae and Freddie Mac forcing lenders to buy back bad mortgages. This does not always mean the lenders bought the houses back from the homeowners; in most cases, this term is referring to the buying and selling of mortgages on the secondary mortgage market.

How do Buybacks Fit Into Your Options

If you are in financial dire straights and you realize you are not going to be able to make your mortgage payments, you might think foreclosure is your only option. However, you actually have these options:

• A long term loan modification (so you’ll have lower monthly payments) supported by the government-sponsored Making Home Affordable Modification Program
• A short term forbearance, where you get a temporary reprieve from making monthly mortgage payments, but then resume payments at a specified time
• A short term repayment modification, where you restructure your monthly mortgage payments to lower payments for a set period of time and then add back in the extra you owe in order to catch back up
• Selling your home as a short sale, where the lender agrees to work with you as you sell the home for less than you owe on the mortgage
• Asking the lender to buy back your home, possibly as a short sale
• Asking a financing company or third party to buy your home and rent it back to you

Why Would a Lender Agree to a Buyback?

If you talk to your lender before your mortgage is close to foreclosure status, you may be able to work out a reasonable buy back arrangement because:

• Buying the house back from you is less trouble than foreclosing on you
• The lender won’t have to compete with other lenders for the payments like they would if dealing with a bankruptcy or foreclosure
• The lender won’t lose money to tax liens, mechanic liens, or limits placed by homestead protection laws, and therefore may recover more of the price of the home than they would through a foreclosure

What About Third Party Buy and Rent Back Programs?

Financing companies and third parties may be willing to buy your home for the price of what is owed on the mortgage and then rent your home back to you. This offers you the following benefits:

• You get to stay in your home, which saves you emotional and financial moving costs
• You are relieved of the burden of mortgage payments and damage to your credit if you can’t make payments or foreclose

Third party lenders usually perform buy and rent back arrangements if they believe they can:

• Make money in the long run through charging enough rent to compensate for expenses
• Make money in the long run because of equity built up and a profitable sale in the future
• Make money off you later if you buy the home back again, at an inflated price, of course

What About Buyback Scams?

If you choose to sell your home and sign a rent back or rent back to own contract, you’ll want to make sure to research the third party carefully before signing on the dotted line. Be sure to avoid any buyback scammers by checking out the lender’s reputation and asking for proof of legitimacy.

Tips for a Successful Buyback

If you decide you’d like to pursue a buyback from your lender, follow these suggestions:

• Talk to your lender as soon as you know you can’t make payments – Don’t wait until your account is delinquent
• Fill out a hardship form (ask your lender what kind of written documentation they need to prove you are in a state of hardship)
• Explain (in writing and verbally) your situation, pointing out if it is a long-term or short-term hardship, and detailing your plans as a borrower
• Persevere, realizing the lender won’t approve a buyback without being convinced there are no other acceptable options.

A buyback can be a huge relief, especially if you thought your only option was foreclosure. Most people find credit counselors to be particularly helpful when negotiating a buyback. For objection advice, contact a nonprofit credit counseling  organization and ask for guidance as to how to approach a lender about a buyback claim.