Renting/Leasing as a solution to mortgage foreclosure?

According to CNN, Fannie Mae announced last week that it would allow distressed borrowers the opportunity to remain in their home by deeding the property back to the lender and renting the property as tenants:

The effort is aimed at borrowers with mortgages owned or guaranteed by Fannie Mae who do not qualify for or cannot sustain a loan modification. Borrowers must live in the home as their primary residence and must be released from any subordinate liens.

Private lenders have tried similar methods in recent months and years. The idea bears many risks for all parties, as owners may be tempted to rent the property to new tenants or otherwuse violate the residency requirement.

Not all lenders who offer this program to distressed owners are doing so under the supervision of Fannie Mae's program. Many private investors will purchase the home from the distressed owner as a way for the owner to avoid foreclosure or bankruptcy, only to evict the former owner (now tenant) under some pretext shortly afterward.

If you are an owner facing foreclosure, be sure to explore all of your options before entering into this type of arrangement, including bankruptcy. Be aware of how much equity you have in your real estate. Most importantly, be aware that your home is not worth trying to save if you cannot make the payments. If you cannot make the monthly mortgage payment, chances are that you cannot afford the new rental payment either.