- May 20, 2019
- All Issuing Offices except Texas
- UNDERWRITING - Residential Sale-Leaseback Transactions
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.
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THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- Underwriting Manual:
- 18.00 Sale-Leaseback Transactions
- Exceptions Manual: