There is a new idea for distressed properties being tried in our community. Instead of foreclosure, the property is sold to investors as a short sale–for less than the owners owe on the property. But this short sale is different: the buyers and sellers enter in to an agreement allowing the sellers to rent back the property for a fair market rental rate, including taxes, insurance, and utilities and property maintenance for 2-5 years. At the end of that time the original owners can buy the property back for a preagreed price higher than the short sale price but less than the original property debt.
A variation on this would be for the mortgage holder (the bank) to foreclose on the property, but to agree to lease the property back to the former owners for a few years until market prices recover, perhaps allowing the original owner to buy the property back from the bank at a later time.
The benefits are that the property would remain occupied and maintained, and perhaps the new investors would make a profit, or the bank would lose less money than in a foreclosure and sale. What is not clear is whether there are current owners who can afford the fair market lease payments on their properties, and whether banks would be interested in becoming landlords.
There is interest in the proposal in Congress with bills under consideration that would allow for banks to participate in such arrangements.