(c) 2008 
Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.Homeowners buckling under heavy mortgage debt are resorting to a different kind of relief measure: selling their home and then renting it back from the new owner.
Such sale-leasebacks have been around for decades, but real-estate agents are seeing a small but rising number of people making this move. Often, homeownerscut a deal with family members or bargain- hunting investors to let them stay put after selling their property.
In many cases, such leaseback arrangements are being made when a home's value has fallen so far that the balance owed on the mortgage is more than the house is worth. Banks sometimes are willing to be paid less than the full mortgage on a house as a way for the homeowner to avoid foreclosure.
The maneuver could make financial sense for some, especially those who are barely meeting their mortgage payments or are in danger of defaulting on their loan. Both investors and sellers, however, need to consider the tax implicationsand potential complications that could backfire on them. Families also need to be prepared for potentially uncomfortable situations: It's a lot easier for Junior to avoid paying Mom and Dad than a complete stranger.
Buyers and sellers both come out ahead under leaseback deals, says Linda Rheinberger, treasurer of the Nevada Association of Realtors in Las Vegas. Investors buying such homes can wait to resell until the market picks up, and they don't need to renovate the property to rent it. The homes also don't sit empty.
Debt-burdened sellers, meanwhile, can remain in their neighborhoods and don't have to worry about not having adequate credit to immediately get another mortgage or lease.
Joe Cusumano, president elect of the Inland Valleys Association of Realtors, which includes 26 California cities, says that "it makes total sense to do this" in his part of the country.
He is seeing family members, typically parents, trying to rescue children, who spent too much on a home when the market was high and now can't afford their mortgages because of interest-rate resets.
Mr. Cusumano says it isn't unusual for family members to buy a house for significantly less than the seller paid a few years ago. A couple in their 30s, for example, recently sold a five-bedroom house they had bought for $600,000 in Riverside, Calif., to their parents for $345,000, he says.
Because it is now an investment property, the parents had to put down 20% and charge their children the going rate of $1,500 for rent. Mr. Cusumano says it isn't unusual in California for sellers to spend less on rent than they did on their mortgage, but they no longer have the benefit of a tax deduction.
Other real-estate experts, however, caution that renters may not come out ahead in many cases. "In most of the country, the seller will pay the same or possibly more for rent," says Vena Jones-Cox, who owns a real estate firm in Cincinnati and teaches classes to investors. "If you can't afford the mortgage, how can you afford the rent?"
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