Renting a property in foreclosure

freedomwon

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Oct 30, 2010
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This thread will open up for discussion whether it is legal, not legal, right or wrong, ethical or unethical for a homeowner to purposely put tenants in a home that is in foreclosure.
 

Housebroken13

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Jul 17, 2009
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I was actually thinking of doing this since I have about over a year till foreclosure, we were going to find a nice rental home and rent our current home for a year lease to someone and collect the $$$. My wife thinks I'm nuts but it's not a bad concept. It's not unethical especially if you give the renter a great deal. I owe BAC nothing on my home since it was discharged in a Chapter 7 in 2009.
 

RyanJP

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Mar 31, 2010
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I see nothing wrong with it... The bank doesn't lose out on anything, because after the foreclosure is complete, the renters simply begin making their payments to the bank instead of you.

Nothing is keeping the bank from selling the property again to get it off their hands.
 

Evan Bedard

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Aug 26, 2007
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Yes I couldn't agree more, I find nothing unethical about this situation.. As long as the renters are aware the property is going to foreclosure and you give them a good deal on their month-to-month rent, it's a win-win situation for both parties:)
 

TomEason

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Jun 18, 2009
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my two cents

There is no legal requirement, in any state, to disclose to a prospective tenant that the property’s owner and landlord might eventually be foreclosed on. Furthermore, a foreclosure is often a good situation and financial windfall for the tenant. Why do I say that? Because the federal Protecting Tenants at Foreclosure Act of May 2009 provides that post foreclosure, the new owner must provide at least a 90-day notice to vacate.

Even more favorable for those tenants with a lease, the new post foreclosure owner must agree to honor that lease through the end of its term. And, the probability exists that, due to confusion created by the change of ownership, the tenant will be able to skate on some rent. A friendly pre-foreclosure owner might also elect to do the tenant a favor in lowering the rent by re-writing said lease. The owner won’t benefit in so doing; only the tenant will enjoy that benefit.

And to boot, the tenants might be able to take advantage of C4K when they agree to voluntarily vacate. Furthermore, if at the foreclosure sale, the title reverts to the lender (almost always the case), it is sometimes the case the lender will choose to continue renting to a good tenant, in lieu of adding another vacant property to its large inventory of REO property.

Thus, this is often a win-win scenario. Caveat. The landlord might want to exercise caution about disclosing to the tenant or prospective tenant the possibility that there could eventually be a foreclosure. Why? Because many tenants feel (mistakenly) that, as a result, they no longer have an obligation to pay rent to the landlord. However, that position is untenable, and in violation of the rental contract. In those instances, landlords have prevailed in unlawful detainer actions.

In my state, the landlord-tenant statutes provide that in a sales transaction, including a distressed sale like a foreclosure or short sale, the tenant’s deposit be transferred to the new owner, who carries that deposit on its books as a liability. A tenant who vacates has the right to demand a refund of that deposit from the new owner, in accordance with the terms of the rental agreement. The new post foreclosure owner is obligated to refund that deposit, regardless whether that transfer from the previous owner actually occurred. It is incumbent upon the post foreclosure owner to collect from the previous owner. The tenant’s right to a refund is in no way compromised, and he is due that refund.
 
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credit

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Jan 18, 2012
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So freedomwon i could go ahead and rent my house out for $1200 a month and get first month and deposit. then have the client sign a 2 year lease and in the lease say that if they pay on time for 6 months then their lease payment will drop down to $700 per month for the last 18 months. And the bank will have to honor it. LOL
 

TomEason

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Jun 18, 2009
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Thanks for your question. I recommend you download and read the PTAF Act. For the lease not to be questioned and appear "authentic", the rent charged needs to be close to market rent. It can be lower, but not drastically lower, LOL.
 
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DesertMe

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Oct 27, 2009
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and no, I didn't "roll over"...

Tom, to reply to your last post in that "other" thread..No, I didn't roll over to anyone. I just didn't want to get involved with legal actions over someone else's property. I paid, I kept up my end of the bargain. The homeowner didn't and when BofA foreclosed on her, I saw no reason to get involved. Why should someone who has kept up their end get involved in someone else's problems ? And that's the problem I have with people advocating not telling prospective tenants the truth. You may look at everyone as "dollars and cents", but I don't. Especially when people may spend their meager savings to get that rental house, thinking they finally have a roof over their heads, only to have their lives turned upside down for a few bucks. I know "bleed it dry" is your mantra, but it's not mine. Again, the reality and the perception of the PTAFA act are two very different things. If people wish to lease their foreclosed home out, great, but even though the fine print doesn't require it, to advocate hiding that fact is what I disagree with. Too many people get hurt in the process. And no Tom, your perception of me still being angry is not quite correct. What does make me angry are people who are less than honest. I respect your opinion, of course, but you seem to have a bit of a "high horse" yourself when it comes to renters. We are all former homeowners who are deserving of the same respect as anyone else. Renters are not commodities to be victimized.
 

calgirl67

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Sep 2, 2009
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I totally agree Desert. I will be extremely pissed if my rental home goes into foreclosure. Number 1 reason for us is we have 22 mths until we can buy again on a VA loan. We took a 1 yr lease, renewable for another year then month to month. It cost us $4000 to move in, another $800 in moving costs plus utilitiy hook ups, new locks for front doors, all sorts of expenses.

In Dec next year we go month to month. Which will suit us perfectly as we shop for a new home. If our current rental forecloses, we will be forced to take another 12 mth lease somewhere else, and most rentals around here require you renew for another 12 mths at a time, not month to month, which would totally mess up our house hunting plans and timeline.

One of the reasons we took this house was the property manager inserting verbiage stating we could go month to month after 2 x 1 yr leases, after we requested such terms.

As a responsible tenant who pays their rent on time every month, and upholds our end of the bargain by maintaining the property, I do not expect to be screwed over by my landlord. I had the bank to do that ! Also I do not want to spend another $5000 + moving yet again because someone took my rent money and pocketed it instead of paying their mortage, and didn't even bother to tell me we were going to get kicked out due to no fault of our own.
 

DesertMe

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Oct 27, 2009
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I totally agree Desert. I will be extremely pissed if my rental home goes into foreclosure. Number 1 reason for us is we have 22 mths until we can buy again on a VA loan. We took a 1 yr lease, renewable for another year then month to month. It cost us $4000 to move in, another $800 in moving costs plus utilitiy hook ups, new locks for front doors, all sorts of expenses.

In Dec next year we go month to month. Which will suit us perfectly as we shop for a new home. If our current rental forecloses, we will be forced to take another 12 mth lease somewhere else, and most rentals around here require you renew for another 12 mths at a time, not month to month, which would totally mess up our house hunting plans and timeline.

One of the reasons we took this house was the property manager inserting verbiage stating we could go month to month after 2 x 1 yr leases, after we requested such terms.

As a responsible tenant who pays their rent on time every month, and upholds our end of the bargain by maintaining the property, I do not expect to be screwed over by my landlord. I had the bank to do that ! Also I do not want to spend another $5000 + moving yet again because someone took my rent money and pocketed it instead of paying their mortage, and didn't even bother to tell me we were going to get kicked out due to no fault of our own.
Thanks Calgirl67. We have been there and done that...I would like "some people" to post a reply as to why they think it's OK to LIE to a prospective tenant ? We are all on here talking about those immoral banks, yet some people advocate rather immoral and unethical practices themselves. Kinda ironic isn't it..? We all know what it says about Karma, don't we ?? And they can change the verbiage all they want...It's still lying..Oh, but that's right, according to some, we have the wrong attitude. We should advocate screwing other people..
 
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jayguy0710

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Jun 16, 2010
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Well I've been MIA on these boards for awhile and what better time to jump back in than a thread like this.

Very similar to my gripes with the people (not so much on this Board) that feel as though "walking away is wrong and immoral" when it is, in reality, a CONTRACT and not governed by morality - I have the same gripe here. I suppose one's perspective on renting to a tenant while knowing that a foreclosure is imminent depends on your argument for why it's okay to walk away in the first place.

Me? I stick to the facts and follow silly things like contract law. Number one, you aren't lying to a potential tenant. Nowhere in the contract does it state "I, landlord, do so solemnly swear to pay my mortgage so long as you pay me rent" - therefore, not telling a tenant that the home will go into FC is not lying. Not telling the whole truth and nothing but the truth? Perhaps. But to call it lying is ridiculous.

Speaking of irony, not everyone on here is complaining about how immoral the banks were or still are. Me? I signed a contract, and BofA signed that same contract. In said contract, it spelled out, in no uncertain terms what would happen in the event of default. "We, BofA, will lend you, Jayguy0710, $xxx,xxx dollars, to be paid back over xx years, at x% interest. If all monies are paid, you receive deed to the house. If not, we will take back our collateral and pursue you to the fullest extent of the law" (I'm not a lawyer, that's my best legalese). IT'S A CONTRACT - period. To argue morality in a business setting is a) pointless, b) exhausting, and c) stupid. I hate to be the bearer of bad news but it's 2012 people - this is business.

Now, what if this happened to me? Would I be upset? Sure I would be. I might even be so upset I'd post on these Board that I was and still am upset. But at the end of the day, I'd understand that business is business and while I may like to throw around terms like "screwed" and "unethical" these sorts of words, oddly, never show up in the contract, do they? As a tenant, I signed the lease and would demand that I be afforded any and all protections and/or monies under the relevant LAW.

As a way to protect ones' self from a situation like this, one should consider designing and entering into a contract within the parameters of the law - for example, a longer lease term to avoid having to move, etc.

I know full well that this comes across as cold-blooded. Believe me, while that isn't my intention, it is the reality that we live in today, like it or not. Had I had the opportunity to walk away from rental properties myself, I would have most definitely not told tenants about the impending foreclosure (note: I'm not lying to anyone, for the last time!) whilst I collected the rent that was owed to me, under (here's that word again...) the CONTRACT.
 

freedomwon

LoanSafe Member
Oct 30, 2010
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Hi Jumbo101 - If you are in need of some financial advice, I would suggest you contact a cpa in your own state. Most volunteers on this site do not advertise their profession.
 

norcalstuck

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Aug 10, 2011
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East Bay CA
About apprising a tenant that you are as owner of a property going through foreclosure. We are also looking for a rental, waiting for our impending NOD. We have, we believe a very knowledgeable and practical attorney. He advised us to go ahead and move if we can, then
lease our home He will write a lease contract that is slightly lower than market, we will tell them of impending foreclosure, and the new owner will have to honor the lease. BTW, we are in CA. I do all I can to research every property we consider leasing, as no one so far has admitted their rental is in foreclosure, and I think most we have considered are not. However, it behoves us to be aware it can happen to us, and as with calgirl67, coming up with the deposits, moving etc costs is no small amount and once we move, we don't want to have to do so again in a year. But, s--t happens I guess

So, my perective is that it gives no harm to let a renter know you are returning your home to the bank. We are in our mid 60's and certainly don't want to have a property misrepresented to us, so we are not going to do it to someone else. That's MTCW.
 

Ricky Suerte

LoanSafe Member
Sep 23, 2011
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I don't know....

What if I'm renting a house that will foreclose in the near future, say six months from now, and the heating/AC/plumbing gives out? In a regular rental, I would call the landlord and he would have to fix it, maybe with a grumble or two. But, if the house is near foreclosure and I call the landlord, he may be really hesitant to pay for repairs. After all, the house won't be his in a few months. He won't see any return on his money. I guess I could sue the landlord to force him to make the repairs.

But, I guess if I'm month to month and getting a good deal on the rent when the heating/AC/plumbing give out, I can just walk away. But, if I have a year lease, what then?