House I am renting is about to go into pre-foreclosure – what to do?

[FormerOwner]

Well, my landlord wanted to have a talk with my wife and I today. We had a feeling what it was about: The house we are renting is a good 100K underwater, the landlord is in a negative cash flow each month, and he has a neg-am loan. Doesn’t get much worse than that. Oh, and he’s a realtor. He offered to sell it to us for what he bought it for but I wasn’t receptive to that (obviously!). He then stated that he was going to stop throwing good money after bad and just walk away. He’s been talking to the bank about doing a short sale but they’re not receptive to it. He’s going to make a decision on what to do by the time the next mortgage payment is due in August. Unless either we buy the house or the bank lets him do a short sale, he’s going to walk.

I want to be able to use him as a reference for another rental and I don’t want to screw him over (he’s a nice guy and he’s been very up-front) BUT he’s got my 2K security deposit and this is going to force us to move and incur some moving expenses, hassle, etc. It may actually work out OK because I am considering relocating anyway.

My question is this: What about if I tell him I’ll keep paying the rent until he get’s an NOD then just stop paying and find myself a new rental house with the lease starting 90 days after the NOD (so I’m gone before the auction date)? I’d tell him to keep the security deposit so he’d get some compensation for the last 90 days I live in the house, just a lot less than normal. Am still legally required to pay rent even after the house is in pre-foreclosure? What would you do?

[FormerOwner]

I forgot to mention that the landlord bought the house in 2005. I’ve read about a California “rent skimming” law but it appears to apply only during the first 12 months the landlord owns the house.

Also, maybe I should still get my security deposit back since the NOD may come out right after I pay the rent, cutting my “rent free” period down to 60 days, instead of 90.

[FormerOwner]

I forgot to mention that the landlord bought the house in 2005. I’ve read about a California “rent skimming” law but it appears to apply only during the first 12 months the landlord owns the house.

Also, maybe I should still get my security deposit back since the NOD may come out right after I pay the rent, cutting my “rent free” period down to 60 days, instead of 90.

[patientrenter]

He can just “walk”?

If I buy a house, and I use mostly someone else’s money to do it, and I have a contract that says I get to keep almost all the gains if prices rise, I can just “walk” if they fall?

Does this guy have a car? A house of his own? Furniture? A business? Surely he has assets that he can use to pay off the money he has borrowed?

I realize, FormerOwner, that this was not your question. And I suppose I was dimly aware that most home loans in the US are non-recourse and everyone just works (wink) with it.

Based on his getting a free ride from the lender based on nothing more than the legal hurdles the lender faces to get their money back, I’d say you should abuse the system as much as possible also, and smile to him about it just as much as he is smiling to the lender. The worst that happens is that he says he’s offended, and you say you’re sorry you brought it up if you’re desperate for that reference.

OK, that wasn’t helpful, but I needed to vent.

Patient renter in OC

[patientrenter]

He can just “walk”?

If I buy a house, and I use mostly someone else’s money to do it, and I have a contract that says I get to keep almost all the gains if prices rise, I can just “walk” if they fall?

Does this guy have a car? A house of his own? Furniture? A business? Surely he has assets that he can use to pay off the money he has borrowed?

I realize, FormerOwner, that this was not your question. And I suppose I was dimly aware that most home loans in the US are non-recourse and everyone just works (wink) with it.

Based on his getting a free ride from the lender based on nothing more than the legal hurdles the lender faces to get their money back, I’d say you should abuse the system as much as possible also, and smile to him about it just as much as he is smiling to the lender. The worst that happens is that he says he’s offended, and you say you’re sorry you brought it up if you’re desperate for that reference.

OK, that wasn’t helpful, but I needed to vent.

Patient renter in OC

[drunkle]

probably not a helpful response, but…

of course he wants your money. whether or not he’s still making mortgage, defaulted, whatever, he still wants your money. who wouldn’t? if you don’t act, i’d assume he won’t either.

the question is, do you really need references? as far as i remember, at this point in time, you can’t get a bad reference. even if true. something about defamation? suing your prior employer, landlord, whatever if they say anything that impedes your future. not to say that you will, would or should, just that references aren’t taken very seriously anymore. not by corporate, anyway, ie., management co’s.

edit:

one more thing. at that point in time, will your current landlord even bother to answer calls regarding references? good or bad?

[drunkle]

probably not a helpful response, but…

of course he wants your money. whether or not he’s still making mortgage, defaulted, whatever, he still wants your money. who wouldn’t? if you don’t act, i’d assume he won’t either.

the question is, do you really need references? as far as i remember, at this point in time, you can’t get a bad reference. even if true. something about defamation? suing your prior employer, landlord, whatever if they say anything that impedes your future. not to say that you will, would or should, just that references aren’t taken very seriously anymore. not by corporate, anyway, ie., management co’s.

edit:

one more thing. at that point in time, will your current landlord even bother to answer calls regarding references? good or bad?

[temeculaguy]

I like your original deal and if he has always been a nice guy, he will likely continue that streak. He’s been honest, be honest back. He hangs onto your security deposit and you get two or three months free rent, which after the moving expenses is kind of a wash. Was there a lease? If there is one then he may be even more cool about it because he is breaking it. If you are worried about references, printout the public infor on the NOD and NOT so that you can prove to a future landlord what happened. You could also find out who the bank is and once the forclosure process gets going contact them and ask if you can continue renting from them at a reduced rate since they will be selling it (which could take months). I’ve never seen this but if I were the bank I would rather sell a house with a renter that keeps the landscaping up as opposed to a brown lawn special.

[temeculaguy]

I like your original deal and if he has always been a nice guy, he will likely continue that streak. He’s been honest, be honest back. He hangs onto your security deposit and you get two or three months free rent, which after the moving expenses is kind of a wash. Was there a lease? If there is one then he may be even more cool about it because he is breaking it. If you are worried about references, printout the public infor on the NOD and NOT so that you can prove to a future landlord what happened. You could also find out who the bank is and once the forclosure process gets going contact them and ask if you can continue renting from them at a reduced rate since they will be selling it (which could take months). I’ve never seen this but if I were the bank I would rather sell a house with a renter that keeps the landscaping up as opposed to a brown lawn special.

[Anonymous]

I think you should consult an attorney skilled in foreclosure issues.

Particularly one with a history of representing tenants.

Here’s why:

1. It may be that your lease will survive this pre-foreclosure. If this were to occur, you would want to be able to stay in your house under your present lease terms.

2. If the property does proceed to foreclosure on the courthouse steps, your lease will probably be extinguished by the foreclosure action. After all, all junior liens are also extinguished so even if you went to the trouble of recording your lease at the county courthouse, it’s probably toast after a foreclosure.

3. On the other hand, if your landlord has stopped making his mortgage payments, he has almost certainly defaulted on your lease as well. Why should you pay him ANY rent at all? He’s whining about throwing good money after bad, listen to him.

4. In the short run, I would RUN to the courthouse, find out who is holding the mortgage paper on this property, and QUICKLY ascertain how much is owed. Could it be that you would be interested in assuming the loan?

5. Is any mortgage fraud involved here? If he financed the home claiming it would be “owner occupied” and then turned around and rented it out, I’d be very skeptical indeed.

6. Under no circumstances would I give my rent money directly to a landlord in default on the primary mortgage. Think about an escrow account. An attorney can assist.

7. Good luck.

[Anonymous]

I think you should consult an attorney skilled in foreclosure issues.

Particularly one with a history of representing tenants.

Here’s why:

1. It may be that your lease will survive this pre-foreclosure. If this were to occur, you would want to be able to stay in your house under your present lease terms.

2. If the property does proceed to foreclosure on the courthouse steps, your lease will probably be extinguished by the foreclosure action. After all, all junior liens are also extinguished so even if you went to the trouble of recording your lease at the county courthouse, it’s probably toast after a foreclosure.

3. On the other hand, if your landlord has stopped making his mortgage payments, he has almost certainly defaulted on your lease as well. Why should you pay him ANY rent at all? He’s whining about throwing good money after bad, listen to him.

4. In the short run, I would RUN to the courthouse, find out who is holding the mortgage paper on this property, and QUICKLY ascertain how much is owed. Could it be that you would be interested in assuming the loan?

5. Is any mortgage fraud involved here? If he financed the home claiming it would be “owner occupied” and then turned around and rented it out, I’d be very skeptical indeed.

6. Under no circumstances would I give my rent money directly to a landlord in default on the primary mortgage. Think about an escrow account. An attorney can assist.

7. Good luck.

[Anonymous]

It’s been awhile since law school, but I am almost positive your lease transfers to the homes new owner. They have the option of not renewing your lease at expiration, but they can’t just kick you out.

Now, I’m not sure what would happen if it was foreclosed upon, however that would be him breaking the lease, which is just as binding on you as it is on him. So, I suppose you could sue him for that.

If you haven’t figured out the answer to your question through my post by now, no you can’t just walk away. You both have a legally binding contract. With that being said, if he breaks your lease and forces you to move out and you choose not to take legal action then I guess in a way he can kick you out just as you could walk away.

I would think someone hard up for money wouldn’t let a chance to get some back escape them. Legally neither of you can alter the lease without both agreeing to it.

[Anonymous]

It’s been awhile since law school, but I am almost positive your lease transfers to the homes new owner. They have the option of not renewing your lease at expiration, but they can’t just kick you out.

Now, I’m not sure what would happen if it was foreclosed upon, however that would be him breaking the lease, which is just as binding on you as it is on him. So, I suppose you could sue him for that.

If you haven’t figured out the answer to your question through my post by now, no you can’t just walk away. You both have a legally binding contract. With that being said, if he breaks your lease and forces you to move out and you choose not to take legal action then I guess in a way he can kick you out just as you could walk away.

I would think someone hard up for money wouldn’t let a chance to get some back escape them. Legally neither of you can alter the lease without both agreeing to it.

[ocrenter]

FormerOwner,

this is what I would do,

1. let current owner know you will be putting your rent into an escrow account from the NOD date until foreclosure. If the owner successfully avoid foreclosure and sell to another, he gets the money. otherwise the money goes back to you.

2. for the inconvience of having to keep the home show-ready, bargain for an immediate decrease in rent.

3. contact an attorney that specializes in renter’s rights. powayseller recommended this one before, http://www.tenantslegalcenter.com/, I used them with excellent result as well. they’re based in SD. If you are elsewhere maybe they’ll help give you referrances.

4. Soholaw is right, the lease do transfer if someone decides to purchase from your lender. that’s why escrow account may be better than stop payment on your rent, because the new owner would have to honor your prior lease, you want to still be in good standing.

[ocrenter]

FormerOwner,

this is what I would do,

1. let current owner know you will be putting your rent into an escrow account from the NOD date until foreclosure. If the owner successfully avoid foreclosure and sell to another, he gets the money. otherwise the money goes back to you.

2. for the inconvience of having to keep the home show-ready, bargain for an immediate decrease in rent.

3. contact an attorney that specializes in renter’s rights. powayseller recommended this one before, http://www.tenantslegalcenter.com/, I used them with excellent result as well. they’re based in SD. If you are elsewhere maybe they’ll help give you referrances.

4. Soholaw is right, the lease do transfer if someone decides to purchase from your lender. that’s why escrow account may be better than stop payment on your rent, because the new owner would have to honor your prior lease, you want to still be in good standing.

[Author]

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