Home Tendering Agreements

Foreclosures
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Home Tendering Agreements

Bryan Hancock
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes

I know of some Phoenix-based investors that submit short sale offers and place people in the house to "guard" it while the bank is goofing around with the offer. They collect "rent" and pay nothing on the mortgage for months while the bank is screwing around with the thousands of files on their desk. These are generally transient folks that pay rent under what the prevailing market fetches in the area. Talk about "shadow inventory." :mrgreen:

Has anyone ever heard of others doing this? It isn't something I even would want to be involved in and I think it is shady, but I am curious to know about the according-to-Hoyle legality of it. If you have a POA from the seller allowing you to do something like this is that trumped by the default somehow? They still own the house until the lender does...right? I am sure there are laws about this, but I don't know what they are.

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y

Nevertheless, if you're collecting rent, regardless of the details of the rental agreement, and not paying the mortgage, its rent skimming. Every investor loan I've signed has had an explicit "assignment of rents" clause. Now, these are probably homeowners with OO loans, so that may not be covered. I have no idea about specific laws that cover this situation, and I suspect its very state specific. But this is the sort of "investor" BS that ends up resulting in new, anti-investor laws.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, an owner has the right to contract on the property or encumber it up to the date prior to the notice of demand / foreclosure, at that point the owner can not do anything that puts the lender in an adverse position. If the lease is in place prior to notice, the tenant can npow stay in for 90 days from the date of sale. In this case, notice may not have been given, so they are free to lease. Putting homesitters in the property has been done for about 15 years, many of those tenants travel and do this regularly and pay little rents, but whtever they pay, is irrelevant. This is not unusual. Good luck, Bill

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    This sure sounds like rent skimming to me.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Jon, the housesitters are not in the average lease, didn't mean to imply that. They are required and agree to be out pretty quick with notice, usually prior to closing a deal. If I had a property in Ca for sale, I might put someone in a $1,000 market rate unit for $300 with them agreeing to watch and care for the property and to get out in ten days. I haven't done this but I know there is a company that places these kind of tenants in properties under similar conditions.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    Nevertheless, if you're collecting rent, regardless of the details of the rental agreement, and not paying the mortgage, its rent skimming. Every investor loan I've signed has had an explicit "assignment of rents" clause. Now, these are probably homeowners with OO loans, so that may not be covered. I have no idea about specific laws that cover this situation, and I suspect its very state specific. But this is the sort of "investor" BS that ends up resulting in new, anti-investor laws.

    3Reply
  • Scott Hubbard
    Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
    16y

    In Arizona, as well as other states, there is a great deal of protectionism going on with regard to sellers in financial distress. Though this may very well not be illegal, anytime you profit (as an investor) through the distress of homeowner, you are putting yourself in harms way.

    In Arizona, there has been several prosecutions of pre-foreclosure investors (I use the term investor here loosely) where they have received jail sentences for "rent skimming".

    The State proved that these so-called investors were renting out the seller's home, collecting rents, then failing to perform the loan modification or short sale. They made certain promises, made money, and in the end did not adequatley perform.

    Though the above is an extreme example because these investors were not perfoming their due diligence, but I personally would not want to be lumped into this group. Guilt by association is what comes to my mind.

    So, I personally, though I have personally worked on short sales where the property has been vacant for more than 1 year, would never put a renter or house-sitter in a home.

    I would, however, consider putting a home tender in the property, but would not collect the rents myself. That should go to the sellers.

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  • Bryan Hancock
    OP
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    16y
    Originally posted by Jon Holdman:
    Nevertheless, if you're collecting rent, regardless of the details of the rental agreement, and not paying the mortgage, its rent skimming. Every investor loan I've signed has had an explicit "assignment of rents" clause. Now, these are probably homeowners with OO loans, so that may not be covered. I have no idea about specific laws that cover this situation, and I suspect its very state specific. But this is the sort of "investor" BS that ends up resulting in new, anti-investor laws.


    In almost every short sale case the loan would have a OO DOT so it wouldn't be covered. I am sure there are laws about this already, but I agree that this is the type of stuff that gets pendulum-swings-the-other-way laws passed...like our inane executory contract laws in Texas that really hamper lease/options. Luckily it is easy to foreclose on someone in Texas so it does not matter as much. You do get the savvy sellers that threaten bankruptcy and such during a foreclosure situation to play their hand to the maximum extent possible.

    Do we have any resident attorney savants that know the law here and are willing to spew forth free legal guidance (not advice)?

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  • Tom Bukacek
    Real Estate Investor · Austin, TX · Member since 2009 · 118 posts · 76 votes
    16y

    From what I understand, there are 2 situations where rent skimming occurs:
    • Collecting rent from a tenant in a residential property within the first year of owning that property, without applying that money to the payments due on the mortgages for that property.
    • Collecting rents from a tenant in a residential property that you don't own or operate on the owner's behalf. This could be someone falsely claiming to own the property, or trespassing on the property to rent it out, or "any other unauthorized means."

    If you have paperwork signed by the hometender as well as a POA, then you are not violating either of the rent skimming clauses.

    Most of the time rent skimming refers to a landlord who is collecting rents and not paying the mortgage. Home tendering appears to be legal.

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  • Scott Hubbard
    Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
    16y

    Though I am not an attorney, I believe it would be difficult to say with any certainty that what you desscribed is a against the law. In the past, I considered doing this on a property where i knew it would be a lenghty process and here is what my attorney said:



    1. The investor, whom has an equitable interest in the property is under no obligation to the lender as they are not a party to the security agreement.

    If the borrower, whom is not receiving any proceeds from the rents collected and is not paying his or mortgage, will be taking on the most risk as he/she is subject ot the security agreement. The lender can remedy this through foreclosure and may decide to secure the property per the security agrement.


    2. This is a civil matter and not criminal. The lender can protect itself and the criminal courts rarely get involved unless there is obvious fraud.

    3. The lender, if they believe they have grounds, can file suit against the borrower for damages.

    4. If the investor, whom as an equitable interest, honestly performs its due diligence to purchase the property, then I believe the investor is not breaking any laws provided all parties, including the lender, are adequately informed and the borrower grants rights to do so.

    5. Damages. Both the borrower's and investor can be held liable for property damages. In Arizona, I have heard of a civil suit going through the courts where the tenants paid cash to live in a property and were not required to pay a deposit nor sign a lease. The tenants ended up removing eveything from the property of value including electrical wiring and the windows.

    Since this was an abnormal rental arrangement and the lenders have decide to pursue the borrowers in civil court.

    This is definetly pre- lis pendens also. Once lis pendens occurs, many states have separate protocols in place including renting a property that is in foreclosure. So, you should be aware of these in your state.

    Basically, disclosure to all parties along with proper grants, permissions, rental contracts should keep an investor relatively safe. However, if you want to be safe, do not stick your neck out. Ultimately, I decided it was not worth the risk since this was an isolated incident and I did not want to put the seller at further risk.

    3Reply
  • Bill Patterson
    Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
    16y

    For the small return, I don't see anything but trouble. Legal or not legal....I can see where it can be argued either way. Have you ever tried to get a tenant out if they don't want to go? It can take time, $$ and screw up an end buyer closing. Sure, the contract says out in 10 days, but if they don't have a cheap place to go, will they abide by the contract?

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  • Tom Bukacek
    Real Estate Investor · Austin, TX · Member since 2009 · 118 posts · 76 votes
    16y

    In defense of home tendering: I have a short sale house that just had it's A/C unit gutted, door kicked in, and fridge & stove taken.

    Had a home tender been in the property, this damage most likely would not have occurred.

    An investor tendering a home may be making money when the bank is not, but a vacant home, like this, is costing the bank money.

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