Can I Lease The House Back to the Seller After I Buy a Short Sale?

Can I Lease The House Back to the Seller After I Buy a Short Sale?

3 min read
Tracy Royce Read More

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Purchasing a home where the occupants know the lay of the land, love the house, and are already occupying it seems like win-win. Typically this is called a turn-key rental.

However, in a short sale situation, is it still OK for you to rent back the house to the current owners?

Let me preface and conclude the article with a no, no and no. Let’s explore each of those more deeply!

Emotions Running High

What seems like a logical solution lacks the critical element that can destroy your deal and may cause legal problems: emotions. No one enjoys losing their home, of course, but this compounded by being at the banks whim to help you get the home sold, the uncertainty of when you may have to move, and the stages of grief the seller may be facing.

When it seems like someone is coming to your saving grace, promises run high and feelings run deep. Once the pressure is lifted though, those positive thoughts can change with the wind and resentment and the word “fair” becomes much more sensitive.

Keep Your Friends Close

…and your Tenants at Arms Length. The short-selling lenders are going into greater detail about the contingencies that must be included in order to close the short sale. Many, in fact, that are placed on the buyer, and defined between the buyer and the current borrowers. The buyer is promising to abide by these, as are the title agent, attorney, seller, & anyone else involved.

You are encouraged and required to read the closing docs, affidavits, and arms lengths disclosures. Many are pretty concise about not allowing the buyer to rent the house back to the borrower, and not having any side agreements between any of the parties the banks are not aware of. If you are putting a lease in place, and tell your agent about it, you’re opening up a can of disclosure and liability, and risking getting the short sale cancelled.

Bottom line: If the bank says the borrowers have got to go, and you can’t rent back to them, best listen and agree to what you’re signing off on.

Otherwise, words like “fraud” & “FBI” and other f-expletives may be added to your real estate vocabulary.

Keep It Clean

I can’t speak obviously to your direct neck of the woods, but in many markets there is a shortage of housing inventory.

If you can market the home and have a new renter that is not emotionally attached to the home move in, you should. You’re kidding yourself by thinking the easiest solution will be the best solution, in this case. It’s cutting corners and banking on the homeowner, & lenders not coming back to haunt you legally, emotionally, and financially.

If you want to get a leg up on getting the house rented, run “ghost” ads on craigslist that outline the general features of the house without the address, and see how much interest you can cull. You can send out flyers to the neighbors saying you are buying a house in the area and they can “Pick Their Neighbor” if they know someone that is looking to buy or lease to own. Once the house is ready to go, or even a few weeks before, you can reach back out to your interested candidates & perhaps have a renter in place in a relatively short amount of time after you close. If you don’t close, there may be investors in the area that may pay for your leads or give you a referral fee if they close on a lease with one of your candidates.

If you’re purchasing short sales, keep your nose clean and your rental business professional. Simple solutions can cut out any possibility of backlash from authorities or past owners, and keep you being happy to be a landlord for years to come.

Have you had a bad experience with renting a foreclosure or short sale back to the previous owners?
Have you had to learn this lesson the hard way?

Photo: elvisripley