Menifee, CA · Member since 2008 · 194 posts · 46 votes
Anyone ever heard of this? I do short sales & someone I recently met cash flows the properties while they are negotiating with the bank. They do a month to month lease or rental on the property during the negtiation proccess. Anyone done this? Seems like you could make $$ while you are waiting to get the deal done, but what are the implications?? Not sure how it works. Just curious.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
You mean you get the deed, and then rent it to the current occupant while the current owner still has the loan? Sounds like an excellent way to end up in a pickle.
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
17y
Why should the lender get anything? Consider this...you contract a short sale...say you get an option to purchase...previous homeowner moves out..maybe they move on and go rent somewhere else..or take a job in another city. The house either sits vacant or you do something with it. The previous homeowner doesnt care what you do with the house because they have moved on..the mortgage is their responsibility anyways and they haven't madea payment in several months. So you, the investor, contracts a month to month lease while you negotiate a short sale (which we all know is no quick process) 3 months later you collected rental income, the utitlies got paid, the house didn't sit vacant and exposed to vandals and squatters etc... You mean to tell me that the lender you are convincing to short sale the property is entitled to rent??? You are marketing the property for a higher dollar amount than that you are convincing the bank it is worth...should you share your end profits with them too? I think not.
I haven't done this but I have had friends that have...I also have friends that have lived in houses like these...got a pretty good discount on monthly rent as well.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
I see several problems. For one, you're renting a house you don't own. Now, the option given you an interest. But you would need something even less than a month-to-month lease, since you may have to kick out the tenant with very little notice.
Second, this really is "rent skimming". You're collecting rent and not paying the mortgage.
Frankly, I don't understand who someone in these circumstances would move out. They have a place to live, why rent another, unless they have been forced to move (e.g., job transfer.)
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
17y
Well its not rent skimming (skimming from who anyways?)...and if you have an option to buy you have the legal right to enter into any contract with an end buyer or renter...it is no different than a sandwhich lease option...in a sandwhich lease option you have no obligation to pay the mortgage...the homeowner is on the hook no matter what. You don't own the property but lease it out to a 3rd party...the money you receive from the 3rd party (your tenant) has no relation to the mortgage payment.
Also, homeowners in default vacate their houses for any reason they see fit...mostly because they are done caring about the property...they have to leave anyways, why not move on with their life before they bank evicts them.
It is also no concern of the investor why the homeowner chooses to move out.
If you can swing it timing wise it is a good deal for several reasons...the house doesn't sit vacant....you have somebody living in it that knows the deal (you disclose to them exactly what is happening and charge them a monthly rent below market value)...they can show the house for you if need be...the utilities get paid...and the investor can make some positive cash flow while negotiating...let's stop pretending this is hurting anybody...and most of all...dont make me think for a second we are concerned about the lender losing money because the investor is profiting....its the homeowner in default on the hook and nobody else.
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
17y
The borrower hasn't been paying their mortgage for months at this point. And I have had borrowers go along with that plan...I have actually had them tell me that they don't care what I do with their house...they are moving away and they don't want to give one more thought to their failed investment. Furthermore, at this point the mortgage is beyond payable...it is high in arrears and foreclosure is probably 3 months away...
I have seen it done, but you have to watch it. In Oregon tenants can request protection under FED, which means evicting them can take up to six months. So if you get a bad apple that rents the property on a short term lease, and they suddenly decide they really like not paying market value for their rent. They can screw up your closings pretty badly.
Real Estate Investor · Miami, FL · Member since 2008 · 77 posts · 13 votes
17y
You can rent the property out while you are negotiating a short sale. You must make sure that you have all the proper paper work in place especially since the new laws came out on Oct. 1st. Contact an attorney that can dispute the foreclosure process giving you access to continue to short selling the prop w/ the bank and cash flowing that puppy with the homeowners authorization.
BTW- when renting back to homeowner, be VERY careful. You are in a grey spot due to titling yourself as either a 3rd party investor or a foreclosure rescue consultant.
CASH IS KING! so are contracts....make sure you have the right ones in place!
Real Estate Consultant · FL · Member since 2008 · 7 posts · 0 votes
17y
Originally posted by Mitch Freed:
Why should the lender get anything? Consider this...you contract a short sale...say you get an option to purchase...previous homeowner moves out..maybe they move on and go rent somewhere else..or take a job in another city. The house either sits vacant or you do something with it. The previous homeowner doesnt care what you do with the house because they have moved on..the mortgage is their responsibility anyways and they haven't madea payment in several months. So you, the investor, contracts a month to month lease while you negotiate a short sale (which we all know is no quick process) 3 months later you collected rental income, the utitlies got paid, the house didn't sit vacant and exposed to vandals and squatters etc... You mean to tell me that the lender you are convincing to short sale the property is entitled to rent??? You are marketing the property for a higher dollar amount than that you are convincing the bank it is worth...should you share your end profits with them too? I think not.
I haven't done this but I have had friends that have...I also have friends that have lived in houses like these...got a pretty good discount on monthly rent as well.
Mitch...Mitch...Mitch!
Why would you want to get so entrenched in a messy situation? Have you ever been a landlord? 25 years of it myself. I've seen ALL the scams. Trust me the few dollars you would profit would not be worth the bills for the stress you will incur. Let me give you 3 simple scenarios, just to ponder on.
1. The tennants won't let you show the property?
2. The tennants destroy the property?
3. The tennants won't leave the property?
You can have all the paperwork in the world authorized by anyone you want to authorize it, but I've never seen any paperwork stop the intentions of those 3 items by a tennant if they want to play "hard ball".
Mitch...the money's just not worth it. Please don't do it.
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
17y
Mike,
The situation is only bad if you let it be...consider the positives:
1. You are negotiating a short sale so the worse off the condition of the house, the better.
2. If they trash it...insist another BPO...the value comes in lower...you just made the whole thing worth your while. Everything is fixable...and at a price that you are greatly going to inflate in your report to the bank.
3. Evict them after you complete your negotiations and take title.
Anybody can buy a property on contract and then rent it out. If you purchase a home on contract, you are not responsible for making the mortgage payment...the loan is not in your name. The fact that the home is in default is actually irrelevant. Of course I would disclose anyways in writing.
If I was the homeowner whose loan was in default and the auction date was in 3 months...and I signed somebody up for a 1 year lease and didn't disclose the situation...this would be a problem...I would be forced to break the lease and the tenant would have recourse.
In the situation of the contract sale and then renting it out...the seller is not the landlord...the contract buyer is. The tenant is under contract with a person or entity who has no obligation to the lien holder...therefore the situation of the loan in default is irrelevant as long as you aren't going to be forced to break the lease due to an impending auction date.
So let's say they pay you for 1 month rent...then decide to quit paying. Good for them...one more leverage item on the lender...and I subsequently drop my offer even lower.
To those who think you need a deed to rent out a property...you might want to look into the world of contract buying and selling, sandwhich lease options, etc...
Where is a law that states an underlying mortgage must be current to execute a lease agreement?
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
17y
Furthermore, are you really going to make the argument that the fair market rent of a particular residential property is dictated by that particular property's monthly mortgage payment?
If I own a property free and clear with no payment...it seems the basis of the tenants argument would state that I should lease it out for zero dollars a month.
The argument from the lender side would obviously be different...especially if the money was lent based on the fact that the rental income was apart of the loan approval process....like multi-family units.
Any legislation that exists...California having the only one that I am aware of that defines rent skimming and was probably put into place due to pressure from the lending industry...i am sure is directed at the big fish who have huge multi family units who stop paying their mortgage and keep collecting rents...the money was originally lent to these people based on the projected rental income.
But, that still doesn't affect the fair market rent....so on the tenant side...no matter where they go...they have to pay rent...so there is no valid argument from them unless they incur damages from an unknown auction date (i.e. out of the blue a bank rep comes up and serves an eviction notice and they are forced out)
Whether I go to vendor A or vendor B and buy the same product....the market sets the value...not how much that vendor paid for the product. So if I find out that vendor A paid less than vendor B...am I entitled to money back? Either way I would have paid the same amount.