Rent to someone who Shortsaled their home

17 Replies


I want to get other peoples opinion on this. I'm in the process of renting my home in the Tampa bay area. I have an interested party but they've disclosed that they are shortselling their home. I haven't verified income yet and they haven't filled out my application. I intend to do a background / credit check. I'm also requiring a $2k lease performance deposit first months rent of 2K.

My question is, if they can verify that their income is 3 times the monthly rent, would you still rent to someone who recently shortsaled their home or had a foreclosure?

Is this a protected class of tenants?

Thanks for your feedback!

Hi Robert,

I would rent to them in a heartbeat. Based on my experience, former homeowners know how to care for a home, which makes them better tenants. A short sale or foreclosure on their record is irrelevant to me. They made a mistake and bought at the top of the market. Now they've made a decision to walk away from a financially damaging situation. That's all. Everyone deserves a second chance. If possible, I would love to rent to anyone that has a short sale or foreclosure on their record. In fact, some of my best tenants have either a short sale and/or foreclosure on their record. That's my 2 cents.

I don't think I would care if the background/credit check comes out clean and they pay the deposit but I don't know anything. What do you mean by protected class of tenants?

I've had mixed luck with renting to tenants who lost their homes either to short sale or foreclosure. One family moved out and allowed their daughter to stay for an extended period. Brought in all kinds of other late teens. Ouch!

But I have others who have stayed for a few years and kept the house immaculate.

Not a protected tenant class.

I would never rent to someone that did a short sale and screwed the lender they would be nothing but problems.

Joe Gore

@Robert Curls I'm confused, at one point you state that "they are shortselling their home" and at another point you ask about renting to someone "who recently shortsaled their home." I don't know that much about short sales, but don't they make your credit score worse after the short sale is completed? If so, then someone who is in the shortsale process is about to have their score go down, versus someone who just completed a shortsale and therefore has already taken the hit to their credit.

I don't automatically reject someone who had a semi-recent issue related to credit (foreclosure, shortsale, bankruptcy, etc.), as long as their credit score still meets my minimum and they don't appear to have other upcoming credit issues (like lots of current but recent collections that are likely to make their credit get worse as they continue to ignore those issues). To me, being in the process of a shortsale means their score is going to get worse, so I would not take them. If they already completed their shortsale and their credit (and income, etc.) meets my requirements, I wouldn't hold the shortsale against them.

Ditto what @Minh L. said. I would rent to them assuming everything else checked out. In fact, like Minh, I have personally rented to applicants with recent short sales and foreclosures and found them to be excellent long-term tenants so far.

The fact that their credit has been dinged and other landlords may not want to rent to them is a bonus for me because it means they likely won't be buying (or even renting) anything else soon and will stay for a long time with me.

The short sale is a business decision. You might focus on whether or not their credit report depicts late payments though. I would not have a problem with somebody that did a short sale but I would be concerned if they were doing a short sale and had not made the mortgage payment in some time. You might also ask for a copy of the hardship letter they submitted with their short sale package.

Thank you everyone for your incites!!!! I'm greatly appreciate the information.

@Samir Abrahani There are strict fair housing laws that can really get you in trouble. I wasn't sure if there was anything related to financial history / Fair credit reporting that would catch me off guard.

Hi Robert,

I'd be cautious about renting to them but that doesn't mean I wouldn't. Try to determine specifically why they are having to short sale their house. When did they buy their house? Are they like everyone else and bought when the market was high and just couldn't hang on anymore? If so, that just means they have difficulty in reading market signals and is no reason to not rent to them. If they have bought in the last few years that might be an indication a propensity to live beyond their means as most of the market correction had already occurred in Hills, Pasco, Pinellas counties. Make sure you call the employers to verify income and the length of their employment. Pay attention to what they spend their money on. For instance when they arrive for the showing have they spent a lot of money on a flashy car, car accessories, clothes, etc. People broadcast what their priorities are. We only have to listen.

Protected classes fall under 7 categories. As long as you choose not to rent to them via one of these reasons you're fine.

Race, Skin color, Religion, Gender, National Origin, Disability, Familial Status

Most of these are pretty straight forward except for the last two. You can not ask about disability unless they bring it up. Even then you may only discuss how it would impact the living arrangements. You may not ask about how it happened, or the details of the disability.

Familial status also can be tricky. Pregnant women are included in this class as well. You can't ask how many kids they have or are planning to have.

You have to be careful or else you open yourself to a lawsuit that has teeth if you treat people differently. I remember one time when I was new and I was touring a couple that had kids. I asked how old the kids were. I was asking so I could tell the parents what school they would go to and activities that were local that would be conducive to that age range of kids.

I was lucky the parents were "cool". If that had been a government tester or someone looking to make a buck I could have been sued. That line of questioning violates the familial status protected class.

Make sure you base your decision on economic factors such as job length, ability to pay rent, what is their credit like? or observational factors such as is their car clean?, Do they smoke?, Did they arrive at the showing blasted or high?

None of these indicators are a protected class. Just make sure you log each potential tenant and detail meticulously why you did not rent to them. Make sure it isn't any reason that can be traced back to the protected seven classes and you should be ok.

Make sure you check with your local municipality and state government for additional classes. Ones of the horizon if not already enacted in some areas are sexual orientation, veteran status, and ultimately genetic information.

Basically just treat everyone the same. Good luck!

@Robert Curls I would rent to them in a second... if everything else checked out. Like @Cory Adams pointed out, many people made the decision to short sale based on the notion that your primary residence is an asset or investment and if it tanks you should dump it like a stock... @Kyle J. also brings up a valid point that their difficulty in getting approval makes it more difficult for them to rent other places.

In the end you have to look at the numbers. I hope you are using the background that BP negotiated a discount for us . If they otherwise pay their bills then likely you have a good person on your hands.

Awesome information @Dave Bingham The only thing I care about is that they are going to pay their rent on time, not destroy my place, and be good neighbors.

As always, thanks @Doug Merriott

I wasn't aware of the offer. That's great information!

@Robert Curls one of my best long term tenants was in the middle of a short sale/divorce when I rented to them. They stayed about 5 years while repairing their credit and saving for a down payment. Now they own a home.

She had a great job/steady employment (teacher) with family support.

That is my one data point. YMMV.

I just turned down two applicants for a Texas property. Why? They both had 2013 RENTAL JUDGEMENTS on their records. Duh!! LOL But a shortseller is a different situation. Making payments on a $400,000 loan on a $200,000 house makes no sense (I see that in CA all the time). So if they walk, it is just a financial decision. They should make good tenants.

@Bill S. that is the best thing that we can do as landlords. We offer clean, well-maintained, safe homes to people while they build their future. In the process they pay down our mortgage and secure our future. It is a win-win.

Agree with others who say a short-sale by itself isn't entirely a dealbreaker -- because perhaps was simply a strategic business decision due to life-change, job loss, or relocation etc. BUT, if there are other red flags on credit report -- such as a multitude of collections, high debt, history of late payments, etc. then absolutely not.

I think a short sale is ok. But, I would not rent to someone that had a foreclosure. It really is no different than an eviction. They didn't pay their mortgage and got kicked out.

I would also rent to them, assuming other aspects of their application checks out (especially proof of current income). The fact that they disclosed the short sale without trying to hide it is a positive indicator.

I have two tenants with previous bankruptcies, which is obviously much more of a financial red flag than a short sale. Their credit/background checks were good, and they both had solid proof of income. They are now two of my best tenants, always paying on time (or early!), and they keep the properties immaculate. That's not to say I would necessarily rent to all applicants with questionable financial history though....

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