Renting to applicant with bad credit due to foreclosure

16 Replies

Hi,

I am trying to rent a 1/1 and had an applicant that was proactive, friendly, and seemingly perfect with the exception of credit. She has a 477. Discussing it with her, it seems that her late husband racked up quiet a pile of debt that resulted in her eventually filing for bankruptcy. The report shows that she has been current on all bills for the past 2 years, but has a long string of closed accounts for collections, and she says that these are tied to the bankruptcy that took place 9 yrs ago. if the bankruptsy happened 9 yrs ago I'm not sure why the closed account are still showing for the past couple years as 'major derogatory assigned to collections'.

She has provided a list of references (previous landlords, neighbors and housemates), and otherwise seems ideal. She is a self-employed divorce lawyer if that makes any difference and the rent is $2k/mo (furnished with utilities). She has offered to pay 2x deposit to ease the concern.

Renting to an attorney also seems like it could go either way. On the one hand she knows the expectations and there shouldn't be any surprises. On the other hand she likely knows how to exploit tenant-friendly laws to her advantage.

Do you guys have any experience renting to non-cookie cutter tenants? I assume past foreclosure/bankruptsy must be a more and more common thing in recent years after the bubble popped. 

Any advice is appreciated.

Thanks

If you're ok with not getting a penny beyond the $4k deposit if she defaults, AND you're ok hiring a lawyer to evict instead of doing it yourself, then you're probably fine. Although if the bankruptcy was 9 years ago, why the heck are those negatives still on the record? 

Also, self-employed lawyer's incomes can be very streaky. They might make 30k one month and then nothing for 4 months.

Originally posted by @James Miller :

Although if the bankruptcy was 9 years ago, why the heck are those negatives still on the record? 

Also, self-employed lawyer's incomes can be very streaky.

Thanks for the input.

I'm not sure why they are still showing on the report. I wish I had a better understanding of the account history. I'm using the credit report service under Cozy.co. Have you ever used this?

The payment history shows 2 yrs since last late payment, 0 accounts open, 13 accounts in collections, and 3 public records. I really wish I understood how that correlates to a bankruptcy.

Ask to see proof of payments of the past 12 months of rent.

Are they paying on time like clockwork? Or are they late all the time?

I guess two questions I'd have would be:

1) Do you have any better applicants?
2) Does she have any evictions?

I used to think bankruptcy was no big deal. I figured that was why they couldn't rent. But the real trick there is that some of these people use the bankruptcy to lengthen the eviction and then get the eviction dropped and only show the bankruptcy.

Still, if they haven't had a negative outside of the bankruptcy for 9 years, they'd probably be fine. As long as they don't have any evictions on top of that.  As an attorney, they might be able to argue an eviction better than most tenants, but does an attorney really want to have an eviction filing on their record?  Thats a huge negative connotation that I just don't think they'd risk. Employers are pulling that kind of background stuff as well. So while they can use the divorce excuse to wash away the bankruptcy, you can't do that now with the eviction.  Who would they blame? Their dog?

Originally posted by @James Miller :

Maybe she didn't get a "discharge" on some of those accounts in BK? I'm not a BK lawyer so I don't really know how that works. Rule of thumb though is 7 years for negatives on your credit report. Sounds like she paid something two years ago and then stopped again. 

 I think though if she did a re-org BK instead of a complete discharge those payments could still show as late and it would not purge from the credit report for 11 years....

I am NOT a lawyer and would be VERY careful about renting to a lawyer that had bad credit already.....bottom line is they are probably going to know the eviction process law much better than I do and they wont have to pay someone to fight the eviction.

at least thats my 2 cents

Case by case basis for sure. One of the best tenants I had had horrible credit due to foreclosure. They always paid on time, took care of the place, etc. I will admit this was the exception to norm.

Originally posted by @Mike H. :

1) Do you have any better applicants?

2) Does she have any evictions?

I have some potentials, but noone seems to be biting as hard as this individual. Her desire to garden also struck a cord that no others did. I know, not really important. I don't see any evictions on her credit report and she stated that she's never had an eviction.

Originally posted by @Alan Russell:

I am NOT a lawyer and would be VERY careful about renting to a lawyer that had bad credit already.....bottom line is they are probably going to know the eviction process law much better than I do and they wont have to pay someone to fight the eviction.

You pretty much hit my concern on the attorney aspect. I know that it's unfair to judge her by the profesion, and I do everything I can to ensure mmy leases go through my attorney so everything is up to snuff, but it basically boils down to if she get's fiesty, she knows the game better than I, doesn't need to pay for advice, and has more favorable laws on her side

Originally posted by @Lucas Hall:

Hi @Brian Hoffman

If you want additional information about a applicant's credit report data, the Cozy support team can open up the raw data with Experian and dig around for you.

I didn't know that team was there. Thanks, I'll look into that now.

Look at her bank statments for at least 6 months or longer if you can. That should tell you a lot about how she handles things, and whether she has any money. If she can't show at least 3 months of living expense in cash stashed away, then she is just eeeking by.

Brain,

I know she is an attorney but she is not a real estate attorney but a divorce attorney so I wouldn't be highly concern with her trying to use some kind of loophole to her advantage when it comes to leasing.  I would still have a real estate attorney on call just in case.  I also find that most tenants have credit blemishes or else they would be buyers.

I try to pay attention to the credit report and look at her current revolving debt in relations to their income that you have them verify with either bank statements or copy of pay stubs. If she has 2 car notes of over 500.00 and a high furniture bill etc... and the income is not strong enough to support it than it should raise a red flag.  I don't have a mathematical debt to income ratio formula that I follow so I just apply so level of common since and personal finance.

I wouldn't get so hung up in her past debt but I would pay close attention to what the past 3 years looked like.

Originally posted by @Andre Key :

I try to pay attention to the credit report and look at her current revolving debt in relations to their income that you have them verify with either bank statements or copy of pay stubs. If she has 2 car notes of over 500.00 and a high furniture bill etc... and the income is not strong enough to support it than it should raise a red flag. 

I wouldn't get so hung up in her past debt but I would pay close attention to what the past 3 years looked like.

She doesn't have any current accounts. EVERYTHING is closed it seems. All 15 installment accounts are in/sold to collections. She has 4 revolving accounts, (all closed) 2 listed as current, 2 listed as collections. The 2 in collections seems like they were current in 2012, but then she let them go.

Brian,

It seems risky I would keep looking unless you really need to get someone in fast.  The insurance that NA Taylor mentioned seemed interesting I would like to find out more on that one.

There are a couple of ways that I have used that gives me the peace of mind that if I help someone and they cannot complete their rent obligation I am not hurt so bad. The best way I have found is a company that acts as a co-signer. There is no cost to sign up and I use it periodically. I collect the rent. If a tenant defaults they will pay me up to six months rent. I don't think I can post their company name here but you can contact me and I will be glad to help get you the info. 

I am having a similar situation. I have 4 units that I have just acquired to rent. Thee are 2 possible renters, but their credit is borderline. They do qualify from an income standpoint, but they have had a couple of filed evictions, but none completed. Suspect that they were late on rent. They "seem" to have their act together, but one never knows. Are there any ways to protect ourselves if something goes bad?