Renting to Seller after short sale - do you need to have them leave the house first?

Question

I have an offer approved for a short sale and am just waiting for the final paperwork.  The seller wants to stay on in the house and I have no problem with that,  The bank contract says they must leave.  How earnest are banks in checking on this?  Can the seller move out and then move back a short time later?  Any other thoughts?  I am from out-of-state and have no relationship to the seller in any way.

Jon Holdman · Answer

The sellers need to leave and never come back.  End of story.

Yes, the bank may check and discover the fraud you've committed.  Since they've taken a bath on the deal, they're not going to be sympathetic to you.

For a rental to be cash flow positive, the rent needs to be 2X the P&I payment.  Even if you buy at a significant discount, once you double your P&I payment to get to a good rent, their rent is not likely to be much less than their previous PITI payment that they couldn't make.

Just say no.

Account Closed · Answer

The big problem with renting to the guy who lost the house is that he will never understabnd that he no longer owns it. You'll have a power struggle and maybe even a lawsuit.

In the meantime, if he could make the payments, he wouldn't have lost the house. When he couldn't pay, he refused to leave, so it's almost guaranteed, if he doesn't pay the rent, he will dig in until the bitter end and make you do a full eviction and then physically thow him out.

Find yourself a different tenant.

Carey Buck · Answer

I agree with Jon...they have to leave and NEVER COME BACK.  Period.

I turn away deals where the seller wants me to rent back to them...I explain that I don't do business that way and I explain why.  Sometimes they understand, sometimes they get ticked.  Either way...I ain't doing it.   :-)

Mike C · Answer

Ted,
          
          I agree with Jawsette and Jon on this matter. Why would you want to rent to someone who has shown they cannot afford the home? They will default sooner or later if you try this or they would not be behind to begin with. Granted, the Fannie Mae moratorium may change things someday soon, maybe. But I donâ€™t want to be the test case. Do you? You are in Canada so check with a knowledgeable RE attorney in your area. But in the US of a A, I would never choose a tenant who has demonstrated they canâ€™t pay. I donâ€™t think Canada would be any different. 
          
          Best of luck
          
          Mike C

Eddie Ziv · Answer

Ted, What Jon is saying is true, however I see that you are in Alberta. Is that Canada? If the property is in Canada, the laws may be different. Check your status with a real estate lawyer.

Jim Wineinger · Answer

640/year now. What about special assessments, increases, ect. You have absolutely no control over these things and because of them you never own it free and clear so to speak.

If no homes in an area are available without an HOA, then I will not be in that area.

Ted Bloomfield · Answer

Hi Jawsette,

Almost all houses in the area have an HOA and his HOA was only $640 for the year.  If you exclude house with an HOA, you will not get a house.

Brian Haskins · Answer

I have never heard of them checking.

Brian Haskins

Jim Wineinger · Answer

Plus there is another strike against this property itself. Point three you mention an HOA. That in itself should have stopped this deal. It may be the real reason that the homeowner could not keep up with things as they do not have a history of being lienient in any way to the homeowners and to keep current on their HOA fees they may have gone behind on the mortgage.

If you find any deals involving an HOA please steer clear as you can not control your property and costs.

Ted Bloomfield · Answer

In answer to a few of the questions:
1.  The house in in AZ.
2.  How can you get a lawsuit from a renter after they have sold the house? 
3.  They were not behind in the taxes or the HOA and the house is in premium condition.  The people are open and very approachable, even when I first looked at the house.  They have lost one job and they know they cannot afford the house and may have initiated the short sale.
4.  The house is much less expensive for them to rent than own.  It has devalued significantly.  The people appear to have good character.  It is more or less what they suggested they could afford.
5.  The rent is 2 x P & I so it is acceptable to me.
6.  What can the bank sue you for?  I accepted the deal before I talked to the home-owners.  I realize it is in the agreement but I thought this was mainly a clause to stop exploitation of the bank.  There is obviously no collusion here with me being Canadian  
7.  Is it also a law in the US that short-sellers have to leave?

Renting to Seller after short sale - do you need to have them leave the house first?

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