Thoughts on renting property back to former borrower

11 Replies

We have a SFR in Michigan that was taken back at the FC sale last December and the redemption period expires on June 6th. The borrower may still be in the property and one strategy we considered is to approach the borrower to see if he wants to remain in the home and execute a rental lease with our company as the landlord. This way we avoid eviction/REO resale and reposition the asset as a cash flowing property.

I'm sure that this scenario has some risk especially in light of CFPB regs. Does anyone have experience or comments regarding the viability for this approach? 

Thanks

Originally posted by @Bob Malecki :

We have a SFR in Michigan that was taken back at the FC sale last December and the redemption period expires on June 6th. The borrower may still be in the property and one strategy we considered is to approach the borrower to see if he wants to remain in the home and execute a rental lease with our company as the landlord. This way we avoid eviction/REO resale and reposition the asset as a cash flowing property.

I'm sure that this scenario has some risk especially in light of CFPB regs. Does anyone have experience or comments regarding the viability for this approach? 

Thanks

 Bob - tag along question. How did you deal with assessing your obligation to make any disclosures to the homeowner once you bought the sheriff deed? I'm in Michigan and have looked at buying sheriff's deeds, but one thing that's scared me off is it's not clear whether I have any CFPB/other obligations under federal or state law to disclose anything to the "homeowner". I'm a real estate attorney and it's tough for me to even figure that part out.

Originally posted by @Joshua Birk :
Originally posted by @Bob Malecki:

We have a SFR in Michigan that was taken back at the FC sale last December and the redemption period expires on June 6th. The borrower may still be in the property and one strategy we considered is to approach the borrower to see if he wants to remain in the home and execute a rental lease with our company as the landlord. This way we avoid eviction/REO resale and reposition the asset as a cash flowing property.

I'm sure that this scenario has some risk especially in light of CFPB regs. Does anyone have experience or comments regarding the viability for this approach? 

Thanks

 Bob - tag along question. How did you deal with assessing your obligation to make any disclosures to the homeowner once you bought the sheriff deed? I'm in Michigan and have looked at buying sheriff's deeds, but one thing that's scared me off is it's not clear whether I have any CFPB/other obligations under federal or state law to disclose anything to the "homeowner". I'm a real estate attorney and it's tough for me to even figure that part out.

 @Bob Malecki I did that once in Seattle and it came back to haunt me. The former owner needs to vacate and get a clean break. It's over, done, kapupt. They had their chance and now it's time for them to move for both of your sakes. 

No good deed go unpunished. ;-)

@Joshua Birk from a foreclosure standpoint I don't see any obligation to make a disclosure to the former borrower, they were served per state laws. 

@Mike M. Thanks for your frank input, could you provide more info on how this impacted you negatively on the Seattle deal?

Thanks

Bob

Originally posted by @Bob Malecki :

@Joshua Birk from a foreclosure standpoint I don't see any obligation to make a disclosure to the former borrower, they were served per state laws. 

@Mike M. Thanks for your frank input, could you provide more info on how this impacted you negatively on the Seattle deal?

Thanks

Bob

 The statutory redemption rights lay out how a homeowner can redeem (which may include requiring the owner of the sheriff's deed to give them a breakdown of the updated amount owed). That's the part that could possibly raise obligations in my estimation - if they want to redeem and don't know who to pay. Obviously, there would be a record in the titlework of who the new sheriff's deed owner is, but the average homeowner wouldn't know enough about real estate to figure out who the new owner is.

Like anything else it works till it doesn't.

I have rented to previous owners for 4 or more years.

The benefit is you can start collecting rent immediately without having to fully rehab house. Good way to build up some capital. Odds are that house isn't in pristine condition but they don't care since they are already living there. 

Once they are gone be prepared to put 10k plus in the house but then you can get market rent.

Hi @Joshua Birk , our loan servicer would handle those aspects for working with the borrower for redemption payoff and the borrower has received a good amount of mail and phone calls from them.

Originally posted by @Bob Malecki :

@Joshua Birk from a foreclosure standpoint I don't see any obligation to make a disclosure to the former borrower, they were served per state laws. 

@Mike M. Thanks for your frank input, could you provide more info on how this impacted you negatively on the Seattle deal?

Thanks

Bob

 When it came time to get him out of the house he wouldn't leave so I had to start eviction proceedings. He got an attorney pro bono from a "social justice", "we know you've been wronged" group and told the attorney he never sold the house. I provided the Warranty Deed and the Notary information. The seller said it was all forged. His attorney knew how the system works so his assertion he never signed, regardless of the notary and closing documents meant that it had to go to trial. In King Co. that means a year and a half wait with all kinds of expenses. Until trial was over I was making payments and couldn't sell because no one wants to walk into an ongoing lawsuit. 

I won the case but at a heavy cost. He lied and perjured in court to the judge. His several perjuries and direct contradictions of pertinent facts from previous testimony was ignored by the court and Nothing Happened to him, Nada, Zilch. 

Turns out you can lie to a judge in King County and it doesn't matter. He lived in the house all through the lawsuit for free. 

Makes you feel warm all over doesn't it? (sarcasm intended)

The nasty investor (me) got my "come uppance" and the "victim" (him) got free lodging and free legal for almost two years.

I've made way too much money to be bitter but it is just a warning to move people out when they sell.

That's the short version.

@Mike M.

I did it once only because the borrower had a buyer for the property. Otherwise in many instances rent is more than the mortgage payment so if they couldn’t afford the mortgage they cannot afford rent. I would rather give them cash for keys of a few grand and say adios

Bob,  prior to foreclosure rescue lease back becoming illegal in OR and WA.. I did well over a hundred of them.

So I would say 70% stopped paying within 3 months and then you just have to evict.

but like others I had some go for a few years.. I set the rent at what their mortgage was or lower B/C if you go higher than that they for sure cant pay.

Most stayed for kids in school.. I had 3 actually buy the home back.. out of like I said 100 plus of these..  Also the amount of money we were paying just to cure is probably about what your paying for the whole mortgage.. we ended up sub to on millions of dollars of loans.. :)

We had great equity positions in these.. And I assume since it a rust belt note you do to. 

If its a tough to evict state I for sure would not do it

I just don't mess with them - if you couldn't pay your mortgage you likely can't pay me the rent which would be higher -  I do not ever sell back to them! ever!  I would rent them another property if they were truly qualified but never do i rent them the same one back

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