Local Real Estate Comments and Ramblings

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We check the tenants credit.. What about the landlord?

We check the tenants credit.. How about the landlord?

More and more often I am getting calls from people who are renting their homes, paying the rent on time, and then find out that the landlord has not been making the mortgage payments. The situation is even worse if the caller was in a lease purchase arrangement and put up $thousands$ for the chance to buy the home.

In almost every situation the caller/tenant has no choice but to move.  If they have put up extra money toward a lease purchase they will lose it.  Their security deposit is gone.  Oh sure they could sue the landlord and win.  But so what.  The landlord has no money and then the tenant has to try to collect.  Maybe if the landlord has a job they can get a garnishment.  That is if the landlord doesn't go bankrupt.

I do a little tenant representation but I wouldn't consider myself an expert in this area of real estate.  But what can tenants or prospective tenants do to protect themselves? My basic proposal would be for the landlord to provide a copy of each months mortgage statement to the tenant showing that the payments are current. The landlord can blackout some of account numbers and personal information.  Just leave enough so that the resident knows it is the statement for the home they are living in.  This would create a more equilateral relationship between the tenant and landlord.  The landlord recieves the rent each onth so they know the tenant is current.  The tenant recives a mortgage statement each month so they know the landlord is current.

For the agents out there reading this, what would you do to protect a tenant?  Are there any clauses in your leases or any special stips that you have seen?

How about suggestions for tenants that find themselves in this situation?

************

Bob Southard, e-Pro, Realtor ®, Solid Source Realty, Inc. Buy a home, Sell a home, in Powder Springs, Marietta, Kennesaw, Acworth, Dallas, Hiram,and Cobb, Paulding, Douglas, North Fulton, South Cherokee, County, Ga. Call me for all of your real estate needs.

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Comment balloon 59 commentsBob Southard • June 07 2009 02:14PM

Comments

Sounds like a good idea.  However, how many landlords would be willing to do that?  I would hope every one of them.

Posted by Angelia Garcia (Pure Realtors) over 9 years ago

While you're at it, make sure the landlord is paying the property taxes too, and the insurance... Where do you draw the line? I'm guessing it will be a rare landlord who will cooperate with these requests.

Posted by Tim Bradley, Commercial Real Estate Expert in Jackson Hole, WY (Contour Investment Properties) over 9 years ago

Bob:  I think we have all heard of some situations where sellers have vacant homes, and end up renting them, and then keep the rent without making their payments.  Often times the buyers who get into trouble with these... are the ones so desperate to get into a home, that they ask no questions whatsoever of the seller/owner/landlord.  It is not hard to happen...

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 9 years ago

Sounds like in these times of foreclosures there should be some information the seller should provide to the tenant to assure them they won't get kicked out in 2 months. Have heard of many cases like that. I guess if there are enough rentals to choose from and the seller won't cooperate with furnishing some data, pick another property.

Posted by Dorie Dillard CRS GRI ABR, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.346.1799) over 9 years ago

I only handle my own rentals.  Knowing there are issues out there like you mention, my recent ad states that it is NOT a distressed property and NOT for sale.  Both are true but you gotta want a rental on Kauai to benefit.

Posted by Richard T. Dolbeare, R(B), ABR, CRS...Hawaii Multi-Island Specialist (Keller Williams Realty Maui) over 9 years ago

I have a novel idea!

How about a credit check for Barney Frank, Chris Dodd, Greg Craig and Maxine Waters- for starters?

I know-ain't gonna happen- but just thought I'd ask!

:-)

 

Posted by Harriet Carter (North Georgia Mountain Realty) over 9 years ago

Tenants have no BUSINESS REASON to run their landlord's credit report and landlord/credit subscribers can not run their own credit so the idea is both absurd and problematic.

Tenants need to do their "due diligence" with regard to the property they rent - make sure it is NOT currently for sale; verify ownership through tax/public records and if possible, have a title report done if they have time....many title companies will do a basic title search for FREE.

Frankly, this is more of a media hype for a few areas of a few states hit hard by foreclosures and the problem has been compounded by listing agent/Realtors placing tenants in unsold homes where the owner/landlord does not have the tools or resources to properly be a landlord.

 

Posted by Wallace S. Gibson, CPM, LandlordWhisperer (Gibson Management Group, Ltd.) over 9 years ago

In addition to principal, interest, real estate, taxes, insurance... another nasty situation to be in is to have a landlord that does not pay their (HOA) fees in a condo to the association. I've had rental clients that not only had to turn over their rental payments over to the association for delinquent HOA fees, they had to pay INTEREST on those HOA fees as well. You are absolutely correct, it should be standard for landlords to produce documents that they are current on their financial obligations involving the property being leased... but my feeling is MOST would be hesitant and reluctant to do so. I would be willing to bet that a lot of landlords would probably pass on an offer to lease if those stipulations were included in the offer, they would rather wait for another offer.

Posted by Ron Jeanniton over 9 years ago

I love you comment Harriet!   you are my kinda people!

Posted by Chris Opstedal over 9 years ago

Bob, I think this is a great idea.   It creates accountability for the both the landlord and the tenant.  I get questions about this very issue from tenants who are interested in purchasing homes as first time homebuyers. There is an increasing awareness of this issue, and you present a good solution.

Posted by Jordon Wheeler (Perfect Properties Realty, Metro Atlanta) over 9 years ago
Great post. Being in Michigan, I have made loans to numerous landlords who have collected rent money but failed to make payments. I am in the process of negotiating a commercial lease right now and we want evidence that the landlord is current and that all taxes are paid. Not absurd at all. In all honesty the due dilligence protects everyone. An honest landlord with nothing to hide will likely cooperate. Like others have said, there are plenty of other choices if they choose not to.
Posted by Dan Moralez over 9 years ago

You might have a good point.  I know of some sellers who want to sell, or rent, whichever comes first.  And I wonder if they are stable at the bank with their mortgage. The house has been empty for a few months. How are they making the payments? 

It may be a while before checking landlord credit is a standard thing to do, but, hey, we are seeing some preposterous things happening right now that we never thought would happen.

Sarah in Nashville

Posted by Sarah Rummage over 9 years ago

Bob I think your intentions are good, but I'm not sure about the feasibility of such an approach.  There are a couple of ways that tenants can be more assured that the owner is credible.  The first is to find properties through a reputable property management company.  Many property management companies are requiring owners to provide updated mortgage information before agreeing to represent the owner.  Secondly, tenants should ask property managers what they are doing to prevent tenants from being ousted due to the high foreclosure rate.  Here's a thought - perhaps it might be a good idea to start having workshops or seminars for renters just as there are seminars for first time home buyers. 

Above all, prospective tenants should take their time, slow down and not be so eager to get into a home at any cost.  Particularly when the house itself makes the prospective tenant lose his/her ability to reason.  Just like home buyers, they get so caught up in the frenzy and excitement of getting a particular house until they are blindsided and in some cases desperate measures are taken even though they know it is not in their best interest.

There is no easy solution to this one, but due diligence is always in order.

Posted by Charita over 9 years ago

Char-ma is a sweet thing!  I just paid a tenant $3500 cash for keys, she agreed to move out and got paid from the bank who foreclosed on the Landlord!!  

Posted by Anna Little (Greater Atlantic Shores Properties at Atlantic Shores Cooperative) over 9 years ago

I don't know what states you guys are located, but every state's laws are different.

In California, it's very difficult for a loandlord to evict a tenant.  It takes about 2 to 3 months to evict a tenant who doen't pay rent at all. Think what would it take to evict a tenant who has been paying on time.

If a tenant faces this situation, tenant laws are very strong & favourable to the tenant, at least in California. If the property was foreclosed & tenant gets an eviction notice, all that the tenant has to do is to prove that he was a bonafide tenant & was paying rent on time. I have seen judges give 90 days to 6 months very easily & in some cases, as much as remaining term of the lease. The bank can't do anything, only accept the rent, as per lease, if they wan't to or let the tenant stay for free. If the bank accepts the rent, the tenant is now banks tenant & if they don't accept the rent, the tenant lives for free, as long as the case is in court & then whatever Judge decides.

BUT there has to be a WILL on the part of tenant to fight back.....

Posted by Rick Khurana over 9 years ago

I disagree with Wallace. Tenants do have a business reason to check out landlords, but it is unlikely that they have the knowledge or resources to do so. I handle foreclosure listings, and I can tell you that tenants are OFTEN blindsided by the foreclosure. More often than not, the former landlord, knowing that foreclosure was imminent (sometimes a day or two later and sometimes THE DAY OF FORECLOSURE) actually came by in person to collect rents. ESPECIALLY when they know foreclosure is imminent, they collect rent and deposits in cash, all the while promising elaborate repairs to take place almost immediately. I just delivered CFK notices to tenants in a duplex on Monday. Three college students on scholarship had rented one side on Friday (cash, of course). The property foreclosed on Thursday. Landlord lives out of state. Tenants on the other side have been there for only three months. They were moved once already in that three months, at the request of the landlord (may have been another foreclosure).

In another instance I dealt with, someone posing as a landlord rented an empty pre-list foreclosure for cash. Those tenants were evicted, and it turned out that the "landlord" was a stranger with NO CONNECTION to the house he rented them.

Posted by Liz Lockhart over 9 years ago

I think there should be accountability in the case of a lease-purchase.  Otherwise, a tenant/buyer has too much to lose.

Posted by Joetta Fort, Independent Broker, Homes Denver to Boulder (The DiGiorgio Group) over 9 years ago

Yes yes yes. I have been on both sides of this equation and I think that your suggestion is a good one (and extremely timely). 

Posted by Sky Minor (Sky Minor Real Estate) over 9 years ago

Bob,

Good Idea... but not realistic for the straight Landlord/Tenant rental transaction. However, in a Lease Purchase arrangement, that should be standard verbiage where the Landlord shows proof that the mortgage, taxes, HOI and HOA are being paid in full and on time. The tenant is also the "Buyer" and therefore has an interest in that information. If a landlord/"Seller" is unwilling to provide that then the prospective buyer would be best served by looking for another house.

Posted by John Fortener, Powered by Success Mortgage Partners NMLS#130562 (John Fortener-Cert. Mortgage Advisor- GA Residential Mtg. Licensee) over 9 years ago

Here in Clark county tenants can check the recorder's website for a notice of default filing.  I tell them to check once a month.  It's also a good idea for tenants to add a clause in the lease that if the property is in default, the rent amount changes to (pick a number) and the tenant may cancel the lease without penalty.  At least they'll have 4-5 months of cheap or free rent while looking for a new place.

I discourage lease/options because I think they're too risky for the tenant.  In my opinion, to do it right, they'll need an attorney and a title company and most people aren't willing to pay the extra fees to put those protections in place...and most owners want their option $ upfront, not sitting in escrow.

Posted by Damon Botticelli, Realtor - Las Vegas Real Estate (Silver State Realty & Investments) over 9 years ago

Well, for starters, prospective tenants could check public records to see how what the mortgage amount against the property they are looking to rent is. For example, if the proposed rent is $1,000 and the mortgage against the property is $150,000 then we already know that the rent payment won't cover the mortgage payment, let alone insurance and property taxes. Potential red flag ...

Posted by Susanne Novak, ABR, FIS, GRI (RE/MAX 24/7) over 9 years ago

It'll be a cold day in Hades when I let a tenant check my credit.  However, if s/he wants to conduct whatever due diligence and draw conclusions, knock yourself out.

Susanne, a prospective tenant couldn't accurately determine the monthly payment based on your parameters.  Besides, how do you know that the landlord hasn't adequate reserves to ride it out until s/he raises the rent?

 

Posted by A landlord over 9 years ago

I use my own addendum that the owners have to sign that says they are up to date in their mortgage payment, HOA fees, taxes, insurance etc. 

In the event Landlord/Owner fails to remain current on any required payments, or a Lis Pendens is filed against the property, the Landlord then becomes in default of the Lease Agreement and the Lease Agreement is terminated.  Landlord/Owner hereby agrees to notify the Lessee immediately, return any and all deposit monies and application fees incurred as a result of such default.  

I also add a Hold Harmless for myself and my company from both parties.

So far, so good. Nobody has refused to sign it. If they did....well.. I would be moving on.  AS for what happens if the owner does go in to foreclosure during the lease....I have yet to have that happen but I HAVE seen other tenants go to small claims court and win everything. It seems the Judges are on their side.

No it's not fair and I am so extremely tired of hearing crying on the other end of the phone while some jerk demands rent payment and hasn't paid his own mortgage or HOA fees plus has no intention of giving the tenant back their last months rent or deposit money so the tenant is left helpless with no way to move because they have no money.  I do know what I say to them but I won't put that in print. 

I also discourage Lease Options at this time since the market is constantly changing.  I'm not looking for anyone to lose money in this economy. 

 

Posted by Barbara Johnson in Port St. Lucie Florida over 9 years ago

I hadn't thought about clauses in the lease though I have started checking for NODs and asking the agent if the owner is current on their mortgage.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 9 years ago

This is a very good point. The only real problem is co-operation on the part of the Landlord.

Few, I think would go along with this. However, if there were some kind of consumer driven legislation which required reciprocal credit checks, then that might work.

Otherwise, this will continue to be a unresolved risk for tenants.

Brian Madigan

Posted by Brian Madigan, LL.B., Broker (RE/MAX West Realty Inc., Brokerage (Toronto)) over 9 years ago

Bob:

I do not know of a solution to this issue.  I have asked several attorneys and have been told there is no solution.

Montgomery County Md. is a consumer driven county.  I would not be suprised that a piece of legistation is not being talked about.

 

Posted by Bob Force (REALTOR®), The FORCE in Maryland Real Estate (Weichert Realtor - New Colony) over 9 years ago

I have a addendum sinilar to Barbara's where the lease agreement is then in default. If the landlord can not pay the tenant their security deposit,a nd last month's rent. Then the tenant can use those monies as rent. I also check the public records to see if the mortgage is larger than the current rent. Also this website is helpful: http://www.rentalforeclosure.com/

I do not think a tenant should have to check a landlords credit, but the landlord should show proof they are current on their obligations to the bank. You know when you are dealing with a professional landlord versus someone who could not sell their home.

Posted by John Palmisano (Keller Williams Properties Weston, FL) over 9 years ago

I feel for these people, but they also need to use some sense. The local newspaper just ran a story about some unfortunate folks who have to be out this month because the house has been foreclosed on -

In the story they quote the woman as saying that they'd been seeing the foreclosure notices posted for several months, but when they asked the landlord he always said "Don't worry about it. I'm taking care of it."

I think when I saw the first notice posted I'd be looking for new digs...And if I saw a second one, I'd know the owner wasn't "taking care of it."

I also have a friend who lives next door to a property in foreclosure. The sale is coming up in about a month. The owner moved out long ago and rented it to a couple who said they were buying it - but since they never got around to it, she went ahead and filed bankruptcy and let the house go to foreclosure. The tenants quit paying rent and the "owner" swears that it has nothing to do with her. She says she no longer has an interest in the house because of the foreclosure - but County records still show her as the owner.

Now the tenants still say they're buying it and it will close any day.

Meanwhile, my friend is preparing to go to the sale because she'd like to have the property.

 

Posted by Marte Cliff, your real estate writer (Marte Cliff Copywriting) over 9 years ago

Great post.  This is a difficult egg to crack, but I like Barbara Johnson's addendum.

Posted by Jerry Current (HBC Realtors) over 9 years ago

My agency is here in La Jolla, CA near UCSD.  My Realtor sons (university students) are building their business through relationships with other students, and thus, we handle a lot of tenant-side leases.  I absolutely agree with the concept of challenging landlords to prove-up.  When we represent a tenant, we are typically leading them into a 12-month lease contract.  But even in our very upscale community of La Jolla, we have landlords who are upside down in their mortgages.  In addition to running credit on landlords, another mitigation would be to minimize "security deposit" in the lease and instead specify pre-paid rent.  This is an interesting subject considering the current economic situation.  And it is definitely NOT absurd, as one other poster stated.

Posted by Tim James over 9 years ago

I am a Realtor in the Springfield, MO area.  Our company specializes in investment properties and does a great deal of property management.  I agree with a lot of the previous posts... the theory is good, however, I don't have a property manager that would consent to having their credit checked.  We deal with a lot of applicants, if each one pulled a credit report, that would be a serious hit on the owner's credit score (especially if they own 40 + units as some of my clients do).  Checking public records is probably the best solution for renters, though I'm willing to bet very few would actually do it on a monthly basis.

As far as lease-options go, there is a great alternative.  It's called a wrap.  This would need to be handled through an attorney, but it protects both sides.  Basically, a mutual bank account is opened where both tenants/buyers and owner/landord have access.  Each month the buyer's deposit their rent into that account, and the owner makes the house payment out of the account.  Buyer's can now verify that the payments are being made! 

 

 

Posted by Wendy over 9 years ago

Bob. This is funny that you should post on this topic. Some Renters contacted me today. They just paid their rent a few days ago only to find that their house is being sold as a short sale! They have been living there for years. No notice or consideration...Just lots of strange people driving by and trying to look inside THEIR rental. It is very unfair.

Posted by Mark Velasco, Listing Agent-Whittier & Surrounding ciities (Sharpstone Realty, Inc) over 9 years ago

Bob-

 

Here in South Florida we have access to pending foreclosure records. Pending foreclosure records are easy to research, and can save your lessee and yourself time and money. I would imagine other MLS' have similar features.

 

Matthew Canavan

Posted by Matthew Canavan (A.J. Ryan Realty) over 9 years ago

I've heard of this unfortunate thing in Michigan and the tenant is at a loss.  Where would tenants rights be in this situation.  Can the bank kick out a tenant as long as they are paying the rent?

Posted by Virginia Tatseos (Stage-Show-Sell) over 9 years ago

Squat! Squat! Squat! Thats what I recomend

 

 

Posted by BB over 9 years ago

I recently had a Tenant Applicant who asked for proof that the Landlord was up-to-date on mortgage payments.  The Landlord agreed to comply.

Posted by Anonymous over 9 years ago

Sadly, we have seen that situation here in Michigan.  Most landlord/sellers won't be reluctant to sign an addendum stating they are current on their mortgage, etc. if they actually are. 

Posted by Ed Vogt, Grandville, MI Midwest Properties (Midwest Properties of Michigan) over 9 years ago

As a tenant screening provider, we have fielded the occasional request from a tenant to check a landlord's credit. And while it's a great idea in theory, it's just not possible due to FCRA guidelines. Even if the landlord gave permission, the tenant does not have "permissible purpose" and would not be compliant with any reputable credit provider.

That said, I think the Tenant can't do any harm in asking to see proof that mortgage payments are being made. If the landlord agrees, great. If not, find a larger property management company to rent from; as they usually check this information as a course of business.

Good post! Thanks.

David
AdvantageTenant.com

Posted by Team Avantus (Avantus) over 9 years ago

Some of our agents have added to the lease contracts that if at any time the landlord becomes behind on the mortgage that they can live rent free in the property until they are able to find a new home. They also check that they payments are up to date when they make the lease out.

If the landlord is having problems they will not want to sign this lease. This should help tennants avoid the foreclosure surprizes.

Posted by Gail Cruz, Marketing Director, RE/MAX Premier Associates over 9 years ago

A few months ago, some friends of ours were notified that their landlord would be putting the house they were leasing on the market for a short sale.  They found another place to live, but did lose all their deposit.

When we recently were looking for a home to rent for a time, we were careful to ask as many questions as we could and find out the current situation of the landlord.  But other than that, we weren't sure what we could do.  Thanks for the timely post.

Posted by Beth Lester, Home Staging & Interior Decorating (Beth Lester Designs) over 9 years ago

Tenants can do some checking on the property at rentalforclosure.com to see if the property is in foreclosure.  My advise is not to pay the rent too far in advance.  A while ago when I had some credit problems I paid a years rent in advance to get a property.

Posted by Gene Riemenschneider, Turning Houses into Homes (Home Point Real Estate) over 9 years ago

Wow! I've been on Active Rain for a long time and this is my first featured post...... It feels good :-)

Thanks for all of the comments!

There are too many to comment on each one individually, but I have several thoughts.

It's very interesting to see how the different foreclosure processes play out around the country. There were a lot of different opinions and solutions offered and I think they are all relative to the process in a particular area.

 Here in Ga it's one of the easiest, and fastest places in the U.S. to foreclose.  There is some notice that needs to be given to the owner before the process actually starts but the basic process is that the bank needs to advertise the home in the legal section of whichever newspaper is approved for that county.  The house is advertised for 4 weeks and then it forecloses on the first Tuesday of the next month. BANG.  Done.

There is no long drawn out process, no other NOD other than the legal ad, and the entire process only takes about 30-35 days.  In most cases the first clue that the tenant would get is when the investors start knocking on the door or sending mail offering to buy the house to stop foreclosure.  By that point the foreclosure is less than a month away!  The first public notice is the legal ad, so there is no easy way for the tenant or leasing agent to check on the loan status, other than to have the owner provide proof.

As to adding a clause to the lease saying the tenant can not pay rent until the loan is current, again the process happens so fast here that I'm not sure how much protection that offers.  By the time the tenants call me the house is less than a month away from the courthouse steps.  The tenants know this and are already going to withhold the rent. Their basic plan is to stay as long as possible save 1-2 months rent and use that for the move in on the next house.  Of course they will never see a refund of their security deposit if it was held by the owner.

Mortgagees rights - I think this is probably fairly common that the lease would stipulate that the mortgagee(bank) has rights over the owner.  If the bank forecloses the lease becomes void.  However in the case of a short sale the lease should not be affected.  A short sale is still a sale between the current owner and the new owner and the property would be sold subject to the lease.  

Checking credit?  The title of the post might have been a little misleading because I don't actually think a credit check would solve the problem.  I think the solution that I proposed would provide MORE protection for the tenants.  The landlord needs to povide some sort of accountability.

I like the idea of advising the tenants to rent from a property management company.  That could help.  However, I know that many of the management companies here do not make the mortgage payments for the landlord.  I would suspect that that do somehow keep tabs to make sure the mortgage is current.  Property management is not my field but I do think it would add at least a little bit of protection for the renters.

One of the big fears that tenants have when I get these calls is that they will come home one day and all of their belongings will be out on the street.  I won't speak for other states but around here that is not the case.  The bank would still need to go throught the eviction process or as one commentor suggested do a "cash for keys".   The bottom line however is that the tenant is going to be moving.  They need to start looking for a new place right away.

Thanks again for all of the great comments! 
Keep them coming!

Posted by Bob Southard, e-Pro - Cobb, Cherokee, North Fulton (Atlas Realty Service, LLC) over 9 years ago

While we're at it...shouldn't homebuyers also be able to ask for at least their agent's credit score?

 

When I hire someone to act as my fiduciary, it's in my best interest to make sure they are financially sound.

Posted by Shannon Stanbro, 5280mod.com (Stanbro Real Estate llc) over 9 years ago

On May 20, 2009, the Protecting Tenants in Foreclosure Act became effective. In essence it removes the ability of the foreclosing entity from immediately evicting the renter. At a minimum the law provides the renter with a 90 day notice. Go to NHLP.ORG for more information.

Just another reason to use professional property management. Our property management company does the due diligence for our renters. The only problem we have encountered is when an owner does not pay its HOA fees and services are disrupted to the renter; In such a case we use rent proceeds to pay the HOA before disbursing to the owner.

As for lease purchase transactions, we hold the renter's upfront money in escrow.

Posted by Dean Jacobsen (Realty Management Advisors) over 9 years ago

This is a bad situation which is exacerbated by people's greed, in some cases, and despartion in others.  May be a good idea to get Landlord info but I too doubt that many will agree unless it is yet another requirement imposed upon them by government (I would not be much in favor of that approach) or if real estate people could convince the landlord that it would get them better renters somehow. 

I agree with the comment by Harriet that the people who helped cause this messy situation in the first place should be checked into ASAP and elected out of office so they cannot continue to harm our business, the economy, and the country - but I know that won't happen either!

Posted by Tom Bradley over 9 years ago

I think I will adjust the wording on my addendum as John mentioned  to say that should the Owner/Landlord default on the lease the tenant can give a 30 day notice and use their last month and security deposit as rent since many tenants have first, last and security given up front.

We all know they aren't going to get anything back from their owner so while they are looking to move at least they can have a months rent, or more, in their pocket instead of the defaulted Owner/Landlord and be able to move.

As for renting only from a management group, that's fine if the management group has the money. I have found many don't and even though they know their owner is in foreclosure continue to demand rent and still don't fix anything since THEY WONT GET PAID.

Posted by Barbara Johnson Choice Properties in Port St. Lucie, FL over 9 years ago

Unfortunately this is all too common...I think the mortgage statement is a good idea.

DM

Posted by Dan Magstadt (Paramount Residential Mortgage Group, Inc) over 9 years ago

Wow, lots of good comments - for both sides of the discussion.  I am a Realtor who started as a Business Development and Liquidation Consultant, ( I grow and kill business ).  In my spare time I have volunteered on many good social and local government projects - including Blueprint Denver, the Mercy Redevelopment Project and attempted to develop a fair platform for Landlord / Tenant Rights (Yes, even landlords need to have rights too!) 

In Denver, there is not much protection available for tenants.  In Salt Lake City there is (was in 2005) a fair attempt to honor both the landlord and the tenant.  It is the best template for Protection on both sides that I have studied - ever. (Although I have not studied all 50 states or any European Landlord / Teneant models.

No matter which side of the fence you sit, ask yourself this: "Would I want to be treated this way if I were in these shoes?"  In fact, many Brokers are becoming tenants these days!!

Think hard on this - many Realtors / Investors are stalled on their fix / flips and do not know how to be Landlords.  If you have a hard money construction loan (thank you all you 'get rich seminar hounds'), your choice may be to lease the home to a tenant just to pay the construction loan.  There is not quite enough to pay the mortgage, but hey - who cares?  You can pocket a few hundred a month until the house goes into foreclosure and put off damaging your credit.  Maybe this will buy you some time to get back on track.  Really, this action does nothing but put off the inevitable.  By dragging a tenant into this mess you are in, trying to use theirs money to stay afloat, you are repeating the one action that put this Country on its' ear.  Really, if you are going to use their money, why not make them a partner? 

I find a fatal flaw with the statement from the gentleman:

"Tenants need to do their "due diligence" with regard to the property they rent - make sure it is NOT currently for sale; verify ownership through tax/public records and if possible, have a title report done if they have time....many title companies will do a basic title search for FREE."

As Brokers, what is suggested makes sense to us.  However, it presumes that the average tenant has the same access to information that we use.  Not true.  While some of the information is public, I don't know of any Title Firm who is willing to run free title searches for any non-broker who would call them. This means that the tenant will likely need hire a Broker to act as their Personal Representative and the Title Firms would probably start charging due to the volume of requests..  Additionally,  this statement does not address the need to verify that the Landlord not only owns the property but is current on the mortgage - which strikes at the heart of this discussion.

Each State has different laws but most of the time National law overrides.  This discussion is about  Business ETHICS and LAW. I am no attorney, and would really like to get a legal opinion on this.

This discussion is about Landlords leasing property that they may not own or have the right to lease for the time on the contract. I believe this lack of professionalism and the attempt to avoid personal responsibilty in business is, in my opinion, a fraud.  Leasing to a tenant when the property is at risk is the same as selling an expensive product on time payments and never delivering the whole product. Again - in my opinion, IT IS FRAUD!

Posted by Penelope Zeller (The Business Ranch) over 9 years ago

I agree that there needs to be a special stipulation about showing the mortgage payment history.  It would not necessarily need to be every month but perhaps a bi-monthly event.  The property taxes are easy to check on.  All the tenant (or anyone for that matter) has to do is call the local county tax office or drop by or even go on-line in some cases and check to see if they are current.  They are public record.  As far as the property insurance goes, my thought is the tenant needs renters insurance.  If the house burns to the ground, the tenant is concerned about his belongings.

Posted by Margaret Kees over 9 years ago

This is a timely subject with the foreclosures and short sales happening at an increasing level in our business, but fortunately one that is easily solved.  By simply setting up an escrow account at a title company or independent escrow company, payments for rent can be received, mortgage, insurance and tax payments distributed and remaining amounts sent to owners, managers or whoever is to receive them.  Management companies can do the same thing on behalf of owners and renters. 

Posted by Dennis Erickson, My Best..., Always! (Berkshire Hathaway Home Services Montana Properties) over 9 years ago

AgentBob, this is happening more & more & I can only see it getting worse! I was going to do a post on RealtyTrac sending an email for XXX per month they will be sure the landlord is not defaulting on his mortgage.  I think this is a total paranoid rip off but for some this might work.  So on top of your rent you have to monitor your own credit, monitor your landlord and monitor who else?

Dennis mentions a mgmt company but what if the owner doesn't send a payment? What's the big bad mgmt company going to do for the tenant?  Nothing!

Posted by Lyn Sims, Schaumburg IL Real Estate (RE/MAX Suburban) over 9 years ago

This has always been an issue and is just moreso now due to the heightened economic woes of our country.  Tenants can use public records to pretect themselves to a certain extent. Unless they're using an agent, they probably will not have access to a free title search. Having the landlord's credit checked is unnecessary if you follow the NOD in the public records.  Also, placing a clause in the rental agreement regarding the ramifications on the landlord should the property go into default is a good idea.  At least there was a recent law passed that protects tenants giving them 90 days before they can be removed from a property once a home has been foreclosed upon. 

Posted by Kimberly Thomas, Broker-Associate, Keller Williams Realty - Voorhees, NJ (www.KimThomasHomes.com) over 9 years ago

As agents in Southern California, we have access to tax records which show NODs, NOTs etc but also show when the property was purchased, how much and what loans are held.  While this doesn't give positive proof that a landlord is headed toward foreclosure it could give us a heads up that a property is in danger.  Then it is up to the prospective tenant to make a more educated decision.

Posted by John Alesi, (Orange County California Real Estate) (Century 21 Award) over 9 years ago

If you're the buyer's/tenant's agent, that is actually your responsibility to check that the property is in the name of the person offering it for rent and that any encumbrances cannot reasonably be expected to jeopardize your client's quiet enjoyment.  If you're a Realtor, deal with your client responsibly. 

If you are representing the landlord and do not perform your duties to investigate the ownership and possible loss of tenancy, you're just as guilty as the landlord for hiding any information that would jeopardize the tenancy. 

In Texas the law calls for annual reporting of the liabilities on the property but only when there is an outstanding contract to purchase.  The contract to purchase must have an executory period longer than 90 days for the law to apply.  In the situation where the tenant is also buying, foreclosure typically takes a long time (except in Texas) and discovery of the problem would likely to be timely enough for tenants to take remedial action. 

HOAs are the biggest devils, though.  They report to no one, they have the power to place a lien and can foreclose on their own timetable.  Many of them are either incompetent or vindictive.  They don't care that the homeowner may have lost his job.  They charge outrageous late fees, collection fees, attorney fees, notice fees, interest and anything else they can get away with.  Many of them won't return a phone call, won't establish a payment plan, and fire off letters like they were attacking enemy combatants. 

And what about tenants?  HOAs hate them.  Most HOAs consider tenants anathema and want them gone, the sooner, the better.  They feel that tenants lower the value of properties in the HOA area.  Tenants often have to argue annually about getting access to pool and other facilities, because the HOA says they must do so annually.  HOAs also insist on digging into the financials of landlords by requiring disclosure of insurance and leasehold tenancies.  Covenants usually say that a property must be insured, but the HOA insists on seeing a policy, not a certificate of insurance.  Tenants need to registered to get HOA benefits, but often the HOA interprets it to mean a copy of the lease must be provided to them (showing the amount of rent).  Somebody had better curtail them soon. 

Posted by T. E. Sumner (The Michael Group) over 9 years ago

As a Coldwell Banker Agent, we have been advised to include the following verbiage in all of our Lease Agreements.  Both the Landlord and Tenant are required to acknowledge and sign....

In the event that ANY lender (many properties have more than one mortgage) files a Notice of Default or Notice of Trustee Sale on subject property noted above, this Lease Agreement immediately converts to a month to month lease with the tenant retaining the right to cancel with a 30 day written notice.  Furthermore, the tenant reserves the right to withhold rent in an amount not to exceed their Security Deposit(s).

For example:  If you paid a $2500 Security Deposit and a $300 pet deposit, then under the terms of this provision, you would withhold an entire month's rent and part of the next month's rent to equal the total recovery of $2800 in Security Deposits.

You are strongly advised not to spend this money, as the landlord may cure the default (pay the arrears or renegotiate with the bank), and you would be obligated to pay back the entire deposit to your Landlord.

Posted by Debbie Padilla over 9 years ago

Ok..I'm loving this exchange of wording. So far I have adjusted my addendum to say:

Landlord/Owner represents that he/she is current on all mortgage payment/s, HOA and/or condominium fees, and real property taxes, and Homeowners Insurance for the property which is the subject of this Lease Agreement and shall remain current under the terms of the Lease Agreement.

In the event Landlord/Owner fails to remain current on any required payments, or a Lis Pendens is filed against the property, the Landlord then becomes in default of this  Lease Agreement. The Lease Agreement then immediately becomes a month to month with the tenant retaining the right to cancel with a 30 day notice.  Furthermore, the tenant reserves the right to withhold rent in an amount not to exceed their last month's rent and security deposit if paid in advance.

The Landlord/Owner and the Tenant/Lessee agree to Hold Harmless YOUR COMPANY, its agents, successors or assigns of any liability due to any default by the Landlord/Owner or the Tenant/Lessee of the terms of the Lease Agreement or this Addendum.

Then is it signed and dated by both parties. I always send it in with my Contract to Lease up front.

Posted by Barbara Johnson Choice Properties in Port St. Lucie FL over 9 years ago

More great comments!  I really appreciate all of them.

Here are some of my thoughts...

I think the federal legislation is a good thing but would be better to be implemented at the state level rather than fed.  That way the intent can be tailored to the different foreclosure laws in different states instead of trying to do a "one size fits all" federal law.  Otherwise it's a good thing and I like the intent of it.

I also really like the idea of some sort of payment to escrow with the escrow making the mortgage pmt. We don't really use escrow or title companies here in Ga. so I'm not of how it would be implemented but I'm sure there would be a way.

It appears from many of the comments that a lot of you are in states where there is several months warning via NOD or other means.  That is all well and good but here in Ga. the process happens FAST! There are no advance warnings that the tenant would have the means to discover.

Here is the real time foreclosure scenario in Cobb county, Ga. Let's say the owner has missed payments form March, April, and May.  In May the got a demand letter from the bank or their representative attorney. They must receive this 15 days prior to the bank beginning the foreclosure process.  It would be sent by certified mail.  (the tenant would still know nothing).   Foreclosures are always on the 1st Tuesday of the month so the next foreclosure date is Tuesday, July 7, 2009.  The home must be advertised 4 weeks in the legal section of the Marietta Daily Journal.  The legal section is published on Fridays.  So 4 consecutive Fridays prior to Tuesday July 7 will begin on Friday July 12.  That is the first public notice of the pending foreclosure.   Their next rent payment is due July 1 and the home is foreclosing on July 7.  Assuming that they paid this months rent on time... the tenant is pretty much screwed.

Posted by Bob Southard, e-Pro - Cobb, Cherokee, North Fulton (Atlas Realty Service, LLC) over 9 years ago

Bob,

You've made me extremely glad I'm not in rentals!  But I will be aware on lease-with-option contracts!

Thanks,

Kathy Opatka

Posted by Kathy Opatka, Serving Ocean City, MD, & The Delaware Beaches (RE/MAX CROSSROADS) over 9 years ago

The cost and emotional distress for a good family to move due to a property in distress is a difficult problem for the renter. Especially when they have to move, find a new place, and place another deposit because they are probably not getting the first deposit back. This all costs money the tenant may not have immediately. Laws are tough on evicting tenants and sometimes they should be if the tenant has been put in a desperate situation due to no fault of thier own. With so much rental property today, I am sure we will see new legislation to address the issue.

The Home Insurance Specialists

www.getgliga.com

Great Lakes Insurance Group Agency

Posted by Donald Stevens, Insurance for Landlords and Real Estate Closings (MyInsuranceNerd.com) almost 9 years ago

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