Time for Landlords to Turn Their Heads and Cough?

Paul tricky times indeed. Who would have ever thought a tenant would be doing a credit check on their landlord!

Paul, this is some excellent advice that nobody would ever even think of! 

Tenants generally don't think of the financial stability of their landlord.  They assume they will have a home so long as they continue paying their rent on time.  However, should a landlord lose his property to foreclosure the tenant stands the risk of being evicted from their apartment.  Good post!

I have read reports of foreclosures and the tenant who has been paying the rent has to be evicted.

now that's a twist!

Paul, Elizabeth Weintraub wrote a great post about tenants protecting themselves (by recording a request for notice of foreclosure) from landlord's financial problems. It's definitely something they have to be aware of!

Even more the reason why they should buy their own home & invest in themselves.  A more splendid idea than "paying someone elses mortgage" who ultimately isn't paying it themselves. 

I showed a rental this past week that had the rental listing on the counter AND a sale listing. The sale listing said that this was a short sale. To be a short sale the mortgage is NOT being paid.

Paul, I've taken the foreclosure list and compared it to the MLS on several occasions.  Too many times, I've found that homes scheduled for auction have just been leased in the previous month or so.  Imagine moving in to a house, getting settled and finding out that you have to move again. It's happening with greater frequency and rents are going up.

I can't imagine it will be too long before the state requires the landlord to provide periodic proof of good standing...yaaaeee more paperwork!

I agree. Tenants must be protected since many of these landlords are "accidental" as you say and behind on mortgage payments, owe back taxes, or worse. Now, there may be a tenant or two who is looking for a very temporary place to live, but I would imagine that is not usually the case. Renter beware!

Paul, this year I leased a home to 4 very good tenants who were kicked out from their rental due to foreclosure. My client was happy to have met the tenants, but what an ordeal for them.

Paul - I think it is an excellent idea to have landlords looked in to.  There have been way too many people in this area kicked out of the house that they rented because it went into foreclosure. It is so sad!

I ran into such a case a few months ago.

I tried to show a home that was listed as a preforeclosure and when I got there, someone answered the door. I assumed he was the owner but he told me that he had just signed a lease last month.  He had no clue that it was going to the court house steps in two weeks. I hope he didn't give a first and last month deposit.

I just spoke with a client who is having a meeting with their landlord tomorrow.  I told them to watch for the very same thing as you are seeing above so that they don't find themselves in a forced situation to buy a home or get out quickly.  It is sad that people would lease their home and then in turn keep the money and let the home fall into foreclosure.  That is probably one of the worst things you could do to another person.

I make all of my clients pee in a cup.  I don't do anything with it, but it keeps everyone on their toes (so to speak).

Paul - just a thought: could this be a marketing opportunity?  What if you were to get a list of Notice of Defaults from say your local title company, then inform the non-ownr occupied property tenants that their landlords home was in financial distress?  Would this open an opportunity for discussion with potential buyers instead of tenants?  Prices are great, homes are on sale, getting a loan might be tougher, but am I on the right track here or way off base...as usual. lol~  

Maybe negotiating the possible purchase of the home from the owner to the tenant would open some doors as well.  Just thinking out loud.  I liked your post and the fact that you're heightening the awareness for these poor tenants who often times have no idea they're about to move whether they like it or not! 

Now I can go ahead and say, "Great Post, thanks for sharing!" :-))

Slaybaugh - Brad has a pretty creative idea above, might not be a bad niche to implement.  On most Purchase Money Investment Property Transactions, there is document from the lender saying that if the borrower starts to default, they are entitled to collect applicable rental income directly from the tenant.  Whether they actually do this or not is another story.  Your advice here is well founded.

And to funny man Crouch above, if I have move to Austin... you better bring a bucket when I hire you.  Especially if it is on a Saturday morning...

It might happen but I don't think so. Tenants know when the house is being foreclosed (notices are sent to property). Propety managers should know way ahead of time. I check or our civil records at least once a month. Here in Florida we have power of attorney for the property specific, so the lenders notify me when an owner gets behind two payments.  

Paul - As I have blogged about this very same subject recently, it's the awareness of this growing problem that hopefully a prospective tenant take to heart before signing on the dotted line.

No time to respond to everyone just yet, but I did want to commend you, Brad, on an innovative marketing idea.  I knew you title guys had a few tricks up your sleeves ;)

Thanks to everyone else.  I'll try to respond to all of your comments tonight.  Looks like I'm going to need to break out the galoshes.

Paul, this is excellent advice for renters everywhere; thank you for your insightful article.

As a property manager in Hollywood, Florida, I sometimes always get asked by prospecting tenants if the building that they are planning to move into is or is not in foreclosure...

Paul...

As a Land Lovely (Landlord) I was impressed when I discovered a tenant had Googled us prior to renting one of our personal properties. This tells me the Consumer may see the problems that could arise should they rent from someone who is not in a stable financial situation. Speaking of stability...Ooops. Never mind. Public post :)

TLW...ROAR!

If the land-lord isn't willing to "cough up" the financials, then as a safety net, have the leasor put up and first/last, etc. in escrow and have all money and payments transferred throught the escrow account.  That way if things do go south, the tenent and landlord are protected. 

Or have a clause in the lease agreement that the tenent pays when the the owner provides proof of mortgage payment for the previous month. 

Just an idea. 

Mike

WOW!  I've been a landlord for a while and am always disappointed by things I hear about "bad landlords".  This is just one more thing for me to be proactive about with future renters. In other words, thank you Paul for the post - from now on - for current and future renters I will be sure to reassure them that the home is not in jeopardy. -- Gabrielle

I have given this advice a couple of times now. Explaining that in our county, you can look up filings on line to see if there are any notices recorded. I have also heard that due to privacy laws, if the home is being listed by a property management company for rent/lease and they are aware of the default, they cannot say anything if the owner tells them not to. Not sure how true that is, but it is definitely important for the renters to do their homework before signing on the dotted line.

Great point Paul.  I own rental property and would be more than happy to supply future tenants with letters from my Lenders, showing I am current.  I think this is a huge problem nationwide.  I had a call last week from a renter. Sheriff showed up to boot them out AFTER the house sold on the Courthouse steps. They had NO idea.  I found them a great property management company to work with and they supplied her with proof of rent paid.  Poor kids. Stinks.

Big Brad has a great idea:) 

Just one more thing to give good landlords a bad name....

Good stuff Paul!  Some of us could see this coming even last year. Alot of the 'new landlords' don't know what they are in for, nor do they have the money for any repairs that the tenant might need.  It's gonna get ugly soon I'm afraid.

I do have a client last year that got screwed out of his security deposit $1000 which was never returned by a landlord.  I thought we were helping her out and little did I know she had us all right.  Still trying to track this women down, so if anyone has any suggestion for a 'Bad Tenant List' or 'Landlord in Foreclosure' website please let me know here on AR.

Brads idea is interesting yes?

Great public service post, Paul.  There is not enough is being said about this increasingly common predicament.    Congrats on the well deserved feature!

Great advice Paul.  Agents should also check with the title companies to see if any notices have been filed against the property.

This is a timely post that no doubt affects tenants everywhere.  My son's college classmates got such a notice while attending school and renting a house near their school in Florida.  Poor kids nearly pee'd themselves, they had no idea what to do or where to turn. 

Very good post Paul as this is rampant in my market as well. I hate it when I go out for a Occupancy check and the tenant has only been in the house for a couple months and had no clue the house was being foreclosed. The renters are getting screwed left and right.

I am glad to see you! This is an appalling situation, an unscrupulous landlord keeps collecting the rent and does not pay the note...Can we please have a return to "public flogging"? In the early 90's there were a huge number of people who sold their homes with a 0 down nonqualifying assumption to a large number of crooked investors (aided by equally shifty agents) The investors promptly rented out the homes and never made a payment. The system was so flawed that the "investors" would collect for up to two years without going into foreclosure. Okay now it really get's bad. The bank takes the home back, evicts the renter and since they cannot find the "investor" who assumed the loan, they go back to the previous owner and note originator and SURPRISE! You owe us two years back payments and we are foreclosing in 21 days...Did I mention public beatings???

I absolutely agree that landlords need to maintain payments or possibly face fraud charges.  And I also think that the banks should cut deals with tenents when they find them in a house that they are going to foreclose. 

You are right, it is a different market.  Not only do tenants need to worry, so do Lease Option buyers.  If they put much money down and the owner goes into foreclosure they stand to loose it all.

Paul, this is timely advice with all of the foreclosures. It seems to me that if the landlord continues to take rent and not pay the loan payment that this is fraud. Not an attorney but I would think there would be repercussions from this.

Although I see your point, I don't want to pee in a cup.:)

Paul, what in the world are they putting in the water in Austin, Texas? Between making clients pee in a cup and public floggings, I am taking this city off my must visit list!

This is a great post and certainly something I have never considered.   Thanks for bringing it to our attention.

I saw a news story. I dont recall the city. But the mayor of the city refused to put out any tenants for foreclosed homes until the bank shows the tenant has been propery notified. The mayor made this decision because he was seeing too many tenants being put out without proper notice. Tenants have rights too and they should be notifed before a londlord it foreclosed.

Paul, very interesting developments.  Thanks for putting together such an enlightening post.

Hi Paul, Long time no see. This is a superb post and certainly a new twist that I will admit, has never occurred to me. Quite amazing and certainly of concern. Thanks for pointing this out and for the idea to keep a keen ear to the ground on behalf of tenants not realizing the need to check out the financial situation they may be stepping into.

I have heard of this exact thing happening when the tenant was paying the rent and the home owner not paying the mortgage and the renter looses their home. Not a good situation at all.

Love the pee in a cup analogy and you couldn't be ANY more correct!

I seem to be in the minority here, the landlord takes much more risk and if they were required to be vetted, I think many would stop renting.  So there is a down side to all of this.  And currently landlords literally are at the mercy of the courts to get anything in the case of damages and default by the tenant.  Going to court is a waste of time.   

You know I've never thought about it but you're absolutely correct - My son is heading out to L.A. in a few months looking for a rental - He too will need to be cautious - Thanks for the advice!

Locally I heard of a situation where a rent with option buyer was putting money into a home, new kitchen, carpet, ect and while he was improving the home, the sellers had stopped making their mortgage payments.  What a horrible thing to do to someone,

Great post and very timely considering the foreclosures of investor properties in my area.

I love this thought Paul.  It is truly in the tenants best interest these days to find out about the financial situation the landlord is in.  Pee in a cup now that's hilarious.  Have a great day.

I definitely agree that tenants should check out their landlord's financial status, just as the landlords have been doing on tenants for so many years.  It's disgusting that a landlord would rent a home when he or she knows it is going to be repossessed by the bank very shortly.

This is unfortunately happening way too much. Renters are tossed into the street when the landlord has not been making their mortgage payments.

Paul,

The same situation is going on here in Vegas right now. As home values keep heading south many landlords don't see a reason to keep making mortgage payments any more and the tenants are the big losers in this game.

Bill - If things keep going the way the have been, we just might se it happen.

Jeremy - Crazy times, my man. Crazy times.

Jon - The tenant can also forget about the landlord maintaining the inhabitability in such cases as well.

Gita - While not exactly commonplace, it isn't unheard of either.  My market is ground zero for foreclosures, so I hear such anecdotes more often than I would like.

Gene - No kidding.

Colleen - I haven't seen Elizabeth's take on the matter.  Thanks for pointing me in her direction.

Kristin - You make an excellent point.  It's pretty straight forward as a homeowner:  pay the mortgage, and you get to stay.  As a tenant, you are not only exposed to the whims of a landlord (opting to sell, up the rent, etc at the end of the lease period), but the financial instability as well.  Rather than merely being beholden to only your own debt, you are at the mercy of another's debt as well. 

Ellie - That is not a red flag, but a red flag that has been lit on fire so as not to be missed.  While by no means a foolproof method, I have begun to review the year purchased and price paid on potential rental homes for my clients who wish to lease.  It makes me breathe easier to find one that has considerable equity with less likelihood of a goofy loan product attached to it.

Amanda - I have been doing the very same thing.

Shannon - That wouldn't surprise me one bit.

Kelly - I feel more comfortable with the properties which have been used as rentals for a considerable period of time.  A first time rental right now carries a bit more risk. 

Ellie - No chance of recovering their deposit, I imagine.  Good shaking down the landlord for that money if he/she can't even pay the mortgage.  The tenant would win in court, but collecting would be another matter.

Leesa - Amazing to hear, just on this thread, how common this phenomenon is throughout our varied markets.

Tim - That is brutal.  If the property had already fallen into foreclosure, I've got to imagine that criminal charges could be filed against the landlord who simply pocketed the rent without providing the actual use of the property for the period specified.

Eric - Good advice.  It can't always be predicted, because some will simply fall behind later rather than sooner, but we have to do the best we can to avoid that very scenario.

Jason - I take hair samples.  You can use masking agents with the pee in a cup method, but I can tell you your favorite cartoon and breakfast cereal after having a single folicle examined by the guys in lab coats.

Paul, the number of Arizona families displaced due to this is at the tune of 28%....this is higher than California....which is at 20%.  I have an active license in Arizona and Florida (Florida is at 19%).  I caution everyone!  Many people in Florida turned their homes over too (deed in lieu of) when they were in trouble...with no protection.

Paul - I bought an investment prop last year that had been completely gutted.  They took the furnace, ac, cabinets, doors, lights, etc.  Apparently, a lady was doing a lease-option where she put down $10K.  The owner took her money and her rent, never paid the bank, and declared bankruptcy.  Once I heard the full-story, I could easily understand her frustration.   

Hi Paul,

Also being a realtor in Arizona, our new lease revision has a clause stating that the landlord will not default on the mortgage, and we all know that landlords don't lie. However, with that being said,  I have a property management "division" within my business and I think it needs diligence on all parties involved. 

Me, as the manager to make sure that I am building a stable business of long term management agreements.  Why take the rental listing and management agreement just to loss the business in six months. We do a drive by inspection each month of the tenants and a "drive by" inspection of the landlords by checking the county records. 

We try to verify their financial stability in our landlord interview process.  Just by asking some questions, you can usually get a feel.  By asking the right questions, you can understanding if they have some reserves or not. You can have the mortgage escrowed and pay to it ensure it is being covered as part of you mandatory business plan.

Finally, by checking the county records, you can always put the tenant into another property you have listed, charge the landlord for the move due to breach of contract, and then short sale the landlord's home. Just a thought, creative ways to stay in business in tough times.

Paul, I think this is an excellent idea. We showed a rental the other day to a lady that the home went into forclosure twice, she has been given 30 days each time to move out.

Another client was getting ready to sign the lease and the guy told her, I think I'm gonna let it go to foreclosue. I think I will come up with a financial statement for the lessor.

Interesting viewpoint, Paulmadillo.  Even more interesting (disturbing) comment via Crouch as to his filling of the cup...

:)

This happened to me....the day we made an offer on our house, we came home to find our apartment was up for public auction!! We were lucky to have somewhere to be moving to but many tenants need referals in order to get into a new apartment.

Wow. First time I've encountered this thought. Good point....

Debi

I have been hearing about this happening more and more.  The tenant should hve some legal recourse if they have been paying the rent on time and it has not been being used toward the landlord.  Of course, I guess they would be standing in line and would not be in the front.  I would expect that they would never see their deposit again as well.  I think many people who are renting have no idea that this is happening and would have no idea how to check up on their landlord if they did.

Speaking of weird things with tenants, I discovered this year that the water company in the small town of Milton, Fl. has a policy that states:  If keys to a rental property are given to a prospective tenant prior to their having placed their security deposit with the utility, the landlord will be responsible for the water bill of the new tenant.  My personal policy since is to have deposit receipt in hand before giving the keys over FOR ANY REASON such as "just placing a few pieces of furniture in the garage that have been ordered and will be delivered prior to beginning of lease period".  Sometimes it just does not pay to be the good guy and could turn out to be very costly.

There are always the good, bad and the ugly both with landlords and tenants.  This rental/foreclosure scam though is truely insideous.

Nice creativity to the post on a subject that certainly could cause the tenant to have a hernia.