Is it worth renting a house we plan to let go?

[laurannm]

My family and I are relocating to TN in a few weeks (found a rental). Our mortgages was not reaffirmed as part of our CH7 4 years ago, first with Citi and 2nd with First Horizon. We stopped paying the 2nd mortgage over a year ago since the house is so far underwater. We stopped paying Citi about 3 months ago and haven't heard much from them either, other than a debt validation notice a week or so ago.

Someone has approached us about renting our current house out and is willing and able to pay both monthly mortgage payments as rent. I haven't given them the details of our situation, but is there any benefit to me renting this out? The only benefit I could think of was, by having a lease, I wouldn't have to wait 3 years post-foreclosure to get a mortgage because I could possibly qualify from a DTI perspective (since the payments would be covered by rent).

Thanks!

[memama]

I realize this is a little bit old and you've probably made a decision by now, but were you planning on not using the money intended for rent for your mortgage payments on that house? You said you were planning on letting it go, but if you have money coming in for the mortgage, I would think that you might as well continue paying it.

If you're not intending to use that money for the mortgage on that home, you definitely need to make them aware of the situation.

[rmcmorran]

I agree with the previous poster - if you are not going to be using the rent money to pay the mortgage, you need to disclose this. We had TWO landlords not apply our rent money to the mortgage, and a sheriff was on our doorstep twice, stating the landlords were going into foreclosure. Trust me, it is not a good feeling.

[laurannm]

Yep, we have let the potential renter know of the foreclosure situation. He's a single guy (and a friend)and is willing to act as a "watchdog" and live in the house while it forecloses or short sells, depending on the road we decide to take. We are going to let him live rent-free...feel like kind of a dirt-bag collecting money on a house we know we are letting go one way or the other

Thanks

[tobee43]

i would be somewhat careful about renting your old home.

there are a few factors to consider. first, once you take monies for renting out a home, it now becomes part of your income. secondly, you must list that income on your taxes, as well as deprecation, profits, losses, costs etc.

there are ways to do this, but through a land contract or something similar and "legal". where you have it set up as though they are attempting to assume the mortgage, but of course for "real".

also, many mortgages today or even of yester year have a clause in the mortgage which mandates that this can only be your primary residence and not a rental. this alone can result in the bank calling in the mortgage immediately if they find out. (this really is because "commercial" lending rates are many times far different for lending then that of a "consumer" loan, although there are factors involved). this situation is simply not that simple, there are also liability factors to consider. renters insurance etc.

putting all that aside...shoot i would do it LOL!!

[laurannm]

Thanks Tobee

I think though the majority of what you mention doesn't apply to our situation. As I mentioned in my post above, this person would be living in the house rent-free in exchange for the up-keep of the house and property, so I will not be collecting monies of any kind and instead will be attempting a short sale or just letting it foreclose outright

Given that someone will be living in the house (and given that my home insurance is paid in full for another year), I won't have to worry about carrying extra liability or vacant home insurance (please someone correct me if I am wrong here).

My end goal is to get rid of the house as quickly as possible ( we are moving to a new state and the mortgages were discharged and not reaffirmed), so if the lender wants to call the loan, please do!

[memama]

Laurannm,
This is nearly identical to my situation...we have relocated to a new state due to a job change and currently have a friend staying in our home rent-free to take care of the house while it's in foreclosure. Not only did we want to make sure the house stays kept-up, but we also thought it would be a "loophole" that would allow us to keep our current homeowner's policy in effect.

Now...I spoke with an agent from a different insurance company than whom I am currently insured by, and they told me that because the property is no longer my primary residence, we need to change our policy. I was told that I need to purchase Landlord insurance...however I refuse to do so because it's much more expensive (at least in my case) than a regular homeowner's policy. Whether the insurance guy just wanted to make some money and sell me a new policy, I cannot say. However, he did tell me that because it is no longer primary residence, we need to change insurance. I plan on letting the insurance run its course, and if the bank renews (or however that works) or if they force-place a hazard policy on the house, I don't care. At that point, I'll look in to an umbrella liability policy which can be extremely affordable.

I hope someone else might be able to answer the insurance question because I am also curious if I need to change my policy. Otherwise I just plan on letting the current homeowner's policy run it's course (set for renewal in November). The insurance agent also told me that if the mortgage company force-places its own hazard insurance policy on the house, *I* am liable for the bill. So...I don't know how all of that works!

[laurannm]

I spoke to an agent for the insurance company that I have and she basically told me that as long as I keep a minimal amount of furniture in the house, it will not be considered vacant. I was also thinking too, neither the insurance company nor the lender know who I am, other than my name. How would they even know it wasn't me who was living in the property? Would they knock on the door and start checking IDs of who is living there? I am thinking they wouldn't know anyways

I am following the same line of thinking you are....I am going to let the insurance run its course and go from there. If they force-place a policy, then so be it, I will go with the umbrella policy and\or a liability policy

From what I have read, you might be liable for the force-placed insurance bill (even if the mortgage was discharged in a BK), but in a practical sense the lenders very rarely do anything more then send threatening letters. At the end of the day it isn't worth it to them to go any further with it. Again though, this is what I have come across in my research. I was going to call my BK attorney this week and get his thoughts as well

Thanks for your response! If I get any more concrete info I will keep you updated since we are in the same boat

[tobee43]

i would be somewhat careful about renting your old home.

there are a few factors to consider. first, once you take monies for renting out a home, it now becomes part of your income. secondly, you must list that income on your taxes, as well as deprecation, profits, losses, costs etc.

there are ways to do this, but through a land contract or something similar and "legal". where you have it set up as though they are attempting to assume the mortgage, but of course for "real".

also, many mortgages today or even of yester year have a clause in the mortgage which mandates that this can only be your primary residence and not a rental. this alone can result in the bank calling in the mortgage immediately if they find out. (this really is because "commercial" lending rates are many times far different for lending then that of a "consumer" loan, although there are factors involved). this situation is simply not that simple, there are also liability factors to consider. renters insurance etc.

putting all that aside...shoot i would do it LOL!!

it does depend what state you are in with respect to keeping up the insurance. i know where our old property is no one would insure it. but i can see your point to keep someone in, it will keep the property safe and you are helping out a friend living rent free. we would not insure our property since we vacated it. it immediately went under the banks umbrella policy. there is much debate here on this forum with respect to the liability aspect of doing this, just in case someone gets hurt on the property. check you local laws, in our state as long as you have properly posted ample no trespassing signs and someone gets injury and enters at their own risk, it's there problem, not yours or the banks. again, this is much debate about keeping up the insurance once you leave, (if it's even possible), yet, i have seen absolutely no case law where someone went after an owner in bk that had their house in foreclosure be responsible.

so you really didn't mean "rent" it out. you meant have a friend stay there and take are of the property until the foreclosure.

[tobee43]

oppsssssss i quoted myself in error, i'm sure it won't be the last time LOL!!!