Need advice on 2nd home/renter issue

[indebt00]

this is for my Sister's situation.
They have a rental house that they plan on giving up in their Bk. They are not filing until Feb 2010.
There is a renter paying rent and they have a shortage of over $300 that they have to pay each month...rent is shorter than mortgage.

here is my question....

when do they kick out the renter?

when do they stop paying the mortgage on the rental? (they would like to stop paying now...need the money)

how will the renter's payments affect their income? The renter is an aquaintance of theirs. should they not charge her rent the last 2 months...since its income?

thanks for the insight...I have no idea on which direction to guide my Sis.

[indebt00]

no opinions?? I have already told her to make an appt with a lawyer after the turkey holiday to get good answers but always like to come here first

[TexasEx]

Very interesting question. I'm going through exactly the same scenario. We are in the process of filing for 13, probably the next couple of weeks. We have another house we have been renting out in another state. The shortage on the rental income versus the mortgage payment on that house is more than $800 a month (!) .

We stopped paying the mortgage on the rental house in April. Has not been foreclosed yet (probably because of the backlog in that state). Once we decided to file 13 (back in late September) the attorney told us to give notice to the tenant immediately. We did back then but they have continued to pay us rent since (how nice of them) we figured they would stop paying since they knew the house was going to be foreclosed anyways.

Obviously the rent income will show up in our present and last 6 months of income, but attorney told us that it won't matter since we will be surrendering the house and we will not have the income then. Our attorney told us that the 6 month lookback is not really that important on a chapter 13, more so on a chapter 7, at least in our district (Eastern Kentucky). Hope this helps...

[justbroke]

I've had a similar problem, so my response is first hand.

when do they kick out the renter?

Why would you even do that? If the place isn't even in default or pre-foreclosure, you just continue to rent it.

when do they stop paying the mortgage on the rental? (they would like to stop paying now...need the money)

As soon as they know that they are not able to afford the payments and they are sure that they will be giving up the place. Also, having a plan to file Bankruptcy is good. From the point where they have decided to give up the place and to file Bankruptcy down the road... is when they should stop paying! I would say because they have a shortfall now, they need to take action now.

how will the renter's payments affect their income? The renter is an aquaintance of theirs. should they not charge her rent the last 2 months...since its income?

The rental payment offset the payment on the mortgage. Since it doesn't cover the mortgage, the net affect on the income is $0. (You can't use negative income from a business to offset income. Renting a home is considered a business.)

Please tell sister that trying to keep the rental at the cost of everything else, is not a good thing. Personally, I did this and it dragged me down. I was about $700/month undercollecting because I was nice by allowing the renter a stepped-up payment plan, that never reached the place where it would cover the principal, interest, taxes and insurance. So, I put a lot of money and spent a lot on credit cards to cover the shortfall. To top that off, the payments were sporadic. They were paying $500 every two weeks, but then it became $500 every month. Before I even defaulted on the property, they were missing months. Yes, I didn't evict them until after I filed Bankruptcy, but that's another story.

A rental property that isn't breaking even, will pull you down quickly!

[BobMango]

this is for my Sister's situation.
They have a rental house that they plan on giving up in their Bk. They are not filing until Feb 2010.
There is a renter paying rent and they have a shortage of over $300 that they have to pay each month...rent is shorter than mortgage.

here is my question....

when do they kick out the renter?

when do they stop paying the mortgage on the rental? (they would like to stop paying now...need the money)

how will the renter's payments affect their income? The renter is an aquaintance of theirs. should they not charge her rent the last 2 months...since its income?

thanks for the insight...I have no idea on which direction to guide my Sis.

I had a similar situation. I had a rental in central California that was costing about $300 a month above the mortgage. It was completely upside down (from a high of $330K to $85K at the auction.)

Back in February 09 it was clear that I could no longer pay and would probably have to file bankruptcy if things did not improve (they did, but not until August 09.) I stopped making the payments. My attorney had no concerns about us continuing to collect rent without making the payments. The mortgage wouldn't accept partial payments and we couldn't produce the difference so....

I informed my property management company in July 09 that I was going to let the property go back to the bank and that they should let the tenants know. The tenants moved out in August and at the end of Sept the place was sold in foreclosure.

I filed Ch 7 the end of October and have my 341 coming up. Our filing included notice to the IRS Insolvency Dept to ensure they don't pursue taxes on the deficiency balance. Not sure that's necessary since the tax code provides a way to deal with it anyway. Guess my attorney is just being thorough.

The other impact is that we did not list the first morgtage in the filing since the house was gone and the loan with it. This moved the second mortgage into first position. What's funny is that they are listed as secured creditors, but of course there is no longer any property securing their loan. The other funny thing is that the second mortgage holder was much more aggressive in threatening foreclosure than the first. I tried to explain that foreclosure was not in their interest but they just wanted to be nasty I guess. Now they get 0% of $100K. Too bad.

[indebt00]

thanks you guys...I will let her know.