Renting out home while going thru bk

[daylate]

In the never ending quest to line everything up, I am considering renting my house because I'm moving to another state and am uneasy about the vacant house thing.

The way I see it:

Pros:

Provides income to cover property taxes which i believe I'm still liable for until sheriff sale?

Solves the vacant house insurance problem

Cons:

Now responsible to fix things if they break-furnace,dishwasher,etc

Income may muck up filing a 7 although rent shouldn't even cover mtg pay much less property taxes

Need more insurance as a landlord?

Any thoughts?

[backtoschool]

If you rent a house in foreclosure, the rent money goes directly to the bank that holds the mortgage, not you. If your house is pre-foreclosure, then you can collect rent until the house forecloses, but you have to disclose to the tenant that they are about to rent a house that is about to go into foreclosure. When you rent a property, all material facts need to be disclosed for the agreement to be valid, and the fact that the house is about to go into foreclosure is a relevant material fact that will affect the lease.

If there is not full disclosure to the tenant that the house is about to be foreclosed on, or is in foreclosure, that is considered fraud, and the tenant will be able to sue you for damages. Since the suit is a suit for damages due to fraud, the damages from the suit would be probably not be discharged in a bankruptcy. The tenants could file an AP if they won the lawsuit and you tried to discharge that debt, and they would most likely win, since you knew you were going into foreclosure when you rented the house.

[daylate]

thanks for your input-always another angle to consider

[BCA2009]

]If you rent a house in foreclosure, the rent money goes directly to the bank that holds the mortgage, not you[/B]. If your house is pre-foreclosure, then you can collect rent until the house forecloses, but you have to disclose to the tenant that they are about to rent a house that is about to go into foreclosure. When you rent a property, all material facts need to be disclosed for the agreement to be valid, and the fact that the house is about to go into foreclosure is a relevant material fact that will affect the lease.

If there is not full disclosure to the tenant that the house is about to be foreclosed on, or is in foreclosure, that is considered fraud, and the tenant will be able to sue you for damages. Since the suit is a suit for damages due to fraud, the damages from the suit would be probably not be discharged in a bankruptcy. The tenants could file an AP if they won the lawsuit and you tried to discharge that debt, and they would most likely win, since you knew you were going into foreclosure when you rented the house.

Backtoschool,

Where are you getting this info that the rent has to go to the bank? And what is different in the terminology, "Pre-foreclosure" and "foreclsure"

[backtoschool]

Backtoschool,

Where are you getting this info that the rent has to go to the bank? And what is different in the terminology, "Pre-foreclosure" and "foreclsure"

I am getting the information from several legal sites that I checked. Foreclosure means that the bank has foreclosed on the house formally and is getting ready to take ownership. Pre-foreclosure is when the bank is threatening to foreclose or is still in a foreclosure process that has not completed. There have been many cases where the bank legally has taken ownership of the house, but the former owner (the foreclosee) continues to try to collect rent. The bank and then the new owners, (that the bank sells the house to) have the right to the rent once the house is formally foreclosed on. If the owner has defaulted and no longer owns the property, then the bank is the landlord until the house is sold to a new owner, and then the new owner is the landlord.

[despritfreya]

You CANNOT collect rents once you file Chapter 7. The rents either belong to the lender as cash collateral if the lender has an assignment of rents and you are delinquent in payments OR the rents belong to the Trustee. If you are going to "rent" you tell the tenants EXACTLY what is going on and have them make payments directly to the lender. The money, once you file Chapter 7, CANNOT be placed in your hands. If you take the $$ and fail to turn it over to your Trustee you will put your right to a discharge in jeopardy.

[BCA2009]

You CANNOT collect rents once you file Chapter 7. The rents either belong to the lender as cash collateral if the lender has an assignment of rents and you are delinquent in payments OR the rents belong to the Trustee. If you are going to "rent" you tell the tenants EXACTLY what is going on and have them make payments directly to the lender. The money, once you file Chapter 7, CANNOT be placed in your hands. If you take the $$ and fail to turn it over to your Trustee you will put your right to a discharge in jeopardy.

What about post discharge. The bank has not completed the foreclosure process and you don't know when they will. You are not paying the note, but are still responsible for the HOA fees and maybe insurance. Can you rent it out to offset the costs that you are paying?

I understand the issue with collcting rents during the Chap 7. But after discharge and closure of the Chap 7, It seems like a contract law issue. Not fraud. Even if the Bank had a assignment of rents clause in the contract, wouldn't they have to actually sue you in state court?

How would the bank even know you were renting it out? I agree you should lay out exactly the circumstances in the rental agreement with the tenant. Telling them how many days notice they will to move.

If the bank did sue you to enforce an assignment clause, it seems you would have a good defense. The bank has elected not to pursue the obvious available avenue of proceeding with the foreclosure.

I know the OP was talking about during foreclosure, but from your response it sounds like you can't rent the home out even after BK.

despritfreya, it's obvious from reading other posts that you know waaaaay more than I do about law, but from my reading, it seems like in reality, what would a bank really do if it was post BK but prior to a foreclosure sale?

[backtoschool]

What about post discharge. The bank has not completed the foreclosure process and you don't know when they will. You are not paying the note, but are still responsible for the HOA fees and maybe insurance. Can you rent it out to offset the costs that you are paying?

It is my understanding that you can rent it out while the bank is completing the foreclosure, as long as you disclose to the renter upfront that the house is in the foreclosure process.

[BCA2009]

I am getting the information from several legal sites that I checked. Foreclosure means that the bank has foreclosed on the house formally and is getting ready to take ownership. Pre-foreclosure is when the bank is threatening to foreclose or is still in a foreclosure process that has not completed. There have been many cases where the bank legally has taken ownership of the house, but the former owner (the foreclosee) continues to try to collect rent. The bank and then the new owners, (that the bank sells the house to) have the right to the rent once the house is formally foreclosed on. If the owner has defaulted and no longer owns the property, then the bank is the landlord until the house is sold to a new owner, and then the new owner is the landlord.

Backtoschool, this maybe true in some states, but in Florida you own the house until it is actually foreclosed. Defaulting on payment does not trigger change of ownership.

[backtoschool]

Backtoschool, this maybe true in some states, but in Florida you own the house until it is actually foreclosed. Defaulting on payment does not trigger change of ownership.

I think we are basically saying the same thing. If you want to rent the house, you need to inform the renter upfront that you are going to be foreclosed on at some point during the lease, otherwise the renter can sue you for damages.

In your above example, you would be able to collect the rent until the bank finishes foreclosing.

There are many short-term renters that are willing to take on the risk of renting a property in the foreclosure process in return for lower rents, etc. The key is to disclose all material information to the renter up front so that you are not legally liable for damages if the new owner wants the renter to move out before the lease term ends

[BCA2009]

sounds Good!

[despritfreya]

In response to:

"What about post discharge."

You cannot collect rents from the standpoint of the bankruptcy until your Trustee abandons the asset. The abandonment, if not done by Notice, happens when the case is closed, not when you get your Discharge.

I cannot comment on anything outside the context of the bankruptcy as my expertise deals with bk issues, not state law/basic contract issues. I will leave the answers as it relates to collecting rents vs. the lender's rights vs. the tenant's rights up to those more wise than I.

[AnnieC]

What about post discharge. The bank has not completed the foreclosure process and you don't know when they will. You are not paying the note, but are still responsible for the HOA fees and maybe insurance. Can you rent it out to offset the costs that you are paying?

I understand the issue with collcting rents during the Chap 7. But after discharge and closure of the Chap 7, It seems like a contract law issue. Not fraud. Even if the Bank had a assignment of rents clause in the contract, wouldn't they have to actually sue you in state court?

How would the bank even know you were renting it out? I agree you should lay out exactly the circumstances in the rental agreement with the tenant. Telling them how many days notice they will to move.

If the bank did sue you to enforce an assignment clause, it seems you would have a good defense. The bank has elected not to pursue the obvious available avenue of proceeding with the foreclosure.

I know the OP was talking about during foreclosure, but from your response it sounds like you can't rent the home out even after BK.

despritfreya, it's obvious from reading other posts that you know waaaaay more than I do about law, but from my reading, it seems like in reality, what would a bank really do if it was post BK but prior to a foreclosure sale?

When a home goes into pre-foreclosure the lender will hire a third party to check on if the property has been abandoned. Sometimes the third party will come to the front door and let the occupant KNOW that they are here on behave of the lender to check things out..SO YES the lender can find out if the property is rented..ALSO..if you have your mail forwarded the lender may send mail that states it need to be returned if the address of the occupant has changed.

Lenders and state legislation are catching up this much more quickly..to protect the lender and the tenant...

[ForumReader]

I think we are basically saying the same thing. If you want to rent the house, you need to inform the renter upfront that you are going to be foreclosed on at some point during the lease, otherwise the renter can sue you for damages.

In your above example, you would be able to collect the rent until the bank finishes foreclosing.

There are many short-term renters that are willing to take on the risk of renting a property in the foreclosure process in return for lower rents, etc. The key is to disclose all material information to the renter up front so that you are not legally liable for damages if the new owner wants the renter to move out before the lease term ends

I agree with Backtoschool. I am a tenant myself and personally I would like it if my landlord would be UPFRONT with everything pertaining to the lease and the property if it is going to be foreclosed. Also, to the OP, keep in mind regarding security deposits, these deposits belong to the tenant(s), not the bank or the landlord(s). Security deposits should be in escrow accounts and only serve as a purpose in case the tenant defaults on the lease or there are property damages inflicted by the tenant(s).

[renter314]

I am a tenant living in a home for almost 4 years .
The Landlord lives in California.
In Feb 2010 I received documents via sheriff stating the Landlord was in default since October 2009.
In March the Landlord filed Bankruptcy
Ironically in June he emails me with a different bank account (BofA) to deposit rent checks into..all the time never telling me anything until I confront him via email in July when I get a Lender Rep wanting to change locks because he was told no one lives there (thus..can not pay the mortgage) So then he began telling me he is only trying to modify a loan...NOT... he paid 235,000 got a 100% loan (investment home in FL HOA community) now going for about 70,000.
I think the change in bank accounts was to avoid reporting income?
I continue to give him his $1000. a month..But now I received documents from attorneys for Bof A stating the Stay is lifted. I also received a letter saying his bankruptcy is done...how long do I pay this guy before the Lender steps in and I can pay them?
The Landlord avoids answering any of my emails and I even suggested how will I get back my $2000. security?
I would like to be ahead of his game and get my money back before he is not responsible and I am without moving money I am a single woman.