post-BK obligations with a house you walk away from ...

[debee]

When we file we plan to dissociate ourselves from two rental properties. Both occupied. One loan on each house. Will they just go right back to the lender or will my responsibility continue until they are sold?

Also, we pay the water, trash and sewer. Tenants pay gas/electric. At what point do we stop collecting rent & paying the bills?

I'm especially concerned about the water bill and what will happen to the tenants if noone pays it.

We will have a lawyer and I plan to ask, but it's a troubling thought in the meantime.

Am I allowed to give the tenants a heads-up about what's coming?

Does the trustee take their damage deposits from us and give it back to them?

[ccsjoe]

debee,

As a tenant that went through a landlord foreclosure and had to take a crash course in tenant law, foreclosure law and eviction law (at least in CA), here's my three cents:

Bottom line on the home ownership is that you are responsible for the home until you are off the title. This means you are legally entitled to continue collecting rent unless tenants receive written instructions from lender to remit rent directly to lender in exercise of their Assignment of Rents clause in your deed. This also means however that all terms of the lease MUST be honored while you are on title. Not paying the utilities and causing them to be shut off would constitute constructive eviction and you can easily get sued for this. If there is no lease, but a month to month tenancy, history prevails, i.e. if the tenant sues you and proves that historically you paid certain utilities, they will win.

As far as telling your tenants, there is no law requiring you to do such, however, from a decency standpoint, you need to choose. Also, since you are letting the houses go, you don't really care about any damage they do to the house or not, so why not return their security deposits? This is not an insider or preferential payment, it is a termination of a lease, nothing for the trustee to go after. Finally, you also need to choose between continuing to collect rent or not. If you continue to collect rent, then you perhaps should not keep them in the dark about what's going on. If they choose to stop paying on their own, you can get them evicted. You can also rent the property to someone who knows it's only a short term rental conditioned by the impending foreclosure.

So those are your choices. The letter of the law, the moral thing to do, or a combination of both.

[AngelinaCatHub]

I could not say it better than Joe. Why would you not collect the rent? Are you making a net income? Out of the rent the water bill is deducted anyway I assume. I would hold, but not return the deposit and depending on the renter decide to tell or not to tell as some would stop paying rent and put you into a bind. Yes then the insurance would come out of your own pocket. It is insured isn't it? Keep that up for sure. The responsibility for the rentals as Joe said, is you until the repo. It seems to me to be a win, win situation if you are making out financially. Now have you stopped mortgage payments? This may or might inject a problem into your bk with the Trustee or the mortgage holder as you now are making a pure profit at the mortgage holders expense.

I'd keep it going as long as possible if you are netting a profit. My 0.05 cents (ccjoe keeps upping by costs, what a landlord he is) 'Hub

[ccsjoe]

I should have also added that you need to look up your state's civil code as it pertains to tenant-landlord laws. This is a different set of laws from BK and your BK attorney may not be your best source of information for this. Just adding another 3 cents to my previous 3, now 6.....take that Hub....hehehe

[debee]

Thanks for the info. The rentals are month-to-month in CA and we lose money every month so it would be disastrous if the tenants stopped paying. We don't make enough to cover the properties without the rents. The rents don't cover the utilities ever, so if they stopped paying rent and I stopped paying mortgage, but kept up the utilities, that would be ok? Also, I feel stupid asking this, but when will I be off title or how will I know that?

[mrskal]

I am pretty sure you wont be off title until the house is actually foreclosed on. It could take a long time from what I understand. I am in a similar situation, my friend will be staying at my house, her house was just forclosed so it will buy her time until she figures out wher she is going. I will keep the utilities going but she will pay them. Not to sure on the insurance yet. I am not sure if it makes a difference if I live in the house or not. I do know my insurance guy said that if it is left vacant, the premium will skyrocket.

[debee]

Does this mean if you let the insurance lapse and the house is vandalized or squatters move in, the lender can sue you even after bk?

I wonder if I could amend the month-to-month with the tenants to have them pay the utilities only, but not the rent.

I read one case where the trustee took over the rent collection on a rental property and I was hoping that would mean he would do the same in our case - not only the rent, but the utilities and everything else. It would be nice to try and reduce some stress.

Another stupid question: how will you know when the house has been foreclosed on?

[ccsjoe]

debee,

With the properties being in California, couple things first so we don't get ourselves all confused in here.

CA foreclosure is non-judicial. First, you stop paying the mortgage. Usually, at the 90-day mark, lender will record a Notice of Default with the County Recorder. That's what's referred to as pre-foreclosure. Typically, after another 90 days, the lender will assign the trust deed to a servicer (again, a county recorded instrument) who will in turn record a Notice of Trustee Sale. The Trustee Sale must be scheduled for no less than 21 days after the date of the notice itself. Once the date arrives, usually bidders gather round the courthouse steps with the auctioneer and either the property will be sold or will revert to the lender. Reverting to the lender is still a sale (lots of people confuse this). Once this happens, the new owner will record the grant deed from servicer to new owner and your name is then off title.

What can go wrong? For one, typical timelines apparently no longer apply. For another, the lender, at their discretion can postpone the sale as many times as they want. And finally, the lender can also drop the price of the house at the last minute so that it sells to a third party.

That being said, let's look at you. You are filing BK and you are surrendering the houses. You have month to month rentals, hence no longer a lease per se. Right so far?

If yes, then you can always change the terms of the rental provided you give sufficient notice as required in California Civil Code. You can change the rent to whatever you desire, HOWEVER, check your mortgage for the assignment of rents clause as it may have conditionals about fair market value. One more thing. If your tenants desire to stay in the house under a new lease with lender (assuming it reverts to lender) they may do so BUT there are cluases regarding them having to have been paying fair market value. This may also affect their rights under the Protecting Families at Foreclosure Act of 2009.

You must keep insurance not because the lender may sue you, they won't, but because if someone gets injured on your property while you are still on title they may sue you personally. If a pipe bursts and causes damages to your neighbors, etc, etc.

Now back to how do you know. Every time one of the above mentioned notices and actionsget recorded, you are mailed a copy and the Notice of Trustee's Sale will also get posted on the property.

EDIT: Sorry for the ramble, this is quite a complex matter and I'm hoping to not confuse you. Unfortunately all this is crammed into my brain so you can tell how upside down my life has been lately....

[debee]

Thanks for all the info. Not confused, but lots to learn. I had no idea we would still have so many bills for the rentals post-bk. It would be cheaper for us to give the tenants appropriate notice to vacate, turn the water off, and just have the insurance to pay. Otherwise, the bills are overwhelming. I think once they know, one set of tenants will stop paying the rent and become a problem. The other set will not. This is like the nightmare that never ends!

[ccsjoe]

Suggestion.. Drop the monthly rent a bit and modify the month to month to include tenants responsible for all utilities. That way you're only responsible for insurance. Also, because of how long this may take, once your tenant stops paying rent serve them with a 3-day pay or quit notice. Once they fail to comply, start an Unlawful Detainer against them (fancy CA name for eviction suit). Once they fail to answer in the required 30 days (standard, most tenants do not answer) you get a judgement which you then can take to the sheriff to have them evicted.

[debee]

Lots to wrap my mind around and read about. Thanks for all this info!