Is it ok to rent out your house after BK7 and before foreclosure?

[scooter6251]

We have been discharged and want to leave the state. Since banks seem to take forever to foreclose, we could rent the house, month to month, at a lower than market rate, with a 30 day move-out clause. It would really help the bank keep the house up and we would have income. Any problems or consequences that we're overlooking? I haven't seen any threads where folks are doing this.

[calgirl67]

Umm.. well I am! And have been for the past 6 months. We do not have a "assignment of rents" clause or addendum in our mortgage so we can keep the cash. We hired a property manager and so far it has gone great. We gave full disclosure to the tenants about the status of the house, it is also on short sale. They agreed to keep it up and allow showings at predetermined appointment times (not many in this market!) in return for about 20% lower rent.

It has worked well for us. I would strongly advise hiring a reputable property manager so you cross your t's and dot your i's or you could get sued (like and landlord).

Good luck!

[StrawberrySu]

We have been discharged and want to leave the state. Since banks seem to take forever to foreclose, we could rent the house, month to month, at a lower than market rate, with a 30 day move-out clause. It would really help the bank keep the house up and we would have income. Any problems or consequences that we're overlooking? I haven't seen any threads where folks are doing this.

I am as well. I spoke with a real estate attorney recommended by my listing agent (houses are listed for short sale), and he said we can do this. My realtor even encouraged us to do this, because of the damage to vacant houses, homeowners won't insure if they are vacant either. As long as you don't try to evade taxes on this income, and are upfront with your renters, I think it's okay. However, I am on this board seeking advice, so you may not want to take mine, lol.

Our two rental properties can't get the rent needed to pay the mortgage and in order toi get a short sale we have to default on the loans. We also have to default on our credit cards, so the banks know we are in distress. We could afford to pay the credit cards, if we didn't need to pay the rental mortgage shortfalls. Hope you get more qualified advice than mine, and I will learn along with you!

[ssmdem]

I was wanting to do the same thing. We go to our 341 next week. Just got our tenants out 30 days ago (long story) - but they needed to go. Anyway, stopped by the other day to check on the property, and it has already been broken into. No doubt in my mind that it's the kids of the tenants who left looking for a hangout. We've filed a police report and have done what we can to protect the property, but we have only recently quit paying on the mortgage, and I know it's going to be FOREVER before the bank starts foreclosure proceedings. We're talking to them about a deed in lieu but so far no go. When I asked my attorney this very same question, I was told that no I couldn't since I surrendered the property. I really don't know WHY she said that. Maybe the reassignment clause in our mortgage??? I haven't spoken to a real estate attorney though, so I guess once we're past the bankruptcy part of this journey I'll look into that.

[HHM]

Strictly speaking, until the case is closed, the house is property of the BK estate. As such, any proceeds from the assets could be considered property of the estate (even though earned after filing) because the asset belongs to the BK for the time being.

As others have pointed out, 2 things to look out for, (1) is there an assignment of rents clause in the mortgage, if the property was originally purchased as an investment property, then probably, yes. (2) be upfront with the tenants.

[scooter6251]

As others have pointed out, 2 things to look out for, (1) is there an assignment of rents clause in the mortgage, if the property was originally purchased as an investment property, then probably, yes. (2) be upfront with the tenants.

Thanks for the information. We built the house with a construction/perm loan as the house is/was our primary residence. I could not find any reference to an assignment of rents clause. We would use a local property management company with a specific clause about the pending foreclosure and need to vacate with only a 30 day notice.

[HHM]

Then shouldn't be a problem. There is a cottage industry of renters sprouting up (especially in the hardest hit areas) that rent pending foreclosures and then later negotiate with the bank to stay in the home. Usually at significantly reduced rent (after all, it's not like you can get top dollar rent with a pending foreclosure) and sometimes actually buy the house with financing from the foreclosing bank.

[ssmdem]

I'll have to look through my original contract to determine if we have that assignment of rents clause in there. We originally purchased it as our primary residence, so I'm hoping not. If we rent it, it would definitely be after the bankruptcy case is closed. I'm just thinking if the bank drags out the foreclosure, it would #1 be some extra money coming in and #2 keep it better protected from vandalism. My husband is over there tonight as I type trying to catch whoever keeps breaking in.

[AngelinaCat]

I think this is a 'win-win' all around, if done VERY carefully. The property in question has someone living in it and caring for it. That will take care most of the insurance underwriter issues. There are always issues with renting to someone. There are good tenants and bad tenants.

As HHM suggested, read your contracts very carefully.

If you decide to do this, hire a top-notch property manager to handle your property. Do NOT try this on your own, especially if you are out of town.

Good luck.