collecting rent & walking away w/bankrupcty

[jenn3164]

Hi-

We are in a weird situation. After 2 layoffs in one year, we have dwindled down to nothing except our house & one car. We do have rental homes-3- and are collecting rent but not paying mortgages on those. we are paying our home though. We are filing BK this month.

Question-do we have to declare that rent income to the courts? Because it is not going to continue. And do the courts look at our banks statements or what if we cash the checks only? Do the courts contact our tenants? we need the extra funds at this time. When do we tell tenants not to pay or do we cut their rent in half & let them stay until bank takes it over?
Thank you for any help

[frogger]

Did you sign an assignment of rents with your lender?

[jenn3164]

no-not sure what that is-but no-tried to do modifications, but lender wouldnt because it was a rental

[LadyInTheRed]

Don't assume you didn't sign an assignment of rents just because you don't know what it is. The deed of trust that you signed when you first got the loan may have included an assignment of rents so that if you default on the mortage, the rents go to the bank. Check all of the original loan documents.

[AngelinaCatHub]

Don't assume you didn't sign an assignment of rents just because you don't know what it is. The deed of trust that you signed when you first got the loan may have included an assignment of rents so that if you default on the mortage, the rents go to the bank. Check all of the original loan documents.

This has been a common question. Also this is important as it could cause you a problem you would have to pay back. It is considered income as far as your forms. If you have not been foreclosed on, the houses are still yours. If the procedure has started into foreclosure, best make sure you can account for the money and as stated, check your mortgage paperwork. 'Hub

[BobMango]

I collected rent for about six months without paying the mortgage. Wells didn't want to talk about a loan mod so I figured they didn't need the money as much as I did. The house was foreclosed the month before I filed. I wasn't worried about the difference between losing the house in foreclosure or letting it go in bankruptcy. Given the future drop in real estate I'm not buying anything for years anyway.

Also, my approach was that my bankruptcy was a fresh start and I didn't want to hassle with the property after discharge, so we waited until that house was gone before we filed.

The rental income was included in my means test. The trustee did not question anything related to the rental property.

[frogger]

If you signed an assignment of rents (and you probably did), anything that you collect after filing for bk will belong to the lender. Due to the timing of my filing, it was in the last part of the rental payment cycle. One of the first questions asked of me by the trustee was:

"Where is the rent money that you collected after you filed for bk?"

And I had the correct answer... Sitting in the bank account at that lenders bank ready to be transferred to them.

It was all part of an orderly transfer of the property, designed to be a smooth transition for the tenants and all involved.

As to your case, you might want to look at giving possession of the property back to the lender by giving them keys and all supporting documents. You don't want the responsibility for maintaining the property without the $$$.

[olivies]

Hi-

Do the courts contact our tenants? we need the extra funds at this time. When do we tell tenants not to pay or do we cut their rent in half & let them stay until bank takes it over?
Thank you for any help

Not sure if they do in a bankruptcy, but in foreclosure proceedings they do. As a renter, my advice is to be upfront with your tenants. They may need the time to save up a new security deposit, if you can't return it, and find a new place. We sold our home and moved 1300 miles out of state to a rental home in Feb 08. We paid 2 months security deposit, plus an additional $1K for possible damages because we have 6 kids, plus first and last months rent to move in. That was $10,200 total (rent was $2300 a month). In July 08 we were blindsided by a process server with foreclosure proceedings papers for us. We entered the contract with the homeowner in February, according to the papers she hadn't paid her mortgage since February, and we subsequently found our her primary residence was foreclosed on in May (we had never thought to question the letter she sent us in June stating her new address to mail our rent check to). She took us for all she could and didn't care- and then when we asked her to put our security deposit in a trust she refused (because she didn't have it)and she stopped maintaining the property as required in the lease (pool and lawn care) but had the balls to still expect rent. We scraped up what we could, got my dad to help us with a little cash flow, and moved out within six weeks. Nobody should have the rug pulled out from under them. So my advice is to be upfront with your tenants, give them the time they need.

[ForumReader]

Not sure if they do in a bankruptcy, but in foreclosure proceedings they do. As a renter, my advice is to be upfront with your tenants. They may need the time to save up a new security deposit, if you can't return it, and find a new place. We sold our home and moved 1300 miles out of state to a rental home in Feb 08. We paid 2 months security deposit, plus an additional $1K for possible damages because we have 6 kids, plus first and last months rent to move in. That was $10,200 total (rent was $2300 a month). In July 08 we were blindsided by a process server with foreclosure proceedings papers for us. We entered the contract with the homeowner in February, according to the papers she hadn't paid her mortgage since February, and we subsequently found our her primary residence was foreclosed on in May (we had never thought to question the letter she sent us in June stating her new address to mail our rent check to). She took us for all she could and didn't care- and then when we asked her to put our security deposit in a trust she refused (because she didn't have it)and she stopped maintaining the property as required in the lease (pool and lawn care) but had the balls to still expect rent. We scraped up what we could, got my dad to help us with a little cash flow, and moved out within six weeks. Nobody should have the rug pulled out from under them. So my advice is to be upfront with your tenants, give them the time they need.

I totally agree. To the OP, it is very important to be upfront with your tenants. I am a renter myself and have been on the watchout for my landlord, but I believe he will be upfront with me should he have problems with this rental property I am renting as I have been with him when I filed for BK. Good luck.