Anything fraudulent in telling my tenant to stop paying rent

[ssmdem]

The mortgage on my rental is current, but we're struggling to keep it that way. We pay out of pocket each month because we don't bring in enough in rent to pay both mortgages. We had kept it current because we weren't sure if we might move back in ourselves, but we now positively know we don't want to. My attorney told me to pay what the tenant is paying and nothing more. That leaves the HELOC not getting paid. Since honestly, I just want to speed all this along and now want them to just foreclose as soon as possible, is there anything fraudulent in telling the tenant to stop paying rent? I don't mind her staying until the bank forecloses and plan to tell her exactly what's going on.

Also, she has paid last month's rent and a deposit both of equal amounts - which to be quite honest, I no longer have. That equals two months of payments that I guess should be paid to the bank. Do I need to try to make those payments or will it even be brought up?

[MSbklawyer]

I don't know if it would be fraudulent or not, but you need to consider that once you file bankruptcy, the rental property and the rents the property generates, will be property of the bankruptcy estate. Conceivably, a trustee could go after your tenant for the unpaid rent for the time that the rental was property of the estate. And then, if your tenant proves that she already paid you the rent in good faith, then you could be on the hook for it. That's a question that would require some research, but something you might want to consider with your atty.

[ssmdem]

Ick -- so guess I'm better off just taking it, paying the 1st mortgage, and letting the HELOC go like the attorney said until her lease is up. Feels like I'm throwing HER money away now, but I do see the point and the problems it could cause. Thanks!

[ssmdem]

What about this? Tell her about the situation and let her know that if she wants to start looking for something else, there will be no penalties for breaking the lease. Her lease isn't up until January. Of course she can stay and keep paying like now, and I'll pay on the 1st mortgage. But if she wants to look elsewhere for something more stable, then I can stop paying if she finds something and shave a few months off the foreclosure process.
Can the courts hold anything against her if she essentially "breaks the lease" even though I'm fine with it.

Can she come after me for anything if I do this too? I mean, I don't know her well, but she seems nice and is a struggling single parent getting by on very little -- hence the reason I was hoping I could help her out a little in the process. But can I be held liable for allowing her to break the lease or could this get twisted into me actually breaking the lease myself?

[LadyInTheRed]

Also, she has paid last month's rent and a deposit both of equal amounts - which to be quite honest, I no longer have. That equals two months of payments that I guess should be paid to the bank. Do I need to try to make those payments or will it even be brought up?

I don't think the bank has any right to that deposit. I believe the deposit belongs to the tenant, not the bank. Your tenant should be listed as a creditor and the deposit is a priority debt under bankruptcy code section 523(a)(7).

You aren't filing until December, right? Run this by your attorney, but maybe you could tell the tenant that you don't have her deposit and suggest she not pay rent for November and December. Tell her that after that, you are fine with her not paying rent, but that she should be prepared for the trustee to try to collect the rent from her after you file.

Does your attorney know that you've decided against keeping the property? This may change the advice to pay to the bank whatever your tenant pays.

[ssmdem]

Yes December - and yes, the attorney does know we're not keeping it. She said to make sure I paid all rents received to the bank -- since it only covers the first mortgage, just forget about the HELOC and tell them the rent isn't covering it and I don't have the extra money - or just ignore them since I want it to foreclose anyway (both loans are at the same bank).

If I do the Nov/Dec thing, won't I still have to come up with the money for the bank though since she technically has paid that rent?

[LadyInTheRed]

If I do the Nov/Dec thing, won't I still have to come up with the money for the bank though since she technically has paid that rent?

I don't know. I'm just brainstorming. That's why I said to run it by your attorney. By telling her not to pay nov/dec, you may be effectively making a preference payment to her and the trustee could go after her for that. So, you could tell her of the possibility and have her keep her rent payments in savings in case the trustee comes after her. I'm not sure why you would have to pay money to the bank that you don't have.

[ForumReader]

As a tenant myself, I would suggest that you take in your tenant's rent as it is and let her know that you would no longer be the landlord of the property eventually if you decide to give up the rental property due to your bk. If your tenant wants to renew the lease when hers expires, then she would have to work with the bank taking the property over. I am not exactly sure how the process work in transition with your rental property and the bank. Also your tenant's deposit belongs to her, not the bank and she would need to be listed as a creditor. I would advise you to be prepared to give the deposit back to her at some point. It probably would be best to handle the deposit after your bk process has been completed. I wish you best wishes.

[ssmdem]

I would advise you to be prepared to give the deposit back to her at some point. It probably would be best to handle the deposit after your bk process has been completed.

Oh, I definitely plan on getting it back to her. I feel bad enough that she's going to have to start looking again for another place. When she first came to me, she was in a very similar situation that I'm now in myself.