Comment

Comment by Michael Schneider on May 22, 2011 at 5:17am

My Seller/Client has authorized early occupancy to the eventual buyer four times, about 10% of my deals.  In each case, it has worked out well.  A double-edged sword, no question.  The benefit being that you lock-in the buyer's commitment, which could be the drawback, if you need them to move out.

But, the reality in my cases is that, if "move out" were required, then the deal collapsed and the chance of foreclosure is also high, so it may really be a "no lose" to the Seller. (If I am in default and have no equity, what is my risk exactly?)

In short, conventional wisdom may say no, but short-sale reality may say yes.

Regarding, rights, I don't need to consult my attorney to agree with Bryant on this, for my business. (Not advice.) Absent an assignment of the lease, the Seller surely has "right of use".  (Or, is someone suggesting that the Seller of underwater property, who has defaulted on their mortgage, does not have the right to hold an outdoor graduation party on their property and charge $5 admission?)

Regarding the principal residence requirement in the Mortgage Debt Forgiveness Act, I rather doubt that early occupancy would jeopardize this.  One year lease, could well be a different matter.  Thanks to the person who raised this concern, I had not thought of this.

Comment by Rick Ketterling on May 22, 2011 at 4:13am

You deal with anything the lender does when it happens.  I don't notify the lender the buyers are in there, but I also don't think the lender looks for renters so they can raise the price of the home.  Lenders do that for no reason at all on a daily basis.

Comment by JACK L UNTHANK on May 22, 2011 at 3:44am

What if you don't have an apprvoal yet and the lender finds out they have moved in and up's the sales price?

Comment by Rick Ketterling on May 22, 2011 at 3:34am

I love this idea and have been doing it for several years now.  It is a great way to lock a buyer in and cause them to fall in love with the home.  Make rent cheap enough to keep them in the game.  It is a win, win for the buyer and the seller.  I have had renters in one unit for 12 months now dealing with US Bank. (US Bank is another topic for another time)

Comment by Kathleen Lordbock on May 22, 2011 at 3:17am

 A Lease requires evictions in my state to get them out if the buying process fails and they refuse to leave on their own (many do with the prospect of free rent)- that could keep the renters/hopeful buyers in there for up to 6 months and a legal process costing $ to get them out.  I say no go. Every state is probably different. Also the lenders would like that rent money and during occupancy checks are not fond of renters period unless it is a known rental unit and not the primary residence.  

Comment by Kari A. Battaglia on May 22, 2011 at 2:32am

I have to admit when I first started reading post I thought the idea was crazy but I think I have changed my mind.  There were a few properties I sold short that had tenants in it and the bank knew it and we closed no problems.  If the sellers are behind in their mortgage, receiving rental income in most cases would not help sellers become current with their lender. If sellers need to move on to take another job in a different town this could be an excellent solution for all involved if handled by the right professionals as Wendy described.  This also keeps the buyers invested in the transaction and I don't see them walking away from the deal in that circumstance. 

 

Comment by Keith Lawrence on May 22, 2011 at 2:29am

The homeowners can accept rent up to the time of the closing on a short sale.  It will be all worked out on the HUD1.  Their are a lot of investment properties going under and that is how the Lawyers are handling it.

Comment by Bryant Tutas on May 22, 2011 at 2:20am

Valerie. It is not bank fraud for a seller to receive proceeds from a short sale. Heck I just had Chase give the seller $20,000. And what about HAFA? Now some lenders certainly have guidelines prohibitting the seller from receiving proceeds BUT rental income is not proceeds from a short sale. We still have private property rights. A property owner can rent their property. And there is no law that states these funds most be paid towards a mortgage payment.

 

I guess I meant to say that I have sold many short sales that were rented out. The seller were collecting rent and not making their mortgage payments. While this may not be the right thing to do it is not illegal.

 

Remember lenders make guidelines not law. This is a legal issue.

Comment by Valerie Pressley on May 22, 2011 at 2:08am

Hi Bryant,

I, too, sell investment properties all the time that are rented.  And I'm aware that the sellers still own the house.  But these sellers are asking the bank to accept less than is owed to them in order to sell their house.  It is considered bank fraud for a seller to receive any proceeds from a short sale.  I'm just asking how is accepting rent any different?  We're all speculating here and an attorney, accountant, or bank representative would probably be better suited to answer this.  It's easy to give advice to a client, but what happens if they get in trouble for it later?  If you have something in writing that states it's OK for a short sale seller to do this, I'd love it if you'd  share it with us  so we can take this step with confidence.

Comment by Keith Lawrence on May 22, 2011 at 2:07am

Valerie:  I concur with you.  It not worth risking your license.  It is true that the homeowner can rent it out but it is just a bad idea.  The lawyers will have a field day drafting that lease.

• ‹ Previous
• 1
• 2
• 3
• 4
• Next ›
• Page