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  Sam September 15, 2011 at 4:00am

  Like Josh, I think that renting a short sale can be problematic in many ways but certainly something the seller has the right to do...especially in states where deficiency can be demanded or if there are second mortgages that have to be settled. Just because someone is not current on the servicing of their mortgage does not mean they have no economic liability in owning the property that can be offset by rent. I have a client that set the rent money aside to use for the expected cash contribution demanded by the first lien holder and the subsequent settlement of the second lien. There are also tax consequences if the lenders forgive the debt that that can cost the seller $...until a property is sold, the seller is still legally responsible for the debt, legally liable for the property and still able to collect rent, in my opinion.
  
  That all being said, it is something that I would steer away from unless there is a very flexible and understanding renter that is not going to be an encumbrance to the transaction.
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  Joshua Gayman September 13, 2011 at 3:52pm

  ah gotcha. Ya that seems a little silly to me. If they want to short sale then i believe it is risky to put a renter in the house, whether that potential renter wants to buy it or not. Tenants are famous for screwing up short sales, even if the tenant wants to buy the hosue, what happens if the bank counters and he cant come up or doesnt want to, and then someone else is willing to pay the higher price but you are stuck because the new tenants now have tenant's rights and so they can just squat in the house and then it goes to foreclosure for the seller. I do hope this works out for your buddy tho, as it would be a benefit for him no doubt!
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  Eric Mieles September 13, 2011 at 3:39pm

  Josh, now I agree with you 1,000%. however I'm speaking more in terms of renting the house after the fact, defaulted, move out then advertise to rent and collect.
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  Joshua Gayman September 13, 2011 at 3:30pm

  I agree with Jeff 1000% percent and for the same reason he gives. In response to Eric, I think opinions on this subject are split as much as democrats and republicans, but my personal belief is that it is two seperate agreements. If a tenant signs a lease to pay rent, then they should pay the rent whether the owner is making the mortgage payments or not. If they don't pay the rent, they get evicted, that's the agreement. As for the seller, if they don't pay the mortgage, they get their credit damaged every month until the house takes the house back, as that is the agreement between homeowner and bank.  I am not saying if i owned a house in foreclosure that I would make the teant continue to pay rent, I am just saying that ultimately it is 2 seperate things going on. It's not fair for a tenant to benefit off of the seller's hardship. Even if you are facing foreclosure, you own the house until it gets taken back. So if it's rented during that time then that's your money.
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  Eric Mieles September 13, 2011 at 2:57pm

  I think this is an interesting topic and I'm curious on peoples thoughts. Other than the fact that a lot of people rent out homes they know to be in foreclosure is it right for homeowners to collect rent money while asking a lender to write off hundreds of thousands of dollars?
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  Jeff Payne September 13, 2011 at 5:01am

  I would not do it without a lease in place.  If things go bad and the property goes to foreclosure, the tenants could possibly get cash for keys if they have a lease in place. 
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  Cotz September 13, 2011 at 4:39am

  I am sure the laws vary by state, but I would not do this in general.   We are trying to buy our second short sale.  A lot of short sales don't work out - our first one didnt and this second is really up in the air and may not work out either.  It is nice to be renting elsewhere, it also helps the buyer to be emotionally detached if things get strange in the deal.  Which they will.