Foreclosure and Tenants?

[snowbank]

But see, you'll negotiate an absolutely phenomenal deal by paying 12 months rent in one lump sum upfront.

What's your play if after paying a lump sum up front they foreclose on you?

 

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[randallg99]

Re: Owning vs Renting (not real estate)

What's your play if after paying a lump sum up front they foreclose on you?

foreclosures occur on owners, not tenants.

non disturbance clauses are common in leasehold agreements.

The foreclosure may occur while a tenant is residing in the property, but the tenant cannot be disturbed until the lease expires.

Unfortunately, a renewal is highly unlikely if we were to like the property, but a purchase at a discount may be in play.... these are unusual times, indeed. I mean, who would've ever taken the time to think out this scenario just a few years back?

 

[snowbank]

Re: Owning vs Renting (not real estate)

foreclosures occur on owners, not tenants.

yes, sorry, i used goofy wording

non disturbance clauses are common in leasehold agreements.

The foreclosure may occur while a tenant is residing in the property, but the tenant cannot be disturbed until the lease expires.

i did some reading on this because it seems way too illogical for the banks to do this. if a foreclosure happened that would be a serious loophole for the bank to get taken advantage on by strategic investors using the laws against them.

it looks like the "Protecting Tenants at Foreclosure Act of 2009", which initially seemed to me like a gigantic loophole for banks to get crushed on, gives the banks a loophole of their own, where if someone buying the foreclosure wants to live in the property the tenant only gets 90 days to vacate the property. So, if you got a 1-2 year lease while paying up front, it seems under the law the bank can strategically get you out of there within 90 days if they wanted to.

unless i'm missing something it seems like the potential risk of foreclosure definitely has to be factored into the price if paying a lump sum up front. especially if you go back to your initial reasons for wanting to rent- how the rent is so much cheaper than the mortgage on places that you'd want to do this on- there will be a much higher chance of foreclosure on these homes.

**sorry if semi-off topic from thread seemed like relevant topic for a lot of posters**

 

[randallg99]

Re: Owning vs Renting (not real estate)

it looks like the "Protecting Tenants at Foreclosure Act of 2009", which initially seemed to me like a gigantic loophole for banks to get crushed on, gives the banks a loophole of their own, where if someone buying the foreclosure wants to live in the property the tenant only gets 90 days to vacate the property. So, if you got a 1-2 year lease while paying up front, it seems under the law the bank can strategically get you out of there within 90 days if they wanted to.

unless i'm missing something it seems like the potential risk of foreclosure definitely has to be factored into the price if paying a lump sum up front. especially if you go back to your initial reasons for wanting to rent- how the rent is so much cheaper than the mortgage on places that you'd want to do this on- there will be a much higher chance of foreclosure on these homes.

**sorry if semi-off topic from thread seemed like relevant topic for a lot of posters**

I am not 100% sure, but I have a feeling that this act refers to the tenants who are "month to month" or have an unusually long lease that was probably written in design to control the property for a prolonged period of time (2 years or more, or something) just to take unfair advantange of the nondisturbance clause.

The PTFA2009 requires the lender to notify the tenant at least 90 days before the action begins, but I strongly believe the nondisturbance clause holds and disallows tenants from being removed from the property. zSo better make sure the lease has proper language.

see this link: http://www.nlihc.org/doc/701-704-Public-Law-111-22.pdf
>>

​

B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1), <<

Don't forget, a typical foreclosure process takes many months. Red flags are forseen long before the foreclosure even begins. You can even ask the owner for proof the mortgage is current.

Anyone spending 50k+ for a 12 month lease has in their best interest to do some DD and a search on the property to avoid a foreclosure.

and in regards to your question regarding how much cheaper the rent is vs. mortgage:
homes in the areas we are looking are selling for anywhere between 500 and 750k. They are being rented for $3000 per month which is what a mortgage would be even after I put down $200-$250k. I would essentially save about 200k over the course of a couple of years while putting the cash to work to accumulate other assets.

 

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[LesG]

Re: Owning vs Renting (not real estate)

Not sure the answer if a tenant paid up front FAIR MARKET VALUE for 1 years or even 50 Years, but my guess is at some point the judge will throw it out and kick out the tenant in favor of the foreclosure buyer/lender.

IN GENERAL, I am a foreclosure buyer. Just hired an attorney and we rejected a tenants claim for a 1 year lease hold. He did not prepay but the ex owner had a lease saying only $250/mt. The ex owner says hes living there too and had room mates.

My attorney agrees with Snowbank. 90 days is how much a tenant has, however since the lease of $250 was so low, attorney and I thought the judge would throw this bogus lease out for this 700k fmv sfr.

In the field, we normally offer "CASH FOR KEYS" to tenants or ex owners to get them out of there. If they don't take it then we give the money to eviction attornies.

 

[randallg99]

Fair market value plays a large role in upholding the validity of any contract regardless of sale or lease and I agree Judges will throw out the agreement if it contained unrealistic terms.

Les Gee, you said the ex-owner is living in the property you are purchasing and the lease is for $250 per month for a property presumably worth significantly more. Well, that's NOT considered bona fide. And if that's the case, then you and your attorney are correct because the act states:

(b) Bona Fide Lease or Tenancy- For purposes of this section, a lease or tenancy shall be considered bona fide only if--
(1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent

so, a typical contract/lease will be safely upheld if it's bona fide and made between unrelated parties with realistic terms.

we're probably beating dead horses but I find this subject interesting and more importantly helpful in case I come across something like this from an investor standpoint.

 

[biophase]

Interesting topic. With a month to month I believe its 90 days. With a valid lease, this would be a real weird situation. Let's suppose that a tenant pays FMV rent upfront for a home for 1 year. It gets foreclosed on in month 2. The new owner or the bank becomes the landlord but will receive no income for 1 year. Month 4 the fridge breaks, month 5 the roof leaks, etc... It would suck to be the new owner. But you also can't really kick the tenant out or NOT fix the issues can you?

 

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[LesG]

Sorry wasn't clear in my personal situation. Ex owner was not the tenant.


In my situation, the exowner is a sharp cookie but not that smart.
He has 2 house and turns out works for a property management company.
He initially said he gave 2 leases to two roommates cuz of break ins.

He travels alot and wanted house sitters. He lives in the master bedroom and they have the bedrooms. I believe that the exowner wanted to stay there the longest he could. He was claiming the lender sent the tenants a letter claiming they could stay there for 2 months. He is correct if bonafide tenants. But 2 months is only Ca law, NOT fed. Federal is 3 months.

After rejected offers for cash for keys...

I got the keys from him being a landlord (playing his game) and a copy of the leases after numerous request. Now with the leases and names of his so called tenants, we sued all his tenants and him. Guess someone didn't want this lawsuit to go in their records cuz they left really quick. Turns out one roommate was his cousin.
They wanted to give me a measly $250/mt. My attorney said don't take it.

I hinted to him we had "affadivits" of two neighbors that said the two roommates just moved in contrary to the long leases he provide. Okay, I lied. Shame on me. But the neighbors did say that to me.

Lawsuit evictions go in public records and smart landlards will check if prospective tenants ever had evictions. Also if he messed with me I was prepared go after his other houses with the assistance of my "attorney".

He hinted about others that have messed up houses. The tone was Les, why you mentioned having the sheriff come after us. Haven't you heard of ex owners screwing up properties. If he did he would have had a lawsuit, since he had other properties.

Ah, the chess match real estate is.