A Bankruptcy and Being Foreclosed On - Should I rent to them?

General Landlording & Rental Properties
9yFollow

A Bankruptcy and Being Foreclosed On - Should I rent to them?

Alek Liskov
Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes

Hi BP Community, 

First and foremost - thanks for reading this. It means a lot to someone like myself who has just recently started on his journey. 

I'll cut to the chase. From all of the applicants I have for this SFH, I am gravitating towards this particular family the most.

The good:

  • Good income - 4-5X monthly rent
  • Good impression/communication
  • Stable jobs
  • About 2X move-in funds available in the bank
  • Good credit scores

The bad:

  • Bankruptcy in 2009
  • They're being foreclosed on their current house that they're moving out of
  • Credit Card debt roughly equal to the amount saved in the bank (Their explanation: they paid for a month of tuition on the credit card)

I know many people would never rent to someone who had a bankruptcy, but it was in 2009. They explained to me that it was because their business failed and they had no other option. I think they will be able to pay on time given their income despite everything else. However, I would love your input!

Thanks!

0Reply
45 views

Most Popular Reply

Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
9y

A bk and a foreclosure?  Only if they smoke and have 5 cats.  At least 2 males that aren't fixed!

Seriously though, no.  Foreclosure is an eviction on steroids. They sat there and did nothing. Not a short sale. No a deed in lieu.  Imagine trying to get them out when they decide to not pay you. Can't threaten to damage their credit! Nothing to lose for them.

5Reply
See this reply in the discussion

25 Replies

Jump to latestLatest
  • Ray Harrell
    Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
    9y

    If they can't afford their current mortgage, what make you think they can afford their rent? Send them to a debt counselor, so they can get their finances in order. Unless you're into helping charity cases, AVOID!

    3Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    @Ray Harrell thank you for the input! The difference there might stem from the fact that their mortgage + insurance is $3000/month (this is in NJ). The rent I'm seeking is $1550/month for a SFH in PA. But your comment is still valid and that's my biggest concern. At the end of the day - I need to look at it objectively. Cashflow is what matters.

    0Reply
  • Ray Harrell
    Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
    9y

    I think the issue is money management. Bankruptcy in 2009 and a foreclosure 7 years later. We all have had issues, but YOU don't have to be the person to help them resolve their issues. There are non-profits and shelters designed to do that.

    1Reply
  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    9y

    @Alek Liskov I would not have a problem renting to them if they are not currently in bankruptcy. I also accept people who have had foreclosures if they have good steady jobs and. No other delinquencies. In addition, onawst ask for first, last and security. 

    I go back to the heydays of foreclosures, and we sure would not have been able to fill our vacancies if we didn't work something out with these folks 

    [email protected]407-448-6679Podcast Guest on Show The Key to Scoring Discounted Deals in One of America’s Hottest Markets
    Compass | St. Pete514 Reviews
    WebsiteView Page
    1Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    @Kim Meredith Hampton thank you for your input. I am asking for first, last and security deposit, which gives me a little bit of a buffer. And I agree with you, but this isn't quite those days. I do have other qualified candidates. I was gravitating towards them because of the strong income (the strongest from all the other applicants). I appreciate the perspective though. They are decent folks and that's the other reason I'm considering working something out with them.

    0Reply
  • Laticia Braxton
    Real Estate Consultant · Joppa, MD · Member since 2015 · 218 posts · 178 votes
    9y

    I agree with Kim. The house was probably included in the BK and the foreclosure is just now catching up because in some states it takes years.  If the income is strong, give them a chance and you just may be presently surprised. I would, however, get the deposits, STRONGLY advise them that latenesses will not be allowed and make sure your lease language protects you in that area. 

    Best of luck to you!

    0Reply
  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    Most of my tenants have been bankrupt or foreclosed on.  If they had great credit they would buy a house and not rent.  With a 650+ credit score, 2 years on the job and fog a mirror anyone can get a mortgage.

    If your prospects have a good, stable job and income, they have a better chance of staying awhile.  I would get a larger deposit and set up an automatic payment plan.  Don't ever let them be late. 

    People are creatures of habit and a large number of individuals that go bankrupt often do so again.  Get a pay or quit letter, file it on the 5th and learn eviction procedures.  Don't even think about "working with them" if they are late.

    Good luck

    1Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    Thank you for the input @Laticia Braxton. Yes my lease language has all of that in it. 

    0Reply
  • Laticia Braxton
    Real Estate Consultant · Joppa, MD · Member since 2015 · 218 posts · 178 votes
    9y

    Anytime! 

    @Alek Liskov

    0Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    Thanks @Bob B. Is it possible to put the automatic payment as a clause in the lease? I have an account on Cozy and I am sure there are plenty of other services out there offering. It's a good tip! I'll make sure I discuss that with them. 

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y
    If you have other qualified applicants I would go with one of them before this one. They may have higher income but they have already proven it is not enough to keep them out of debt. They have proven they have very poor money management skills. Higher income does not compensate for poor money management. 
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    if there foreclosure has taken all this time since there bankruptcy.. then they have lived for free for what almost a decade and they still have no real cash... think about that

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    4Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    @Thomas S. thanks. And I agree - that's why many Athletes and Music Stars end up broke. 

    0Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    @Jay Hinrichs I don't think the two are related. But in either case, your point is valid. They have been living for free and they still can't save up some cash and reduce their debt position.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Alek Liskov  you would simply fall out of your chair if you realized how many US home owners lived in their homes for years and years paying absolutely NOTHING but utilities... Especially in the states were foreclosures are measured in years not months... IE  NY NJ and other common wealth states

    as opposed to states like GA and MS and TX were your in and out of foreclosures in 6 months or less.

    And for those reasons in my HML days I would never ever consider lending in those type of states.. you basically cannot have enough equity to cover your short position if the buyer defaults.. those invested with POL are finding this out.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    @Jay Hinrichs I am very much aware because I know a few people who were able to live for free for 4-5 years and end up purchasing a few apartments cash just from the savings in living expenses. Makes sense. Thanks for the view on the financing side. Do you think it leads to lenders being a bit more conservative compared to other parts of the country? 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Alek Liskov the bankruptcy is the least of your concerns. You are assuming ability to pay means you will get paid, but that only applies to responsible people. They haven't paid a monthly housing expense for months or years. If they make $7-9k per month and all the cash they have saved is $3000 with NO housing expense, that is horrible! They should have way more cash. Just because they are nice doesn't mean they will suddenly become responsible. In fact the best liars and con artists are the nicest people you will meet. And don't believe your lease protects you. The best protection is selecting the right tenant. Evictions can be long and costly. 

    I have rented to people with bankruptcy and foreclosure but only after they have gotten back on their feet and have a good rental history. You don't want to be the one that has to train them how to manage their money.

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    9y

    A bk and a foreclosure?  Only if they smoke and have 5 cats.  At least 2 males that aren't fixed!

    Seriously though, no.  Foreclosure is an eviction on steroids. They sat there and did nothing. Not a short sale. No a deed in lieu.  Imagine trying to get them out when they decide to not pay you. Can't threaten to damage their credit! Nothing to lose for them.

    5Reply
  • Susan K.
    Real Estate Agent · Palm Beach Gardens, FL · Member since 2017 · 199 posts · 124 votes
    9y

    How can they possibly have good credit scores if they are involved in a current foreclosure?  This would hit their scores down to nothing.  Also, having credit card debt would ding it down as well.  Did you see the actual score?  Something sounds weird.

    1Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Alek Liskov , if you do rent to them, you will regret it almost immediately. Choose another tenant. Unless you want to experience firsthand the eviction process.

    [email protected]Podcast Guest on Show #261
    BiggerPockets
    1Reply
  • Jennifer Slaughter
    Real Estate Agent · Fort Collins, CO · Member since 2016 · 246 posts · 142 votes
    9y

    I agree with @Laticia Braxton.  Also, do you have a policy and procedure manual in place?  I find its helpful to have one so that in a case like this you can reference your criteria instead of making a decision based off of emotion. It also protects you from discrimination allegations if you make your decisions based off your criteria.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Alek Liskov can you share with us what their credit scores are and did you get it from them or by running a credit report? I agree with @Susan K. that something seems strange. If it was a full report, did they have other judgments or loans? 

    Also you mentioned you know a few people that lived for free for 4-5 years and ended up purchasing apartments with cash. You asked if this makes lenders more conservative? Those people bank at the same banks as you and I. When they don't pay their bills and the bank was left taking a loss, that money needs to be made up from other people who pay their bills. Or the government uses our tax money to bail them out. So, when someone willfully doesn't pay their mortgage and hides the cash for personal gain, you and I are left paying for it. Technically it is fraud to willfully not pay on a contract. The bank could get a deficit judgement, but some states limit that too. Ultimately the loss is made up by higher fees to other borrowers.

    Look at it another way. Imagine if you had a professional tenant who knows how to game the system and live in your property for 4-5 years for free. It is really the same thing. You would need to charge other tenants more money to make up for your loss or it may even cause you to go out of business. That is the same with banks and some did go out of business.

    0Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    Update: I have decided to rent to a different family. Slightly lower income but 27 years of reliably paying their rent on time. Thank you all for your advice and inputs. They have been

    @Joe Splitrock I ran their credit history through rentprep.com and had 650 or higher as my criteria and both of them came back as positive. Also, they had printed out Credit Carma reports for each person and provided me with a copy with backed up those claims. Their credit scores were just above 650. And thank you for the breakdown - it does make sense and I know business well - of course the banks will have to recoup those losses elsewhere. 

    0Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    @Mindy Jensen Thanks for the advice!!

    0Reply
  • Alek Liskov
    OP
    Investor · Clifton, NJ · Member since 2017 · 45 posts · 15 votes
    9y

    @Jennifer Slaughter

    Thank you for the input. Yes I do have a policy, but prior bankruptcy is not one of my immediately disqualifications. But I completely agree that it really helps you keep the emotions out. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free