Ethical Question

[Matt Looney]

Hello all.  Quick question for anyone with an opinion out there.  I'm currently circling a deal to purchase a property for a rental that already has a renter that's been there for 3 years.  When I went by to look at the house, I met with the current renter and we got along really well.  She's about as good of a renter as you can get.  Even doing smallish things like getting minor repairs done, some painting, and even adding some gutters at her own expense.  After speaking with her, she says she loves living there and would like to sign a multi year lease if I were to purchase the property.  Sounds good right?

My problem is I the lack the funding for a down payment on the property.  I would think about setting up a lease option since the current tenant's lease is up at the end of the month anyway.  I could lease it at that point then turn around and make a lease agreement to the renter and all would be good.  However, the current interest rate on the mortgage is 8.5% so there is little chance of cashflow at that rate.

Here's where it gets a smidge complicated.  The current owner of the property is two months behind on the payments of the mortgage.  The owner is actually charging $1000 per month in rent when she could and should be charging $1200.  It would at least cover the mortgage at that point.  I could come up with an option fee to bring the mortgage current, but then I'd be hanging on to it for no cashflow.  I'm going to work with the owner and her lender to see what type of loan modification might be available for her situation.  A lower interest rate would make it very appealing.  With the location, condition of the property, and having a long term renter already there, I'm going to try anything I can to keep this deal alive.  

Here's my ethical dilemma.  You thought I'd forgotten about it didn't you?  If I am unable to make this deal happen after exhausting all possibilities, with the knowledge that the owner can no longer afford the mortgage, am I stuck keeping quiet about the situation to the current tenant?  I'm guessing the answer is probably yes, but I just hate seeing someone in that situation.  Paying the rent on time every month, but the owner can't afford the house anymore so it goes into foreclosure.  After speaking with the renter at length, I have the feeling that if she knew she might actually offer to purchase the house herself.  She likes it that much.

Anyway, this is a long post to just ask a simple question I guess.  Do I have to keep my nose out of other people's business?  Thanks in advance for any input.  It's appreciated.

P.S.  Any input or suggestions on ways to make a deal work in this kind of situation are also welcomed. :)