All Forum Posts by: Mitch Freed

Jon,

If there is no damage to the tenant...i.e.no forceful eviction or unknown auction date that causes damage to the tenant...and the lease agreement discloses that a short sale is being negotiated...and the lease agreement is short term...either 3 months, or month to month...how is the situation different then any other lease?

Renters have to pay rent...no matter what house they live in...its not like there is a rent free house across the street.

There is need no hook to get off of...if there is no damage incurred.

You approach this situation with the best interest of the lender in mind...but they have nothing to do with landlord tenant law.

Furthermore, are you really going to make the argument that the fair market rent of a particular residential property is dictated by that particular property's monthly mortgage payment?

If I own a property free and clear with no payment...it seems the basis of the tenants argument would state that I should lease it out for zero dollars a month.

The argument from the lender side would obviously be different...especially if the money was lent based on the fact that the rental income was apart of the loan approval process....like multi-family units.

Any legislation that exists...California having the only one that I am aware of that defines rent skimming and was probably put into place due to pressure from the lending industry...i am sure is directed at the big fish who have huge multi family units who stop paying their mortgage and keep collecting rents...the money was originally lent to these people based on the projected rental income.

But, that still doesn't affect the fair market rent....so on the tenant side...no matter where they go...they have to pay rent...so there is no valid argument from them unless they incur damages from an unknown auction date (i.e. out of the blue a bank rep comes up and serves an eviction notice and they are forced out)

Whether I go to vendor A or vendor B and buy the same product....the market sets the value...not how much that vendor paid for the product. So if I find out that vendor A paid less than vendor B...am I entitled to money back? Either way I would have paid the same amount.

From my experience the best contract to use for a short sale would be an option contract. A standard purchase contract with an extended closing date will protect your interest fine...but I prefer the option route especially if you file a notice of option on the property...this will also cloud title.

Also, if you purchase an option...you can market the property as the seller and enter into a contract with an end buyer or contract buyer.

The most important aspect of a short sale is your exit strategy...you don't want to do all the work to get the approval and then find out the price you are paying is too high...this is why you want to be able to market the place before you finish your negotiations with the bank.

So you get your option, start your negotiations, market at the same time, find your end buyer, secure them in a contract, then close the short sale, then they close with you in whatever manner the contract dictates...and then Murphy's Law comes into play....but you can mitigate potential disasters (like your end buyer or tenant defaulting) by marketing before hand...you will have backup buyers!

I would defintely negotiate whatever deal you can BEFORE you sign an agreement.

And ownership is not only conveyed by a deed...there are many other ways to own property.

I knew a person who signed a lease in a situation like this...everything was disclosed to them in the beginning...but they had some sort of scumbag revelation after a month and decided to stop paying...a real loser.

It was a short term lease and all...like 3 months...property wasn't even officially in default so there was no auction date assigned.

As I recall the tenant was actually a contract buyer but then decided during the lease the they were going default on their rental obligation...who would sell a property on contract to a defaulting renter?

Mike,

The situation is only bad if you let it be...consider the positives:

1. You are negotiating a short sale so the worse off the condition of the house, the better.

2. If they trash it...insist another BPO...the value comes in lower...you just made the whole thing worth your while. Everything is fixable...and at a price that you are greatly going to inflate in your report to the bank.

3. Evict them after you complete your negotiations and take title.

Anybody can buy a property on contract and then rent it out. If you purchase a home on contract, you are not responsible for making the mortgage payment...the loan is not in your name. The fact that the home is in default is actually irrelevant. Of course I would disclose anyways in writing.

If I was the homeowner whose loan was in default and the auction date was in 3 months...and I signed somebody up for a 1 year lease and didn't disclose the situation...this would be a problem...I would be forced to break the lease and the tenant would have recourse.

In the situation of the contract sale and then renting it out...the seller is not the landlord...the contract buyer is. The tenant is under contract with a person or entity who has no obligation to the lien holder...therefore the situation of the loan in default is irrelevant as long as you aren't going to be forced to break the lease due to an impending auction date.

So let's say they pay you for 1 month rent...then decide to quit paying. Good for them...one more leverage item on the lender...and I subsequently drop my offer even lower.

To those who think you need a deed to rent out a property...you might want to look into the world of contract buying and selling, sandwhich lease options, etc...

Where is a law that states an underlying mortgage must be current to execute a lease agreement?

I actually wouldn't do a sandwhich lease option from somebody who is about to lose their home or job...if the mortgage has a good interest rate and a decent principle balance then I would do a purchase subject to. This way the previous homeowner can walk away..you take over responsibility and become the owner of record.

When entering into a sandwhich lease option you have really got to qualify the seller of the property...if they are going to stay on title as the owner of record then you have to make sure that the mortgage gets paid...the best way to do this would be to set up an escrow account...but this does cost money and you are trying to maximize cash flow in this situation.

Most people have already lost their shirts...the house becomes a liability so I wouldn't worry about the homeowner maintaining the deed...all most will want in these scenarios is quick cash (maybe 5 to 10K) and to get out from under the monthly payments.

As far as how to find these people...NOD list...FSBO...properties For Rent...word of mouth..postcards...signs...etc...

Tim,

the drug dealer uses a gun to get what he wants...carrying a gun for the same purpose, even if the situation calls for it, puts you on that level. What happens when he comes back with a machine gun, do you retaliate equally?

This root of this discussion is not about the constitution or the bill or rights so I'm not arguing for or against the right to bear arms...I'm just saying, time and money wise, there are faster and more efficient ways to deal with things.

Furthermore, this guy was a first timer, asked for property management advice, and the first thing that came to your mind was to go out and get armed? Really?

I can't imagine any professional property manager would recommend that to a property owner.

Carrying a gun and getting your hands dirty are two different things...running a business as a real estate investor shouldn't bring anywhere near a gun. And if you run your business effectively and efficiently then you problem solve the same way...and elevate yourself to the more important issues...like how to expand your company...close more deals...work on marketing..networking

I suppose if you guys want to have a pissing match with your tenant...go ahead...and forget about payroll, advertising, bills, other properties, new business....etc...

But as a real estate investor who manages his own properties, finds new business, handles the operations, buys and sells....I don't have time to deal with some schmuck druck dealing tenant who could eat up all my time on the phone talking to a cop, going to court, arguing with him about his drug deals...

Risk vs. Reward here...my time is worth a lot and I'm sure yours is too...its gonna cost you more than the time it takes to make a phone call...

I'm not saying I'm a hands off property manager...but I do it efficiently and I do my due diligence when screening and purchasing...this problem could have been solved before the property was even purchased...

But you could get a gun and lower yourself to his level if you want...

hmm..guns and drug dealers...i suppose if it cash flows then great...but who has time to deal with reporting the guy, trying to get him out through the renovation scenario, or getting him arrested, the arguing, potential damage etc...

Hire a property manager and move on to your next project.

Furthermore...as the homeowner, check with your insurance carrier to see how you could be potentially liable if anything happens on your property.

The last thing you want to do is end up in court with somebody suing you for something you didn't know you were liable for.