Renting To Defaulted Sellers
Somewhere I have read that renting a house back to the sellers is not a good idea. I'm currently pursuing my first pre-forclosure purchase. Because the couple are older, raising their grand kids and really don't have clue of what their going to do my heart wants to rent the place back to them. I would appreciate any feedback on this subject. Are there enough horror stories to steer me away from this thinking or can that kind of situation turn out O.K.?
There are two basic sides to this question - I'm going to make a case to NOT let them stay in the house and then you can judge for yourself what the best thing to do is. Before I even present reasoning to NOT let them in the house, you've got to treat this like a business. Regardless of how nice they are or how great their grand kids are is that going to make you feel good if they don't pay you?
It's nothing personal against them, but you can really get emotionally involved.
Now, they are in pre-foreclosure. My question to you is this. If they did not pay the bank what makes you think they are going to pay you? Why can't they make up the back payments to the bank? Work out a forebearance agreement. What about refinancing? What about selling the house? Some people would say it's okay to let them stay in the house. I myself would not allow this. I'm told there can be all kinds of legal issues if they don't pay you and you've got to evict them. The judge might not see them as tenants, but still as owners. Maybe your attorney can help you out with that question. Whatever you decide to do, be careful.
Ryan J. Schnabel
I'm thinking about doing the same. I'm giving the sellers 10K at closing ... they are going through a divorce and will split the proceeds. Mrs. seller wants to stay in the property until she can find something. I'm going to hold the $5K as security and she will get it back when she vacates. I'm also going to do a month to month in the event I want to sell it and she just got a job. I made her aware if she doesn't leave the property in the same condition she won't get the 5K when she vacates. I'm a newbie so maybe if I'm missing something someone with experience could shed some light. I want to keep the property for awhile and this way won't have to worry about finding a renter. but who knows .... :-?
Why not move them to one of your other properties. One that fits their payments. I would never let them stay. The law will nail you.[ Edited by JamesStreet on Date 03/19/2004 ]
Thanks for everyone's feedback. I just read a couple of articles by Bill Bronchich, he says that it could become a legal nightmare. If you try to evict the seller's the court could possibly give the house back to the people. With that said I don't see going through all the aggravation is worth it. But I'm still open to hearing cases where the situation worked out fine. Or more horror stories that will make me shudder to even consider letting them lease the house back.
We lease option properties back to the homeowners 95% of the time. Evicted at least a dozen now with no repercussions so far. And remember, we're in California, where the laws are very strict on that. Two points for you:
1. Invest in attorney fees to structure your deals.
2. Always judge the character you're dealing with on the lease back deals. I can tell you write now some people go quetly without putting up any fight upon eviction and some will go down like thunder. Most of the times you can tell who you're dealing with from the first interview. Besides, it never hurts to inform them about the consequences... "Listen, I'll try to make this work for you but..."
Cashmoney,
Look at the opportunity in the risk not vice versa. I agree with the previous post about getting legal advise 1st, as far as the courts giving the house back... If you have a valid deed and you record it I very seriously doubt the court would be able to give the house back. I'm not a lawyer but I believe this is a civil case not criminal, the court will not step in to represent the tenants/sellers the lawyer they must hire to represent them is paid to do that, do you think they have the money to hire a lawyer? they are losing their house. Good Luck
Don't do it is my advice. I didn't follow my own advice on two different occasions. They have caused me more problems than all prior tenants combined. I'll never rent to defaultees again.
I guess you should do it once. Then, you'll know why you should absolutely never rent back to defaultees.
I just don't get this line of thinking.
The reasons that put them in default in the first place are the result of years of development.
Do you think these people will change once you lease option back to them?
Think about it...
it comes down to indiviual cases, and your risk level, every investment comes with a certain amount of risk, we add to or minimize the risk by our choices.
doing your home work in each situation is essential. No matter what the deal.
in the rental situation are they in default in all their payments for example, or just the morgage? Ect.....