Short sale of my rental

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Submitted by sakina96 on July 28, 2007 - 9:46pm

I rent a property in north county. The property was purchased for something like 620K. I don't know the details but the owners put no more than 5% down and their ARM is about to reset. The property is currently listed for 470K (short sale). There has been quite a bit of interest in the property so I'm sure an offer will be made soon.

For those in the business...what are the odds that the bank will accept a short sale. Or to phase it another way, should I stay put and ride things out or do I start looking for another place to live?

Submitted by NotCranky on July 28, 2007 - 10:33pm.

If the bank approved of the 470k list price that property is likely going to sell because of the traffic(interest shown). If it is an agent who has dreamed that number up and is going to try to present a surprise offer to the lender it might not happen.This last scenario is not very likely. My semi- educated guess is that odds are in favor of the property going to escrow.It could also just be a rush of interest that fades. If you go, you are taking control of your own destiny. If you wait, you will at least get standard notice and things will probably be fine. It is really up to you.
You might want to find out if an investor buys the property too. Maybe they would take you on as a tenant.

Submitted by SD Realtor on July 28, 2007 - 10:34pm.

There are alot of variables in your question so it is hard to answer. Sounds like they how about 590k according to your post. Hard to say if the bank will take a short. Banks have been pretty cruddy about accepting shorts. However if the bank doesn't take it then they will eventually foreclose. However generally it takes at least 3 missed payments before the lender starts to act. Also I find that lenders will not even look at short sale offers unless the home has been listed for at least 3 months. So.. it looks like you have some time, but make no mistake, eventually you will be needed to move.

SD Realtor

Submitted by HLS on July 29, 2007 - 4:46am.

I'd say that you have plenty of time, and probably not have to move at all. Many real estate agents mislead sellers about the possibility of a short sale.

Lenders are not the borrower's partner in the loan.
Just because the property has dropped in value, doesn't mean that the borrower can complete a short sale, especially on a rental property.

A short sale hardship application package needs to be submitted to the lender. If the borrower has assets, they CAN afford the payments, although they may not want to pay them.

They probably won't get approved. This is a rental property, not primary residence.
Your landlord probably has other assets, and until those are exhausted and it's a hardship to pay, why should a short sale even be considered. They are getting rental income from you.

If a short sale was as easy as saying my property is worth less than I owe, I'll do a short sale, there would be 10 times the number of properties on the market (or more)
Seems that some real estate agents don't understand this.

Regardless of what a borrower tells the lender, as long as payments are being made there is NO problem in the lenders eyes.

Once the borrower misses a few payments, the service company will yawn and start some communication, it's just another statistic to them.

Your landlord's credit score will be whacked 150-200 points or more due to late payments.
A non neg am loan payment plus taxes & ins will cost them over $4,000 a month.

Like many other foolish people, your landlord got involved in a game that they didn't understand the rules,playing way out of their league.
He took a gamble and lost, There is a price to pay.

If a short sale were accepted, I wonder if your landlord knows that they could get a 1099 from the lender, and that $120,000 +/- of debt relief will be reported as income to them, and they will owe income tax on that amount for the current year.

If I am wrong, you should get at least 60 days notice to move. If they let the property go into foreclosure, you may get a notice from loan servicer to start making rent payments to them. That's when it gets sticky, because your rental agreement is with landlord.

Without knowing more about your landlord's financial situation it's hard to say, but if they own a primary home and have a job, some equity or other assets, I wouldn't worry about filling out a change of address form anytime soon.

Not wanting to pay OR really not being able to pay is the issue.

Submitted by sakina96 on July 29, 2007 - 10:05am.

Thanks for the responses. In speaking to the realtor, my impression is that they have unilaterally decided on the price. Once an offer is made they plan on submitting it to the bank for for approval of a short sale.

Submitted by HLS on July 29, 2007 - 10:10am.

OK,, Please update the forum when you can.

I wouldn't start packing yet.

Submitted by PerryChase on July 29, 2007 - 10:23am.

I'm with HLS. You have plenty of time.

Remember, as the tenant, the home is YOUR home for as long as you're paying rent. You don't need to facilitate the sale and make sure that the lender knows that you're the tenant (so the lender doesn't think that the owner is selling his personal residence. You know, people lie).

If I were you, I'd flatly refuse to show the house to potential buyers. You're entitled to undisturbed enjoyment of the property you're paying for.

Submitted by NotCranky on July 29, 2007 - 10:48am.

Perry you just got notice to vacate as outlined in the contract.
Have a nice day :).

Submitted by PerryChase on July 29, 2007 - 10:51am.

Rustico, does the contract require showing? I need to read it first. (I've not rented since my college days so I don't know if that's a standard provision of rental agreements these days).

Do you need the rent money? I think you need the money more than I need the house. Aren't you the one attempting a short sale?

(Hope you don't mind my sense of humor)

Submitted by NotCranky on July 29, 2007 - 11:10am.

(Hope you don't mind my sense of humor)

One must be able to take what one dishes out.

Yes I knew you had a comeback. There are variables. Notice can be given for any reason, except some forms of prejudice. You don't have to say the reason but selling a house is a good enough one if you do.

"Do you need the rent money? I think you need the money more than I need the house. Aren't you the one attempting a short sale?"
I do have to sell it and its hard to do with a hostile non- door opening tenant.
Could be, maybe I will move back in or have another tenant. Maybe I don't care.Do most tenants like this much conflict?I think most will just put up with it, with or without some display of tension or move.

Tenants probably don't have to show the place and very some times a listing will show that a hostile tenant is present and a signed offer is a condition of seeing the property.

Submitted by HLS on July 29, 2007 - 11:13am.

Perry,,no problem with your humour ;-)

I'm sure that lender knows it's a rental.
The statements are probably sent to a diff address.

In many cases today, when people refer to the "lender", it's actually just a servicing company.
The paper on this ARM was probably sold off on Wall St.

The servicing company collects the payments and files NOD's etc. It's a boring job these days, but it's job security.

When "short sale" offers are submitted, nobody jumps at them. They can sit around for weeks without an answer.
It's not a priority, although you'd think it would be.

Presenting a SS offer with a 48 hour deadline probably goes into the trash pile.

There are entry level people in some positions that just shuffle files around. They don't have the authority to make a decision.

I still wonder why they are called SHORT SALES. The IRS calles it "Debt Relief"
Short Sales only refer to stock market shorts in the outside world.

Submitted by PerryChase on July 29, 2007 - 11:23am.

I just checked the agreement on my rental and I don't have that provision. Something to remedy.

If were a tenant, I'd be pissed if 6 months into the agreement I were asked to show the house. I'd go to court rather than let some strangers disrupt my life.

Just finished watching WSJ with Bartiromo. The housing slump was big news. Her final advice is "buy the house you love, never time the market." She repeated that several times. Sounds like an ad for the REIC.

Submitted by sakina96 on July 29, 2007 - 11:27am.

This house has been on the market for almost four months. Since we didn't want to move and the landlord has generally been nice to us we did our part to facilitate the house being shown (kept it extra clean, arranged to let realtors in since we didn't want a lockbox). I'm not aware of any NOD on the house but I wouldn't be shocked if it happened. I think someone put an offer on the house Friday. The fact that it was an offer with a 24 hour expiration makes me wonder if it is only the seller and agent that seem to know (or think) this is a short sale. The MLS listing also does not mention a short sale (although I don't have access to confidential remarks.

Submitted by HLS on July 29, 2007 - 11:41am.

Even if Short Sale is mentioned in a listing, it is a hope & prayer of the agent, so they can earn a commission.
If your landlord hasn't submitted a hardship package, they are probably wasting their time.

You don't ask for short sale offers knowing what will be accepted. It's a poor marketing myth, and I still think that plenty of real estate "pros" don't know what they are doing. If the agent has been around less than 10 years, they've prob never been involved in one.

The next time you see the listing agent, ask them if they have EVER completed a short sale transaction, and ask them how long it took.

The 24 hour offer made Friday has already expired.
Now my bet is that they don't know what they are doing.
If your landlord isn't near broke, it isn't going to happen.
He's in a bad investment. Not the lender's fault.

If I were you, I would ask for compensation for being inconvenienced when the property needs to be shown.
Like reduced rent or a cash amount each time.

I negotiated with a bank once on a home that they had foreclosed on. It took over 3 months from start to finish.
They took 3 to 4 weeks to respond to each offer. After my 2nd offer their reply was "we have nothing to discuss"
I loved it!
I bought the house several offers and counters later.

Submitted by Fearful on July 29, 2007 - 4:05pm.

Question about tax and short sales ...

If debt is canceled, I understand the amount forgiven is considered ordinary income. Makes sense so far.

Now, you have a capital loss (presumably, otherwise debt would not be canceled) on the house. Can the capital loss be used to offset the ordinary income of the house sale? Or are you stuck with taking just $3K a year of capital loss against ordinary income ... for the next, say, hundred years?

If you can offset immediately, then you don't really have to worry about the income from the debt cancellation. If not, then I would bet most people can only exit foreclosure via bankruptcy. If you are so strapped for cash you cannot make the mortgage payments, it is hard for me to imagine you having the cash to pay the IRS.

Submitted by HLS on July 29, 2007 - 4:24pm.

FEAR: perhaps a CPA will answer.
On your principal residence, I don't know if you can write off the loss at all, if actually SOLD at a loss.

I think that $3K ONLY applies to stock market losses, to discourage speculation.

In a short sale, you are not receiving any money. Lender is agreeing to "settle" and your debt is being forgiven. The debt relief is reported as income, and you owe income tax. The debt is done. With a RENTAL, I believe that you are selling the property for what the lender reports, but if a rental, you have depreciation to recapture as well.

There is no ordinary income from the house sale, but I do THINK that you can write it off as an investment loss, (without $3K limit), and carry forward if necessary.

Foreclosure is viewed differently depending on whether or not it was purchase or refi loan that is being defaulted on.
There are also convoluted ways, like keeping your 1st current and let the 2nd default. Then the 2nd could takeover the 1st, without a default on the 1st.

Further, my belief is that BK will not absolve you of debt to the IRS.

This is the danger of a short sale that many don't seem to be aware of. Receiving a 1099 isn't a guarantee, but most people aren't in a position to worry about that, or not do a short sale to avoid the 1099.

The lender doesn't accept a SS just becuase you want them to, and for reasons mentioned previously, it's not so easy on a rental property.

Submitted by SD Realtor on July 29, 2007 - 5:04pm.

HLS -

Generally with short sales I have found that

a - The property has to be on the market at least 3 months before the lender will even look at a short sale offer

b - The purchase offer on a short sale has to be accompanied by the required documentation package that the sellers must need to fill out. (Financial statement, proof of hardship, tax returns, w2 etc...)

c - The lenders I have worked with respond within 6 weeks, to a short sale offer.

Section c usually is the driving reasons why buyers agents hate to submit offers for short sales.

******

Most lenders servicing loans for distressed homeowners I have worked with, seem to give a somewhat random answer as to when the notice of default will be recorded. There seems to be this sort of ether that occurs from when the loan is actually passed to the loss mitigation group for notice of default recordings as well as the initiation of foreclosure proceedings. More of less it appears to me that the timeframe is approximately 3 consecutive missed payments. Although it could be more... which would seem obvious if the loss mitigation groups are flooded with work.

******

Sakina99 make no mistake about it, you will have to move someday. Your landlord of course will want you to stay and rent up to the day they close escrow with the buyer, or the day they hand the keys over to the bank because you are essentially making his payment for him. If you keep the home clean and showable then all the better for him. You are essentially doing him a favor. If your landlord has not missed payments then you are in good shape. However if they have missed 3 payments then I would start looking. Most people do not miss 3 payments then start paying again. Once they stop, they have a new strategy and will move forward with it because it is essentially throwing more money away and prolonging the inevitable. So that is what you really need to find out, are they missing payments. Once a notice of default is recorded you have a little over 3 months, (closer to 4) unless your seller cures the default.

As a renter who has had to move 3 times in 2.5 years, twice due to landlord decisions, I would advise any tenant to be wary once the landlord puts a home on the market. Especially if they are behind in payments. I don't like doing any favors for landlords selling their homes and I don't like to subject my family to agents showing the home I am living in so the second I was told they were selling I left. I am especially happy to see the home I left in February is still on the market today. That landlord begged us to stay.

Sakina99 I am not saying something is imminent... but I would be willing to bet that within 9 months the home will have a different owner.

Submitted by HLS on July 29, 2007 - 5:25pm.

SD..
I am aware and agree with everything that you say except there is zero evidence (at this point) that this is a hardship for the owner, in which Sakina doesn't have to go anywhere, and the LL will be happy to have her stay.

May sellers seem to have no idea about b) and c) above, which I already mentioned earlier.

Submitted by SD Realtor on July 29, 2007 - 8:52pm.

Agreed HLS.

As someone who is renting, I have found that whenever there has been an intent to sell, from any of my LLs, I never stuck around to see the results and I felt it was an intrusion on the life of my family. Thus I bailed regardless of the financial situation of the landlord, or now nice they were... I am simply more distrusting of people by nature then most I guess... (Yes I am a landlord as well!)

In fact not only are there no signs of distress, but if there is not a disclosure of a short sale on the MLS, it may be that indeed they will come in with cash on the shortfall.

Submitted by WaitingToExhale on July 30, 2007 - 10:00am.

I have to agree with SD Realtor on leaving if possible. In the last house we were renting we were told the house was going on the market a month after we renewed the lease, after having been told when we first moved in the year before that the owners planned on holding it for their return, at least 5 years later. We dealt with almost a year of agents coming in at random times, calling with no warning (for example, from the curb in fron of the house), etc, before we were able to bail when the lease was up. We certainly had the impression that we were being blamed for the house not selling by the end even though we tried to be quite accomodating and always tried to keep the house in good condition. Of course, they ended up selling for 60K less than they started out asking.

I'm still annoyed at the "coincidental" timing of the decision to sell vs. our lease renewal and I'm concerned about the same thing happening where I'm renting now.

Submitted by HLS on July 30, 2007 - 12:20pm.

There are many excellent tenants that have power these days.
People forget that many things are negotiable.

Some landlords today would love to have a multi-year tenant with a lease. It gives them some security that they will have income. Their loan increase isn't your direct problem.

If I were going to rent today, I would ONLY agree to being compensated for having the property shown AND a set fee if property was sold during my tenure.
Another option is just reduced rent, but I'd rather have cash to move. I would offer that to a tenant if I was considering selling.

Leases are written to protect the landlord in most cases. State laws can supercede them. A lease is a contract and negotiable before you sign. There is always room to write in additional terms ;-)

You can ask for a multi-year lease with compensation too.
It never hurts to ask.

It can be harder to get rid of a tenant than an employee.

Submitted by Wickedheart on July 30, 2007 - 5:49pm.

They actually called you from the curb and you let them in? You have got to be kidding me!

California Law

Special rules apply if the purpose of the entry is to show the rental to a purchaser. In that case, the landlord or the landlord's agent may give the tenant notice orally, either in person or by telephone. The law considers 24 hours' notice to be reasonable in most situations. However, before oral notice can be given, the landlord or agent must first have notified the tenant in writing that the rental is for sale and that the landlord or agent may contact the tenant orally to arrange to show it. This written notice must be given to the tenant within 120 days of the oral notice. The oral notice must state the date, approximate time and purpose of entry. 110 The landlord or agent may enter only during normal business hours, unless the tenant consents to entry at a different time 111 When the landlord or agent enters the rental, he or she must leave a business card or other written evidence of entry 112

The landlord cannot abuse the right of access allowed by these rules, or use this right of access to harass (repeatedly disturb) the tenant. Also, the law prohibits a landlord from significantly and intentionally violating these access rules to attempt to influence the tenant to move from the rental unit.113

If your landlord violates these access rules, talk to the landlord about your concerns. If that is not successful in stopping the landlord's misconduct, send the landlord a formal letter asking the landlord to strictly observe the access rules stated above. If the landlord continues to violate these rules, you can talk to an attorney or a legal aid organization, or file suit in small claims court to recover damages that you have suffered due to the landlord's misconduct. If the landlord's violation of these rules was significant and intentional, and the landlord's purpose was to influence you to move from the rental unit, you can sue the landlord in small claims court for a civil penalty of up to $2,000 for each violation.114

Submitted by NotCranky on July 30, 2007 - 6:20pm.

Wickedehart,
Did your reference address the topic of the landlord giving notice to the tenant to vacate in accordance with the terms of the rental/lease agreement. That 120 days written notice could be super problematic if the renter wants to cause trouble. Are you sure that applies to SFR and not bigger buildings?

This is the excerpt in question:
"However, before oral notice can be given, the landlord or agent must first have notified the tenant in writing that the rental is for sale and that the landlord or agent may contact the tenant orally to arrange to show it. This written notice must be given to the tenant within 120 days of the oral notice."
Thanks

Submitted by Wickedheart on July 31, 2007 - 12:06am.

My source was the California Department of Consumer Affairs.
http://www.ca.gov/

This applies to all residential rental units whether it is an apartment, condo, duplex, house or even a room. Yeah, it could be problematic for a landlord if they haven't done their homework. Actually, it could still be a problem. I don't have much sympathy for the landlord however. I see it this way the landlord has a choice they can either have me move and give up the monthly rent or they can abide by the rules.

Living in a home on the market is hell. Especially if the house is priced to sell like the house I was living in was. I would just move. She going to have to move anyway. People were extremely pushy and rude. I was amazed how people just pulled up to the house (without a Realtor) and asked to see the place. Like I'm just going to let someone just come right off street into the house. A couple even rang my doorbell bright and early Sunday morning wanting to see the place. I'm glad I refused a lockbox because I had people show up without a phone call and tried to come in while my teenage daughter was showering. I had people show up several hours late (no courtesy call) and expect to see the place.

Basically how it works is if they haven't given you a 120 written notice that the rental is for sale they cannot call you up and ask you to show the home. They have to mail you the 24 hour notice that they want to show the place or they can come by and hand deliver the notice.

Even if the landlord has given the 120 days notice they still have to give you 24 hours notice to enter and it has to be during normal business hours, Monday-Friday 9-5 and NO WEEKENDS. They have to tell you when they enter and the realtor has to leave their card. The only difference really is that they can give you notice by phone.

I was pretty cooperative. I did show the place on weekends and in the evening. We really needed a good reference because it is difficult to find a good place when you have a lot of pets. It was a real strain on us. My husband was doing his thesis. They were even trying to show the place while we were moving. I'm like "If you want us out by the 15th you got to stop bothering us"

Submitted by NotCranky on July 31, 2007 - 8:16am.

Thanks so much,
I think the 120 days is fair. It just catches me a little by surprise because I haven't seen it applied before.

When I list a house where I know the tenant or owner needs more sensitivity shown , I don't put a sign in the yard. I post 8x11 print outs on the doors or windows where people access the property. They say "property to be shown by appointment only no trespassing". In one case I went by the property and some knuckleheads had parked in the driveway and were climbing all over the place trying to look in windows and over the fence. Of course that would not surprise you :).

Submitted by WaitingToExhale on July 31, 2007 - 8:01am.

They actually called you from the curb and you let them in? You have got to be kidding me!

Sometimes we did and sometimes we did not. It depended on the situation (baby napping, we were headed out the door, etc). Toward the end we were getting very annoyed; we would have plans and people would not show up on time, then get annoyed at us when we weren't there two hours later when they showed, etc. Everybody wasn't irritating, just a few. But I'd certainly move if at all possible next time.

Submitted by PerryChase on July 31, 2007 - 8:58am.

Landlord need to honest with their tenants and tell them in advance or their signing the lease that they intend to sell the house.

If the owner decides to sell right in the middle of the lease, then it's the landlord's responsbility to be extra nice to get the tenants' cooperation, not the other way around.

Submitted by sakina96 on August 15, 2007 - 9:34pm.

Update...checked out foreclosure.com this evening and a notice of default was filed against the landlord several days ago. We know that we will probably have to move soon (we are in the process of looking for a new rental property). In the meantime, it seems criminal for our landlord to continue to collect rent while not paying the mortgage. I'm starting to think that I'll never see my $2500 deposit.

Submitted by SD Realtor on August 15, 2007 - 9:57pm.

Sakina -

I am not one to ever advise to not pay rent... after all I am a landlord. So I am not going to advise you to bail out on the rent.

My first piece of advice when you first posted this was to look for somewhere else to live and fast. To me, this is all the more reason to do it faster. Try to get out before the home is foreclosed upon. Prior to leaving call your landlord up and have him do a physical walkthrough and let you know if there is anything that he will be deducting for or needs repair.

Get it done, do it fast, and get that deposit back asap.

Once again, to ANYBODY WHO IS RENTING in a home that has a notice of default on it, or if the home is on the market, my advice would be to bail out asap.

SD Realtor

Submitted by GoUSC on August 15, 2007 - 10:03pm.

I am in a house that was purchase for way too much with nothing (5%) down on an ARM that is going to adjust soon. Needless to say I am just waiting for the call to come. Nothing yet on foreclosure.com though.

Worst past is the owner is a mortgage broker with Downey Savings. I don't even know if he is still employed.

Submitted by SD Realtor on August 15, 2007 - 10:56pm.

Rad if you want I can check if a NOD is filed yet. Usually a NOD doesn't get filed until there are at least 3 months worth of missed payments.

SD Realtor

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