Short Sale - Tenant Occupied

Real Estate Agent with Hunt Real Estate ERA

Short selling a home is touch enough these days, but one with a tenant posses additional challenges.

First and foremost, make sure the homeowner is communicating with the tenant regarding their plan to sell.  All to often, tenants find out the homeowner is in trouble when the trustee notice of sale has been posted on their door.  This does not give a warm and fuzzy feeling to the tenant, who is still paying rent.

The tenant should be assured of the following:

  1. The tenant lease will be honored.  - This opens up so many questions, and the first one that comes to a tenants mind is...will I be evicted?  What happens when the property is sold?  Make sure you understand the laws in your state regarding the eviction of tenants under either a short sale or foreclosure scenario.  In Arizona, tenants are protected, even when bank owned.
  2. The tenant needs to know that their security deposit is safe and can be refunded when needed. - This is HUGE and can be the biggest hurdle to overcome.  The homeowner is behind on mortgage payments and in trouble, what are the assurances that the tenant will recieve their security deposit back?
  3. Tenant cooperation for agent showings, inspections, etc. - Too many times the tenant is wary of the entire process due to lack of communication, and the result is no cooperation from the tenant.  It is important to understand Tenant/Landlord act and the rights of the tenant regarding showings.  At my brokerage, we MUST provide 48 hours WRITTEN notice of any showings, inspections, etc and we are NOT permitted to put a lockbox on the property.   This can pose additional challenges when selling a short sale home, but with the correct planning and education of all parties involved, it can be done.

Now let's talk about the tenants.  When they find out the homeonwer is in trouble, they may be tempted to stop paying their rent.  The tenant needs to understand that they still have the obligation to continue paying, or move.  Regardless if the homeowner is in trouble or not, the tenant have a legal obligation to pay their rent.   The homeowner still has the right to pursue a tenant for non-payment and possible eviction regardless if the homeowner is in trouble or not.

As a buyer's agent, please take note of the tenant rights.  The reason our broker has requeste NO LOCKBOX on any of our tenant occupied listings, is because the buyer's agents are not always respectful of tenants rights.  I have had situations where buyers agents have appeared at the door with no appointment, agents have not given enough notice and upset the tenant, or agents have entered the property without approval.  These are all lawsuits waiting to happen.  PLEASE - be respectful and follow the listing agents rules, no matter how difficult it makes your job of showing. 

This is just touching on the basics.  As many more investor/landlords are in trouble, the more short sales we will see with tenants.  Make sure you understand the laws as they pertain to your area.



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Al Raymondi
Ocean View Realty Group in Ormond By The Sea Florida - Ormond Beach, FL
Ormond By The Sea Florida - Home and Condo Sales a

Excellent advice Brigitte, thanks for posting.  Tenant rights can be an important part of the process.

May 18, 2010 11:58 AM #1
Hung Le

I have question about buyer's right: what if the tenants was being served 30-day notice but refuse to evacuate at time of escrow? can buyer refuse to sign escrow until tenant move out and then perform final walk through? or buyer is obligate to sign then become responsible to evict the tenants or sue the seller/tenants for breach of contract?

Jul 13, 2010 11:53 PM #2
Brigitte Mueller
Hunt Real Estate ERA - Tempe, AZ

Hung Le....I am not sure on that scenario.  I believe the buyer is obligated to sign and then deal with the tenants.  It's best to check the landlord/tenant act in your state.

Jul 23, 2010 10:27 AM #3
Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY

This is a excellent advise for tenants who occupies a short sale property.

Nov 04, 2010 04:22 PM #4

I am a tenant in a home that just closed on a short sale.  All along the seller assured us that we would not have to move until the lease contract had been fulfilled.  When the sale closed on a Thur, @9pm that night I got a call from the agent representing the buyer stating we have 30, maybe 60 days and will get a new contract to me right away (which came the following day at 5:30pm) and come collect rent on Mon.  Well my head was spinning.  Mind you we have 4 children in school and now being told we have to move.  On Wed. (today) we got a certified letter saying we have to be out in 90 days. We have 5 mos. left on our lease and they are telling me they do not have to honor the remainder of the contract as this falls under the distressed homes rule and they will give us 90 days.  The home did  not foreclose, it was a short sale.  Can they make us move before the end of our original contract?

Feb 02, 2011 04:16 PM #5

what if they give you a five day notice thats not enough time to find a house and move.The house was sold at a auction on friday 29th the same day someone at my door with a 5 day notice.Whay are the laws in arizona for renters in a foreclosed home allready sold?

Aug 04, 2011 10:12 AM #6

What if your lease is up and you have not signed a new one. I found out that apt complex is in short sale from the internet. I looked it up because I thought it odd property manager dragging her feet about us signing another lease. Can we just move without notice? If we need time to move who do we pay the rent to? 

Jul 12, 2012 09:19 AM #7
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Brigitte Mueller