Just when you thought the housing and mortgage crisis was limited to only homeowners, a new victim has been brought into the fray, one who doesn't own a home or have a mortgage. Who are these new, unsuspecting victims? The people who are actually renting homes!
Thousands of homeowners (namely investors and property speculators unable to sell homes purchased in the recent sellers market) have opted to rent their homes to help offset their monthly debt service. Low market rents compared with high risk, high interest mortgage payments are causing many investors to go ‘out of pocket' to pay the difference each and every month, creating a negative cash flow position costing hundreds and sometimes even thousands of dollars monthly in subsidized debt service payments.
"Robbing Peter to Pay Paul" Landlords/investors juggling several properties with negative cash flow are often seen prioritizing which mortgages should get paid first. This can prove especially difficult after doing this for several months, in most cases providing disaster results. Poor bookkeeping coupled with a consistently delinquent mortgage history are causing many landlords to default on their mortgages all together, leaving many of their tenants with no place to go.
"...But I'm paying My Rent on Time!!" A perfect rental history may still get a tenant evicted from their homes, especially those tenants renting from landlords' facing a property foreclosure. The rental lease you signed with your landlord may afford you some legal remedies, but in most cases may not help you if your landlord ends up in foreclosure. If your landlord does end up in foreclosure, they might not tell you directly, but you will find out soon enough, when a sheriff's deputy or other process server serves you, the tenant, with a summons for foreclosure. Your actual name likely will not appear on the summons, except as Tenant #1, 2, 3, & 4. The summons is merely to inform you that the leasehold interest you have in the property is at risk of foreclosure. At this point, you should strongly consider seeking the advice of a competent attorney to help you understand your rights as a tenant. The rents you pay today may only end up in your landlord's pocket, with no assurances that your landlord will honorably pay their monthly mortgage payment.
So You Want To Rent Me your Home.... Although it is customary for the landlord to interview a prospective tenant, in these times, it may be just as important for a tenant to interview the prospective landlord. Before you sign a lease for the next home that you rent, ask your prospective landlord about the number of homes they are currently renting out, as well as the number of year's experience they have as a landlord. Ask them about their take on the current mortgage and housing crisis, especially their thoughts on the high number of rentals falling into foreclosure. It may not hurt to do quick search of the Public Records with the Clerk of the Circuit Court in your county may show pending lawsuits or foreclosure actions against a prospective landlord. Access to these records is easily attainable over the Internet.
Help Your Landlord, Help Yourself. The difficulty a landlord has in making their monthly mortgage payments could present a real opportunity for you, the tenant, to actually purchase the home you're renting. Depending on the market value of the home you are renting, how much your landlord owes on their mortgage, and how much you can afford to pay each month you may present a real opportunity for you to purchase the home through a short sale, provided that your landlord's mortgage lender will approve of a short sale. If this is not an option, and you find out the home you are renting is in foreclosure, consider having a frank and open discussion with your landlord regarding the remaining term of your lease and how it may be affected by a potential foreclosure on the property you live in. Inquire about any security deposits you may have paid at the beginning of the lease. If your landlord is uncooperative, you may want to consult a competent attorney immediately.
Get All of Your Ducks In A Row A foreclosure action against your landlord could pose potential problems for you should you decide to rent somewhere else. A sudden move in the middle of a lease could raise questions from future landlords, so proper documentation by you to support your rental history is critically important. Some examples of proper documentation to consider are as follows:
*Pay all monthly rent payments and security deposits by personal check, bank check, or money orders. Paying cash proves nothing in terms of a rental history, and provides no support to you should you seek to recover any security deposits. Always pay in a format that can prove your honesty.
*Keep copies of cancelled checks to show a consistent payment history. Cancelled checks are the most effective way to show your ability to make monthly rent payments on time as well as the frequency of paying your rent at a certain time every month. A consistent payment history can provide indisputable proof that you are a good risk.
*If you are served a foreclosure summons, keep a copy for your records. If the rental you are living in does fall into foreclosure, you are likely to be served foreclosure papers as well, since you have a leasehold interest in the property. If you lose your rental as a result of a foreclosure through no fault of your own, the foreclosure papers you are served along with the documentation noted above will greatly enhance your chances of securing another rental with greater ease, and will also help you tremendously in the event you decide to purchase a home of your own in the near future.
You may not always know if your landlord is making their mortgage payments, but through careful landlord screening and proper documentation, you can protect yourself and minimize the chance of facing eviction by foreclosure.
For free copy of "Ten Tips for Tenants" or a free brochure on "Why Rent When You Can Buy?" please call 941-206-6000.
Mike Sikorski, GRI
Licensed Real Estate Broker
Licensed Mortgage Broker
Loss Mitigation Specialist
Florida Realty Network LLC
22079 Kimble Avenue
Port Charlotte, Florida 33952
Phone 941-206-6000
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