Making Rental Payments---No Matter What!

By
Real Estate Agent with Long and Foster REALTORS®, Gainesville, VA VA License # 0225089470

Your landlord just informed you that he is in trouble financially.  He's not been making mortgage payments in the home you are renting from him.  He just knows he's headed to foreclosure.   Maybe he suggests that, since he is not making mortgage payments, that you don't have to keep making rental payments.  Or maybe, you get so angry knowing that your rental checks aren't going to pay the mortgage that you say, "Screw it!  Why should I keep paying him?"

Awesome!  Free rent!  Right?  WRONG

If you have plans of buying a home, your rental history will come into question.  Cancelled checks made out to your landlord will be requested.  The underwriters for the loan will want to know you have a good payment history.  They don't care that your landlord was headed to foreclosure.  They want to know you will pay your bills no matter what!

How do I know?  I had a buyer in turmoil for this very scenario.  Landlord said, "You don't need to keep paying rent.  I'm going to let that house you are in go to foreclosure.  Start looking for another place."

So my buyer found a home to buy.  This was the second landlord to go to foreclosure.  Time to take his housing situation into his own hands and buy.  Problem was, there were not twelve months of cancelled checks to string together to present a full year of payment history for the underwriter.

This could also happen just going to another rental home.  Landlord asks for payment history.  You better have a good one!

So when you are contemplating taking the free rent option and waiting for the bank to come and ask you to leave the rental property you are in, think twice.  No matter what the landlord is doing with the money, the fact that you wrote the check is what is most valuable.  Your housing future may depend on it.

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Topic:
Home Buying
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Virginia Prince William County
Groups:
1st Time Buyers
Diary of a Realtor
REALTOR LIFE
"Whacked"!!!
Tags:
landlords in foreclosure
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Rainmaker
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Simon Mills
Mills Realty - Toluca Lake, CA

Sounds like good advice, but couldn't it just be expained to the underwriter.  If the landlord tells you to stop paying (I've never had that experience) then a simple explanation should explain the reason you do not have 12 months of cancelled checks.

Feb 24, 2009 11:13 AM #1
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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

Simon:  The underwriter, in my situation, asked to speak to the landlord.  Got the number from the buyer and couldn't get a hold of him.  The landlord probably thought it was a collections call. With underwriters tightening the belt, it's best to know the pitfalls ahead of time...as best you can. 

Feb 24, 2009 11:20 AM #2
Rainmaker
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JL Boney, III
Coldwell Banker - Columbia, SC
Columbia, SC Real Estate

I had a situation recently where a gentleman called my office and he was a renter. He had found out the landlord was about to have the house foreclosed on and he wanted to know if he could stop paying rent. I advised him to continue his rent payments.

Feb 24, 2009 11:23 AM #3
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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

JL:  I advised my buyer to do it too...but the lure of free rent was too great.  We'll see how it pans out in the end, but certainly does create a mess for udnerwriting.

Feb 24, 2009 11:25 AM #4
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

I've suggested to clients in that situation is to send a registered letter to the landlord letting them know that they rent checks will be sent to and held by an attorney until the foreclosure is settled.  At that time they will get a release signed by the landlord to return the rent money to them.  It creates a paper trail. since the landlord isn't making the payments most likely a judge would end up ruling in favor of the tenant as the landlord has violated the terms of the lease.

Feb 24, 2009 11:53 PM #5
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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

Cindy:  Fantastic suggestion!  I'm putting that one in my mental rolodex.

Feb 25, 2009 12:49 AM #6
Anonymous
Jake

I have a question.  What if you're in that situation but the lease is not in your name?  I moved into a house with a few friends and planned to put my name on the lease once it was time for renewal but by the time that happened the house went into foreclosure and the landlord actually told all of the tenants who were on the lease not to pay rent.  He actually suggested that we all stay here, maintain the house etc. until the bank instructed us to leave.  My credit is excellent...so why would I have difficulty purchasing a home?  Couldn't I just show checks or have a landlord reference from my previous residence?

Mar 12, 2009 03:15 PM #7
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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

Jake:  I heard a great suggestion last night at a networking event.  Why not put the rental amount, every month, in your savings account.  The problem with qualifying for a loan these days is that the mortgagor will want to see twelve months consecutive rental payments.  If you do a letter of explanation and then show that you have deposited the money into your savings you would be great.  Of course, not being on the lease makes it trickier, but worst case, if you did the deposits to your savings account you'd have some money saved which would be GREAT for a mortgage application.

Mar 13, 2009 02:18 AM #8
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Chris Ann Cleland

Associate Broker, Bristow, VA
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