Help! I’m Losing My Home To Foreclosure
The lender has filed a Notice of Default on my condo. I knew this was coming. Ever since I sold the condo in summer 2005 at the peak to an investor who rented it back to me, I suspected I’d be able to buy it back for less than what I paid for it. I found out when the mortgage company sent a letter that said “You Will Lose This House If You Do Not Take Part In the Mortgage Reinstatment Program” which was delivered to me instead of the new owner.
The investor paid $352,000 for the 920 sq ft condo or $382/sqft, (and I paid 3.25% buyers agent commission to her niece – I sold it FSBO or For-Sale-By-Owner, so there was no sellers agent commission). The first lender filed an NOD for $283,000. The seller has been pocking my rent and not paying the mortgage since March 2008. Not applying the rents to the mortgages is called rent skimming, and is only illegal in California during the first year of acquiring a property. Unless the sellers cures the default, the house will be foreclosed upon and the second mortgage of about $35,000 will be wiped out.
Current comparable sales are about $225,000, which represent a 36% drop in prices. I wouldn’t mind buying it myself, but for a few issues.
1. I’m moving to Los Angeles and will be busy with my MBA. Do I want to get involved with yet another investment property.
2. I wouldn’t feel comfortable paying more than $150,000 for it. I think prices may drop another 30% from here, maybe more – who knows.
3. Its taking lenders up to a year to list REO properties that didn’t sell at the auctions. So working with the lender can be painful while I’m in LA.
I called up the mortgage servicing company that sent the letter and the guy on the line said I should stop paying my rent and save my money instead. This is blatantly wrong information. A rental contract is completely separate from a mortgage and there is no correlation between the two. I really doubt my landlord would take me the court, but he has the legal right to do so and an eviction/judgment on my credit history would make it a lot more difficult to find a rental in the future.
So what would you do?
1. Stop paying the rent and continue to live there.
2. Stop paying the rent and move out.
3. Continue to keep paying the rent as if nothing happened.
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June 24th, 2008 at 7:45 am
Hey tough break. I know in my former state of Maryland, you could pay into the small claims court system so the legal infrastructure is aware of your problem, is collecting your agreed upon rental payment for your signed contract, and have your funds held in escrow.
I’d checkout the legal system in your county and proceed from there.
June 24th, 2008 at 8:09 am
I would stop paying the rent and move out. Most likely you’re not going to get your deposit back, either. Move to somewhere where the landlord is making money and you have a good relationship with him/her.
-Erica
June 24th, 2008 at 10:46 am
Yes, I would move out as well. No point living there when you know the condo is in trouble.
I wouldn’t buy a property either as an investment as I suspect there’s more room to fall. You can get a decent return doing bond funds rather than worry about rental property headaches such as prop tax, HOA, maintenance, unpaid rent, etc.
Good luck.
June 24th, 2008 at 2:07 pm
I’d keep paying the rent as if nothing happened. You are going to move out anyway and go to LA pretty soon, why move before that? The latter would only make sense – to find somewhere else in SD to live – if you were staying in SD. OTOH a price of $225k sounds great to me. Our 1000 sq ft condo in Canberra would sell for $A425k based on recent sales. Our rent is $A1911 per month (going up to $1954 in October). A 10% cap rate is good. But if you want a property in SD there will be other opportunities later, as I doubt there’ll be a rebound any time soon even if prices stop falling.
June 24th, 2008 at 7:26 pm
Great clickable title! I too would stay and pay rent.
Best Wishes,
D4L
June 25th, 2008 at 5:24 am
I would keep on paying rent and start searching for a new place in the new city I will be living in. Oh yeah, you might consider purchasing the property back and renting it out..
June 26th, 2008 at 6:26 am
I had a similar surprise when I was living in Savannah, the apartment I was renting was owned by the owner who lived in the house above the apartment. (Savannah buildings are unique in the fact the homes start on second floor) So one day, a banker appeared at our door and explained the house was being sold at auction, that the owner who also owned multiple properties defaulted and it was up to the new owner whether we could stay or not.
So with that in mind, my roommate and I started looking for a new place and still had no word from the new owner by the time we signed a lease, we really liked that apartment because of its’ location and the rent was better.
Unfortunately, we signed the lease on the new place and the new owner finally told us they wanted us to stay but we were stuck with the contract. It was the first time I ever experienced the renter side of a foreclosure.
I would think if you have given notice to the owner that your lease will be ending soon, just keep paying the rent until it ends and just look around in the meantime. Cover your bases. It is really a raw deal for renters when it happens but at least you found out earlier than later.
June 26th, 2008 at 9:01 pm
Typically when to borrower goes into default the lender can get an assigment of the rental payments. If you feel like helping the bank, then give them a call and see if they would like to arrange to collect the rent directly. If you feel like helping out your landlord then keep paying him. You would e in the clear legally either way. If you do not want to pay anymore and do not need the place then just move out (if you have a security deposit or paid last months rent upfront i would stay till that is exhausted, because i doubt you will get it back). But I don’t think it would be right to stay and not pay just because he is not paying.
On another note, Just do a conservative cash flow to decide if you would like to buy it from the bank. Here is a good formula (overly simple, you could get more complex if you wanted, im sure it would be easy since you owned the place before) for very conservatively valuing property based on rental income.
(Annual Rent * 60%) / .10 = Income approach to value
40% is a conservative expense estimate
You can reduce this to a quick and dirty estimate of $7,200 in property value for every $100 in monthly rent.
For a residental property this formula will most likely severly undervalue the property.
You could also derive a cap rate based on the mortgage terms available. (ie see how much mortgage the rent would carry).
Good Luck.
June 28th, 2008 at 11:31 am
I’d keep paying rent, notify the agency responsible for prosecuting rent skimming about your landlord’s illegal behavior, and start looking for a new place in LA.
Just because you have an emotional tie to the place you’re living in now, doesn’t make it the best investment for you now. It needs to be evaluated on rational factors.
June 29th, 2008 at 5:38 am
Move.
June 30th, 2008 at 8:28 am
One item to concern yourself with; once it’s officially foreclosed upon, you may not be allowed back in the condo. And all your belongings are now their belongings. That happened to a buddy of mine in Arizona.
July 1st, 2008 at 5:25 am
How much was the rent throughout this period?
July 1st, 2008 at 8:51 am
Hmmm, is your contract for a month-to-month, or for a certain amount of time? I would honor the contract you signed, regardless of the state of his mortgage. Just because your landlord is shady doesn’t mean you can follow suit, you know? Although, he does deserve a taste of his own medicine…
July 5th, 2008 at 1:32 pm
The advice the lender gave you is good, but he either didn’t explain the reasons, or you didn’t mention them.
I’ve seen this situation a lot – the tenant being evicted because the landlord won’t pay the mortgage. Just remember that you have absolutely no contract, no obligations to the lender.
Your rental agreement is with the landlord. He has a responsibility to fulfill the terms of the contract – he has to provide you the home until the end of the contract period. If he can’t do that, you have a legitimate claim against him for breach of contract.
If the contract extended past the foreclosure date, I would stop paying the rent, and inform the landlord that if he tried to come after the rent, I would take him to court for breach of contract.
Best case scenario, you live in the home for free until the lender evicts you. Every time I’ve seen this situation, the tenant winds up with a free home for 6 to 9 months while the bank gets its act together. The landlord simply walks away from the home entirely.
A possible scenario is that the landlord tries to have you evicted for failure to pay the rent. If this happens, start a suit against the landlord for breach of contract and pay your rent to the court instead. When the case is ajudicated, you’ll probably get most of the rent back for damages due to his breach of the contract.
The worst case scenario is that you have to pay the rent for the time you actually occupied the property. This is highly unlikely, as it would require the landlord to bring the suit, and the landlord is the one primarily responsible for breaking the contract.
The landlord HAS harmed you – by not paying the mortgage, he has likely broken the rental agreement you have with him, and you should demand fair and just compensation for his actions. Hold him accountable for his actions.
If you do want to hold onto the property, you’ll have to work with the lender directly. It may be possible to assume a discounted mortgage from the lender – but I wouldn’t bet on it.
July 5th, 2008 at 5:15 pm
You made an agreement. Whether he lives up to it with at 3rd party is inmaterial to you. Pay the rent while you live there. Give notice to get you deposit back and move out. Maybe you can get in a claim in small claims court for your deposit or just withold your last month and call it good.
July 6th, 2008 at 2:27 pm
You and the landlord came to an agreement. If the foreclosure materially affects this agreement, this is the landlord’s fault, and he should be held accountable. If he cannot fulfill the terms of the agreement, talk to him and renegotiate. If it affects the agreement, the landlord is in breach of contract. Like I said before – the worst case scenario for you is that you have to continue paying rent, while the best case is that you live in the house rent-free until the bank throws you out. It’s quite possible that the bank will offer YOU a cash-for-keys deal, paying you to leave the house in decent shape and avoid the hassle of an actual eviction.
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July 12th, 2008 at 11:09 pm
You should talk to your landlord about how uncomfortable you are and get a contract signed that takes you out of your contract.
Then you should move out and go to LA.
March 30th, 2009 at 5:02 pm
If you haven’t lost your home yet, You have two choices. A loan modification and or a short sale.
Just be careful, way to many untrustworthy companies out there.
What to look for:
find a company that will NOT take your money up front
2. You will NOT sign any contracts prior to reviewing your current situation.
3. They collect fees as the work is completed. 1/2 once your situation has been reviewed and it is known by you that the lender will modify your home.
4. final payment will be paid, once the home is actually modified.
finally, make sure you are given weekly updates in regards to your modification.
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7007 Washington Ave. Suite 311
Whittier, CA 90602
310.400.4002
unitedhlm.com