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Feb 2011After bankruptcy: worried about your tenants?
Posted by Robert Weed / in After Bankruptcy / 40 comments
Lots of people I see filing bankruptcy are landlords.
They’re not people who wanted to be landlords. I’m talking about people who are renting out a house they cannot sell. (Because the value has dropped way below what they owe.)
Lots of people who talk to me about bankruptcy are landlords
They often come to see me when they realize they can’t afford to take the monthly loss on the rent, either. And so we talk about filing bankruptcy to get rid of the house.
When they decide to file bankruptcy to get rid of that house, they ask about their tenants. People don’t want to leave their tenants high and dry.
If you are in that situation, here’s good news. A law signed by President Obama protects your tenants after foreclosure. The foreclosure buyer cannot just evict your tenants. The tenants have at least 90 days to find a new place to live and move out.
Here’s how that would work.
Suppose you come talk to me in January and we decide that you need to file bankruptcy. You stop paying the mortgage on that rental property in February and file bankruptcy at the end of March.
Your mortgage company would probably get relief from the automatic stay in early May. “Relief from the automatic stay” means permission from the bankruptcy judge to foreclose. In Virginia, the foreclosure sale might be scheduled around the Fourth of July.
Then, under the “Protecting Tenants At Foreclosure Act,” the bank or foreclosure buyer has to give the tenant 90 days notice to leave. That’s October.
So, we are talking nine months from your decision to file bankruptcy before your tenants have to leave–plenty of time for them to find another place.
(This protection does not apply if the “tenants” are members of your immediate family.)
Just letting the place go to foreclosure without filing bankruptcy is not a good idea. The mortgage company can still come after you. (Often the first mortgage will not, but the second, if there is one, certainly will.) And, if you broke the lease, so can the tenants.
(All this has application if you’ve already moved out of your house and it’s vacant. Especially if there’s a high condo fee, the bank may be very slow to foreclose. And as long as you are owner, you are liable for the condo fee. Even after the bankruptcy is filed. Rather than take that loss, make a little money. Rent the place!)
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Robert Weed has helped fifteen thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.
John Berent
I am a tenant in a house going thru forclosure. I’m I to continue paying rent? Some tell me to stop paying and put it in an escrow account others tell me to keep paying.
Could you clear this up for me?
Thanks John
Robert Weed
Under Federal law, your lease survives the foreclosure–meaning they have to let you stay until the end of the lease–if the house is bought by by bank or an investor. If it’s bought by someone who plans to live there, they have to give you three months to move out. As to what you should do, it may depend on state law and I don’t know what state you are in. (Not sure I’d know the answer anyway.)
Robert Weed
Supposed you want to rent to someone who might be considered family. Ducchi T. Quan, a lawyer in Tyson’s corner, suggests posting an ad on Craig’s List. Invite people to come by and submit bids over one weekend. That provides evidence that you got the best price you could. And the lease should stand up against the bank or investor.
http://www.quanlegal.com/
Chris
My wife and I just got discharged from a chapter 7 bankruptcy in Virginia – we have a rental property with a primary mortgage and home equity loan that has been modified to interest only. The house is about $50,000 under water – the holder of the modified home equity loan said they will keep the modification in place for 3 years – but I just don’t see the house gaining the $50,000 in negative equity in 3 years – when the interest only loan will be boosted up to the full payment again. If we let the house go into foreclosure will we have a tax liability if we filed bankruptcy? Also, what if we sell in short sale – will we have a tax liability on the forgiven debt since we are in foreclosure?
Thanks.
Robert Weed
There’s no tax liability on the forgiven debt–the bankruptcy stops that. In some cases–depending on when you bought the house, what you paid then, your depreciation, and whether the shortsale price is higher–you might have a capital gain on the shortsale. You need to talk to a tax advisor on that.
Your question skipped a step. (Maybe because you already know the answer.) Are you getting enough rent to cover the first mortgage? If you are, can you just collect the rent, pay the first and ignore the second? With that strategy foreclosure might be years and years away and you can make a lot in the meantime. Maybe that’s what you are planning to do.
Lacey
I am renting a home and the landlord has filed chapter seven bankruptcy .My question is are we obligated to pay the land lord rent when we will probably never see our deposit and we don’t know how long we have left in the home.
Robert Weed
That’s a tricky one and may depend on the laws in your state. I’m not going to attempt to answer. However, I’d ask you how long you think you should live for free because someone else has filed bankruptcy?
Jon
I am a landlord who just filed chapter 13 bankruptcy and I have surrendered the property in the bankruptcy. My tenants have broken terms of the lease the entire term of stay and I want to evict them. I have filed 13 so recently that I have not even been to court yet. Do I still have the authority to evict the renters?
Robert Weed
Jon:
You should have asked both your landlord-tenant lawyer and your bankruptcy lawyer before you went down that road. Some combination of you and the Chapter 13 trustee has authority to evict the tenant. You need to talk to your Chapter 13 lawyer and that lawyer probably needs to talk to the Chapter 13 trustee.
Pat
Robert:
My landlord is in foreclosure with three rental properties in CT. The homes all have equity in them and the bank has dates set for auctions. If she files bankruptcy will the auctions of the three properties stop?
Thanks
Robert Weed
Pat:
Yes, at least for a while. Maybe longer, depending on what she proposes to the bankruptcy court.
Cesar Rubio
Robert –
I filed for bankruptcy about two years ago, but I kept making my mortgage payments, because I wanted to keep it. I didn’t stay in the house. I rented out the property for less than the monthly mortgage payment (I couldn’t get more), and I paid the difference. I did this for almost two years, but now I am having problems coming up with my “share” to keep the monthly mortgage payment. I tried to work with the bank, but they are not help, so I am considering let the property go to foreclosure. If that happens, what happens to the tenant who is occupying my property? Do I need to notify this to the property management who is managing my property about what I am thinking about doing? Will the banks all of a suddent come up with “plans” to help me keep the property or am I dreaming?
Robert Weed
Cesar:
Well, it would sure be polite to tell the tenant and the property management people if you are thinking of letting it go.
If you start to get behind, there is certainly a chance that the bank suddenly come up with a plan to work with you.
You say “banks.” Is there a second? Is the house under water of the first? You should take a look at what I say here. https://robertweed.com/blog/chapter-7-bankruptcy/after-bankruptcy-what-if-i-dont-pay-my-second-mortgage/
Cesar Rubio
Thank you, Robert. No. I don’t have a second mortgage. I was speaking in general terms when I used the word “banks”. I know it would be polite, but I don’t want them to stop making their rental payment, becuase they think I am going to forclosure when I may still be working with the bank. I’ll tell them for sure when I know for a fact that there is no way to save the house.
mike mario
Hello Robert,
I was talking to a friend of mine who said his landlord filed bankruptcy over a year ago and is still paying rent to him. Its a duplex and the “landlord” stays in one unit. Is it correct for him to continue paying until they are kicked out?
He said they once got a sale notice by the city but it may not have happened since he has never heard from the city again(him being the occupant of one unit).
Please advise and thank you.
Robert Weed
Mike:
I only know about Virginia and I assume you are somewhere else. Here in Virginia the landlord would be who he should be paying rent to.
Montilla
Hi Mr. Robert:
I am a landlord who filed chapter 13 bankruptcy and I have surrendered the property in the bankruptcy a year ago. I still own the house, but I have not rented it since someone told me I should not rented if I file for chapter 13. The problem is I still spending money trying to keep the house in a good shape, I do not want to loose the house, even I stop making payment long time ago. One more thing the bank sold my mortgage to another bank, so my mortgage is under a new bank. my question is can I still rent the house without getting into trouble? is that legal?. I have explained the situation to a lot of possible renters and they still want to rent the house.
thank.
Robert Weed
Montilla:
You haven’t given me any reason why you shouldn’t rent it, but there’s a lot to this story I don’t know.
First of all, why are you in Chapter 13?
Second, who told you to NOT rent it? Your bankruptcy lawyer? The Chapter 13 trustee? The bankruptcy Judge? Someone you met in a bar? Why did they say that? Is there a law in your state? Did it have something to do with your bankruptcy eligibility? Are you keeping it empty because you are trying to sell it?
There are probably a dozen reasons why you’d want to keep it empty but I don’t know if any of them apply to you.
Are you getting legal advise from strangers? That’s probably not a good plan.
Montilla
Robert:
Thank you very much for taking the time in answering my question in a fast way I did not expect it. First of all I apologize because I gave you a wrong information, it is not Chapter 13 but Chapter 7.
Who told me not to rent it? a couple of friends and then my bankruptcy lawyer said it too. She did not say why, or explain to me any legal issues, every time I call her she is always busy, she didn’t even went to court with me she send somebody else, but that is another issues.
the thing is I do not want to keep it empty I want to rent it, but I do not know if I can. I do not know about any law in Louisiana.
thanks.
Ron Mexico
Hi Robert,
We are renting a home in MD and we just received a letter noting that our landlord has filed for bankruptcy. It is the end of September and our landlord had told us not to pay rent as of August. How long do you think we will have before the bank ‘evicts’ us from the home?
Robert Weed
Ron:
I don’t know Maryland as well as Virginia, but it could easily be a year before the bank takes over. Then they still would have to get you out.
Megge
I my home is postforeclosure and I worked a deal with the investor to rent to own in the contract he requested it be as is, but the city have come after him for some repair work on the property so he wants to evict me because I have not gotten a Mortgage to buy back my home. I owe him two months in rent can I file Bankruptcy to stop him from evicting me
Robert Weed
Megge:
I don’t know what to tell you. You needed to talk to a lawyer before your house foreclosed….you needed a lawyer to work with you on the rent to own contract…and now you need a lawyer….
brittney harmon
Hello, I have been renting to own a home in southern indiana for almost four years,the taxes of the home are paid by me. The owner of the home is filing for bankruptcy on our home. I have paid out around 30,000.00 on this home that i thought i was buying. Yet the bank stopped by our home letting us know that he is trying to walk away completely from the property. Since we have a legal contract between me and the owner, i want to know if i have a chance at getting my money back due to breech of contract?
Robert Weed
Brittney:
These rent to own deals are usually bad for both parties, and this is an example of why. I can’t give you legal advice in Indiana, so you should talk to a lawyer there and see if they have any ideas. It would be uphill–that’s the reason people file bankruptcy–but maybe if you look very carefully at the bankruptcy papers you can find something to work with.
A.E.
Hopefully you can help since our bankruptcy attorney abandoned us after our discharge. We have a second property (a house we couldn’t sell) that we surrendered in our Chapter 7 bankruptcy (discharged in October 2011). There was a tenant at the time we surrendered; property insurance has been covered by escrow. The property still has a tenant and continues to generate income.
We told the property management company to remove our names from the ownership and to replace it with the trustee assigned to our case. Our property management company refused to do so because they cannot find a specific person, at the trustee’s office, to accept the funds from the property. Until recently, the funds have been maintained in a trust account with the property management company.
Last week we received a check for over 16K from the property management company. They have reported this as income to the IRS.
We know this money is not ours, because we have not been paying the mortgage on the home since summer of 2011. The money, we assume, belongs to the trustee assigned to our case to disperse to our creditors.
I called the trustee’s office; the only person I could get on the phone was a lawyer who could not tell me anything because it would be legal advice.
Please help. We don’t know what to do with the check, nor what to tell the property management company about tenants in the home.
Since our bankruptcy attorney refuses to help us (we did file a complaint against them with the state board), do we need to hire a new bankruptcy attorney to help us figure this out?
Absolutely any help at all would be greatly appreciated.
Robert Weed
A.E.
You are making this too hard. If the bankruptcy trustee did NOT take over the property, it still belongs to you. And so the rents belong to you. (There’s an argument that it belongs to the mortgage company but around here I’ve never seen them try to do that.)
The trustee has a choice–he can sell the property, or give it back to you. Back to you and the mortgage company. Until the mortgage company gets around to foreclosing you, it’s yours.
lost
If my name is on the deed with the people I am buying my home from and they file bankruptcy what will happen to me? Do I become the owner if I continue to pay the mortgage note? Will the bankruptcy trustee or the bank have control over the home if I will not?
Robert Weed
Lost:
Well it depends. You are buying a house from some people, and they are on the deed with you…and you say there’s a mortgage note.
The job of the bankruptcy trustee is to sell the property if there’s money to be made in selling it. Then give you your share. (What’s your share? Hard to say based on what you’ve told me.) And use the rest to pay their debts.
If there’s no equity, you are still where you were. Still on the deed with them. And still needing to pay the mortgage if you want to stay in the place.
I don’t know whether this helps or not.
Chris
I filed Cpt 7. Discharged 01/29/14. Surrendered rental property. I still own the property as trustees etc have not taken it over. Tenants under a lease until 07/2014 suddenly moved out last week. Left a lot of damage, debris, etc. They also took a refrigerator that belonged to me and left me with a past due utility bill that was in my name. ( Was part of rent on the lease) I stopped collecting rent when I filed bankruptcy but they still owe back rent pre-bankruptcy. I want the place clean and back in order so if the mortgage forecloses, it will sell for a decent price. Can I demand the back rent, utilities and refrigerator from these tenants? They seem to think they can do whatever they want and didn’t even give notice they were moving?
Robert Weed
Chris:
Being a landlord is a tough business. And anybody who wants to make money at it, needs a landlord/tenant lawyer. You need a landlord/tenant lawyer. All I can say is I don’t see any bankruptcy issue here.
Chris
I did ask the Judge at the bankruptcy trial but my only concern “at that time” was the tenants not getting kicked out. She stated for me to advise them to put all future rent into an escrow account and I could still collect the utility monies until SBA removed my name from ownership. I did as I was told. That was in Nov 2013. By Dec, the tenants were behind on utilities and then moved without notice. My bankruptcy Attny said he does not know the answer to my current question. If you don’t see any bankruptcy, am I correct in assuming I can collect the past due utilities, refrigerator replacement funds, etc?
Kristi
I filed bankruptcy in Mar 2012. My discharge was in June 2012. I surrendered two rental properties in the chapter 7 bankruptcy. One property foreclosed but one is still just sitting there and the HOA is now coming after me to pay. My tenant moved out in June of 2012 because she was nervous. Since i am still liable for the property can i put a renter in there to stop the bleeding from the HOA. I plan on paying the HOA (hoping to make a settlement) but if the bank is in no hurry can i rent to cover the fees??
Robert Weed
Kristi:
Yes. That’s what I tell people to do.
Traci Orr
i was renting a home my parents had purchased my dad passed away and my mom had to file bankruptcy and the home i’m living in has to be sold to repay her debts. the trustee gave me notice to quit and then evicted me. me and my kids moved in with my mom and then she received bill from city cuz they had to mow the lawn. she called the trustee and he said for her to call her lawyer. so if trustee made me leave the property why wouldn’t he be responsible for the upkeep. if we were still living there she wouldn’t receive the bill cuz we mowed the lawn. and how does he plan to sell when the lawn is up to ur knees. no curb appeal at all. it doesn’t seem right to me. in hurry to make me move out and now it sits vacant vandelized and mom is responsible to pay for this.
Robert Weed
Traci:
Makes me mad, too. The judge here says that’s ok, though. Don’t know what to tell you.
April
I am a landlord who is getting ready to file Chapter 7 and surrender the property. My tenant’s lease is up November 30th. I am getting conflicting information on whether I can keep collecting their rent money after I file. I have been told I have to surrender those payments to the trustee once I file, but I have also been told I can keep that money until it’s discharged. And then I have been told I can continue to rent it and collect until the bank actually takes title via foreclosure. All of these answers have come from attorneys or legal websites. (I’ve had three consultations so far).This why I am so unsure. Which is true in your opinion? It will determine my filing date.
Robert Weed
April:
I THINK it may depend in part on who is the trustee in your Chapter 7 case. And I don’t know any of your trustees.
Julie Moore
My husband signed a lease to own agreement on a home in June 2013. He paid a substantial down payment and monthly payments until Nov. 2015. The lessor never disclosed this home had been in chapter 13 bankruptcy only that a mortgage was remaining with a clause that if any additional mortgages, etc were opened we would be notified. Long story short we found out they were not paying the payments sought legal advice (which was to stop paying until court made a decision). We spent several months in court with no way to recover atleast the down payment since the lessor stated it was considered rental property at that point. We were literally forced out by the police. Only to find out their bankruptcy was discharged 11 days before our eviction date. What, if any, realmifications do we have to recover anything. Also since we thought we were purchasing we done quite a bit of work to home including installation of a new HVAC unit. Please help.
Robert Weed
Julie:
Lease to own agreement are almost always a disaster. This is a warning to everyone. I’m sure you signed a lease to own because your husband’s credit was too bad to get a mortgage approved. And I’m guessing if he had filed bankrutpcy on whatever was holding back his credit, in a couple years you could have gotten approved and bought a house with bank financing. People hold off filing bankrutpcy to protect their good credit end up just protecting their bad credit. Now maybe there was a good reason why he didn’t file bankruptcy on whatever was keeping him from getting a mortgage approved, but … I’m sorry. When you sign a lease to own you are counting on the owner having great credit and also being very honest. That’s a big bet.