I live in Central California but I decided to run some I Buy Houses ads on Craigs List in dif cities. I found a guy in Las Vegas that just wanted out of his house, he was 8 months behind on his payments. I sent him an agreement and a $1 bill. I also had a lady in Montgomery Alabama in the same situation except her house was a rental and a tree branch had went thru the roof. Both of these houses were trashed. I ran numerous ads and I cudnt sell them. I decided to see if I could rent them. I advertised reduced rents in exchange for cleaning and repairs. I was shocked when I got dozens of respones. I collected over $8,000 in rents before the banks took these houses back. Of course I never seen these houses or met the sellers or even my tenants.
Was this unethical or illegal?
And… you aren’t repeating this?
:anon
It depends on several factors. I would say it could be both unethical and illegal, but it really depends on…several factors…
- You sent a guy a $1 and an agreement? That sounds really strange. What did it say? Was it an Office Depot form document, or something your lawyer drew up? I think this is going to be one of your biggest determiners in what makes it illegal or unethical. The fact you’re conducting business in different states could subject you to potential violations of federal laws, and laws in one or more states.
- Did you change the property title to your name or company name? Or leave it in the sellers name? This could effect your ability to legally control the property and/or evict someone from the property if they quit paying rent (say on future deals), even if you have a power of attorney.
- Did you give the seller the impression that you’d be responsible for the lien and/or that you’d begin making payments after taking over his/her house? That could open you up to lots & lots of lawsuits, if your agreement was not done right, and possibly even if it was done right!
- Did the tenant have any idea that they might be renting a house that could be in someone else’s name than yours OR that it could be foreclosed on at anytime (and that they’d be kicked out)?
Ultimately, before doing something again that could get you thrown in jail, sit down with a knowledgeable real estate lawyer in your state and get his advice. And have HIM consult with a real estate lawyer in any other state that you plan on doing business in, to see if you have covered all your bases. Making an easy $8k is great, but make sure what you are doing is OK and legal first
So you got a deposit from the tenants plus they cleaned the house? SCORE!!! lol. :shocked
I just drew up a contract that stated the seller was signing over all interest in the property to me. It also stated I wud try to sell the property but that the house may still fall in to foreclosures and their signature means they wud never hold me liable for any problems legal or otherwise.
Tenants signed a rental agreement acknowleging they are aware the house may be foreclosed on and they may be forced out by eviction and they agree to these terms.
It was interesting the Alabama tenants sent me the deposit and first months rent without question thru Western Union. The Las Vegas tenant sent me $200 and I over nighted him the key and he sent the balance a few days later.
The Alabama house had a tree branch come thru the roof, the tenant said her boyfriend had handyman skills and cud repair it. They just threw up a plastic tarp, they had animals and the house looked worse when they left. But they kept the rent payments coming till the bank took it.
Whats crazy is, several of the potential tenants wanted to move in for free and pay me next week.
We have a rent skimming law here in California, so I was a little worried the banks may come after me.
Rent skimming only applies to the original borrower, whom is in his first 12 months of default.
After 12 months, the owner can ‘rent skim’ like a casino operator.
However, in your case, not being the original borrower (even if you’ve taken title to the defaulted property), it’s not illegal for you to receive rents on a defaulted loan, because…
- You’re not the original borrower…(this alone is usually enough protection)
- The original borrower no longer owns the house…
- The original borrower is not receiving rental income…(only important if the title does not change hands)
All that said, knock on wood, I’ve never heard of a bank suing the original borrowers for the first 12 months of rents, during a default.
I mean what’s that gonna cost the bank to enforce?
Now…on a commercial properties (apts, shopping centers, etc.) in default, the bank will seize management control of the asset, and immediately divert the rental income to itself.
FWIW
Cool idea. I just do not see why a owner would allow you to collect rent on their house when they could do the same thing. I guess when you have a non-occupying owner that knows they will lose the house, already has a judgement and a credit hit - who cares what happens to the house.
The key to protecting your liability here is in full disclosure, which it seems you have that down. I would make sure to have witnesses to the signature and/or have it notarized as an added protection.
Yea, I often wondered why the owners didn’t just rent it out them selves, but the houses were trashed. It makes sense they thought they wud hav to do some serious repairs before they cud rent out these properties. And then we all thought there was the chance that I cud get these houses sold. I have sold other houses that were underwater with Lease Options.
My experience is that many homeowners just stay in the house themselves for the 2-3 years it takes the bank to process the foreclosure and get them out.
There are so many properties is the same situation here in California, many just leave after a few months of default. I have had several opportunities to pick up more of these houses and do the same thing, I just might do some more.
I was getting some flak from my family that this was just plain wrong, and I would prob end up in jail.
Javipa has calmed my fears somewhat, I just wonder if anybody else is doing this?
I recently read a thread about a guy who offered to wholesale the owner’s “abandoned” house. While wholesaling it for him, he got permission (in writing with a ton of non-liability clauses) to rent it out. Get this, a tree had fallen on the house and put a hole in the roof. He rented it “As Is” to a “handyman.”
He went to check out the house and found out that the tenant only put a tarp over the hole. When they moved out, the house was in even worse shape. But, they always paid the rent. People will rent anything!
The key here is to make sure you are not breaking any laws (aka keep yourself out of the courts and jail), be completely upfront with the homeowner (do not take advantage of him or you will still end up in court) and cover your butt with signed/notarized agreements.
You’re right…the story and the thread do sound familiar. :anon
It does sound very similar. My situation the house wasnt abandoned, a tenant had just moved and left her dog and was coming by everyday to feed it, and it was a branch that went thru the roof. The seller actually collected 2 grand form her homeowners insurance. I tried to get the renters to fix it but they lied about having construction skills. They tried to get a relative to patch the roof but he wanted more than the 2 K, we tried to hire som local roofers but they wudnt repair it at that cost. I actually never seen the house cuz I’m in California and the house was in Montgomery Al.
Neighbors had called code enforcement becuz of the roof and the bright blue visible tarp, the renters told them we wer in the process of hiring a roofer and they never came back.
My renter got attached to the dog that was left there and called me in tears when the previous renter came and got the dog.
My renter didnt stay till the bank got the house but left early becuz the air conditioner stopped working and she started complaining about the rain water on the kitchen floor. It was great while it lasted…