Tenants and Short Sales
Jesse Grumdahl is a Minneapolis Real Estate Broker and Realtor with Re/Max Advantage Plus is our guest blogger.
If you own an investment property, and you need to do a short sale there is one topic I hear regularly – what do I do with my tenants? Keep collecting rent? Give them notice to vacate? Let them stay at reduced rent? or – gasp – for free?
Every situation I have encountered with an investment property, tenants, and a short sale is different. To really know what to do, there are a few basic questions that need answers.
- How much time do I have before the bank takes possession?
If you are not delinquent on payments you generally have nine to ten months from the first missed mortgage payment before the lender takes possession, from my experience. It is up to you when you will inform your tenant to vacate. With many of my clients, who have good tenants, I have witnessed that open communication helps keep those good tenants happy through the process. Keep in mind that if an investor buys the property, the tenants may not have to move.
- Are your tenants “good” tenants?
Are your tenants paying rent on time? Will they allow showings? Do they complain everyday about nothing? Sometimes it is best to give notice to vacate if you do not have decent tenants. Why? They will slow the whole process down by not allowing showings, scaring off potential buyers, and refusing to pay rent on top of it. Why keep them there? You want to market the property in the best possible light, because the sale price will have a direct influence on the consequences of short selling your property.
- Should you offer incentives to keep “good” tenants?
If you have good renters it may be worth it to entice them to stay during a short sale by offering incentives. It could vary from slighty reduced rent to no rent at all, and I have had investor clients choose points all across that spectrum. Let’s start with free rent. It’s not actually free. The tenant still pays the utilities (or starts if they were not before), keeps the property maintained, and always allows showings.
I had one client of mine stop charging rent, and give his tenants a sense of ownership by giving them more responsibility (he knew they could handle it). They were so empowered by this that they signed a three year lease with the new owner at closing, and that owner never has to do any work (and charges more than the previous lease). This helped sell the property incredibly quickly, and removed the headache from the previous owner asap.
The majority of my clients will charge reduced rent. From what I have seen, the discount is usually 10-15%. Most tenants are thrilled to save that much, and many will stop complaining about little things as they contemplate the value they are getting. Are your tenants going to throw a wrench in the short sale gears, or are they going to be willing participants? That is the main question you will need to ask yourself.
Jesse Grumdahl is a Minneapolis Real Estate Broker and Realtor who is a short sale listing expert in Minnesota (with the #1 Re/Max Team in Minnesota for the last three years) who sharply focuses his energy on short sale listings in the Twin Cities metro area. Mr. Grumdahl does so with the help of his full-time, in-house staff that will always put his clients’ best interests first and foremost. Jesse’s goal is to get you out of your distressed situation with minimal damage so that you can move on with your life as quickly as possible. Jesse can be reached directly at Jesse [at] MnShortSale [dot] com or 612-968-2161.
This is something I’ve always been confused with:
If the landlord starts missing payments to the bank and it’s inevitable that the house will either go into foreclosure or be sold on a short sale, why would the landlord continue paying some of the mortgage to the bank every month; and on top of that, why would the tenant pay the landlord rent since the landlord is then POCKETING the rent!!!
Are there laws surrounding any of these actions?! Seems like there should be.
The landlord may choose to continue making payments despite doing a short sale to decrease the damage to his or her credit (remember you can do a short sale without being late on payments). If the landlord is not making the mortgage payments he or she may be pocketing the rent. To my knowledge, if the tenant refuses to pay the landlord can still evict the tenant (unless the lease reads differently). Even if the landlord is not paying the mortgage payments, the tenant is still occupying the property (and causing wear and tear).
You cover a good topic, one not often talked about, whether the renters will try hard to let the showings in, is a very good question, would the renters leave as soon as they hear you are selling? These are all good questions, nice unique topic.
I am a landlord who told my tenants I was in trouble..they immediately stopped paying rent
as wanted to make sure they had their deposit
they renogatiated for lower rent but now refuse to
show the property. They are trying to make out I
am unfair and a liar which are untrue.They act as
if it is their property and are sabotaging any showings for a short sale. Should I give them 30 days notice or evict
evict them so the next landlord doesn’t get them thinking they are wonderful. Plus then there is a definite date they will be out.