Home Buying in San Diego>Question Details

Cautious Hom…, Real Estate Pro in Chula Vista, CA

Renting a property while in the process of buying it through short sale.

Asked by Cautious Homebuyer, Chula Vista, CA Fri Sep 28, 2012

We were looking for a rental house for the next 6 or so months before we buy. We found a house we like and the realtor tells us its a month to month rental (which is what we need) they are also listing it as a short sale and would we consider buying it? She would submit our offer as the 1st and only offer and she says it may take 6-7 months to go through, but we'll already be living there so it won't be like we are waiting to move in... There would not be any showings of the property and the listing would show that an offer was already accepted by the bank and it would be in the contingent status for months preventing other realtors from showing the house. I still have many questions for her, but does this sound like a situation that is common in the market we are in or a scam?

Help the community by answering this question:


My concern is, if the bank ask for proof that the Listing Agent is trying her best to get the highest and best offer. That is why Realtors uses usually the Sentrilock boxes to record as proof how many buyers have come to look at the property, that the Realtor is sincerely trying to get the best offer(buck) for the bank.

Just a thought...
1 vote Thank Flag Link Fri Sep 28, 2012
You are totally welcome! Happy we could all assist! Have a great week :)

Feel free to contact me if you are still in need of a MTM rental, as I have a few properties available to rent on a MTM basis.

0 votes Thank Flag Link Sun Sep 30, 2012
So after a lot of though and discussions with my husband we decided against buying or renting this property. We just came to the conclusion that although we did LIKE the property we did NOT LOVE it enough to buy it.
Although some of my questions were answered so much of it was still out of our control and it seemed like we may be in over our heads with many things open to ones interpretation. I am far too cautious of a person to live like that for 6+ months. After all this property was not enough to risk everything over.
Thank you all for your responses.
0 votes Thank Flag Link Sun Sep 30, 2012
One issue that I'm aware of re. tenants purchasing a short sale home that they're living in is the type of loan you're able to qualify for, which was recently pointed out to me by the lenders that I work with ... specifically, I'm referring to HUD 4155.1, Chapter 2, Section B.2 regarding 'Identity-of-Interest Transactions'. Per this document, this type of transaction is defined as a sale between parties with family or business relationships (banks normally view tenants as having a business relationship with the owner of the rental property).

Under these circumstances, you need to be aware up front that for a tenant purchase the property that they're living in, the Maximum Loan to Value (LTV) is restricted to 85% -- exceptions include the current tenant purchasing the property when he/she has rented it for at least six months immediately predating the sales contract. A lease or other written evidence to verify occupancy is required.

In other words, should you move in and 3 months later the bank approves the short sale on terms that are agreeable to you, you wouldn't be able to finance the transaction with an FHA loan with a 3.5% down payment ... a potential deal breaker if you don't have enough funds for a 15% down payment. Since there are no guarantees as to when or if a short sale will be approved by a bank, it may not be wise to take that chance.

As well, I concur with the other agents who advise having your own buyer's agent to represent you and look after your best interests. A buyer's agent can provide you immediate notice of all new listings as they come on the market as well as price reductions ... it's much to your advantage to have this professional assistance when searching for property, finding out all pertinent information about the property, and negotiating for the best price and terms.

Kind regards,

Kaye L. Hopkins, Realtor DRE# 01397372
 Accredited Home-Staging Specialist [AHS]
 Certified Negotiation Expert [CNE]
McFadden Real Estate Services
 2307 Fenton Parkway, #77
 San Diego, CA 92108

 Direct: 858-220-3110
 email: KLHIntl@aol.com   
0 votes Thank Flag Link Sun Sep 30, 2012
Sounds like a situation that could really work for you, and the seller, BUT, you should have someone represent you to make sure you get what you need and that your interests are protected. You can use a real estate broker/agent or a real estate attorney, but please use someone. If the current agent objects to having you represented by someone, then watch out. Also, don't use someone from that agent's office. Common practice, but in my opinion, a bad idea.
0 votes Thank Flag Link Sun Sep 30, 2012
linda from San Diego makes a very great point. The bank is going to want to see continued efforts to sell the listing. They would not be happy to find out that the agent promised not to show after your offer is submitted. You are getting yourself into a very sticky situation.

Even though it is an inconvenience, I would rather advise you to put your things in storage and find a small month to month rental while you search for that perfect home. When you put your offer in on this one, make sure you have your contingencies run from date of "bank's" acceptance including earnest money. You may even want to give the bank a binding acceptance date to respond. You can always extend it if need be.

And least but most importantly, you should really have a contract with an agent that represents you.
0 votes Thank Flag Link Sat Sep 29, 2012
Hi Mrs Dumas,
I would be very happy to assist you in advice and info regarding this situation. I am not only a Realtor, I am a Property Manager.

I honestly have not read through all the responses yet, as I am responding through my phone. But you should know that we as agents are not legally allowed to only present one offer if there are other offers that came in, we are required to provide all the offers to the seller for them to pick the best option.

Also, in a short sale transaction, there are many lenders that would not accept an offer from the current residents, the most short sale transactions MUST be a "Arm Length Transaction".

I have heard from many of current residents about scams that they have read across of have been victims of.

I don't want to bore you with me a book. I am available if you would like to talk to if you have more questions.

Jennifer (619) 609-0760
0 votes Thank Flag Link Sat Sep 29, 2012
I don't know. I did ask... and was told it doesn't matter it's not between me as the tenant. The current owners will do what ever their bank tells them to do. Pay interest only or minimum payments. Current owners are taking a loss of 1,000 a month under the current loan.
0 votes Thank Flag Link Fri Sep 28, 2012
Question is, are they collecting the lease income for themselves or pay their mortgage?! Still a little sticky....just be careful. Good luck, if you need help and representation, give one of us Realtors a call.

Linda Chupco
0 votes Thank Flag Link Fri Sep 28, 2012
There is no default on the property and everything is currently paid. Rent is to be paid cashiers check to the owners, but the lease is with the current owners not through the real estate agent which is how I found the advertisement.
0 votes Thank Flag Link Fri Sep 28, 2012
Mrs Dumas,

Please look further - before moving in. You do not want to be "kicked out" a few months after moving in if the foreclosure date has been set.

Make sure HOA is up to date. The bank will not pay for it, you will have to pay the backdated amount.
And as mentioned: property taxes. How many lenders, and any other lien ....

Honestly, 1 week is not enough to market a property. Even if you and the seller are agreeable on the price, the bank may not.

I highly suggest you hire a Realtor to represent and protect you. You don't have to pay, the bank will be paying the agents.

Linda Chupco
0 votes Thank Flag Link Fri Sep 28, 2012
It will be open for 1 week before we'd possibly move in as renters.
0 votes Thank Flag Link Fri Sep 28, 2012
I think Linda gave you some good answers. The bank want to see that the property has been adequately exposed to the market for sale.
0 votes Thank Flag Link Fri Sep 28, 2012
Oh and by the way we are kind of in a rush to get out of our current situation for many reasons. We are homeowners already who moved out of our condo because it was too small. We are renting it to a nice military couple with no problem. We are about to sign the 2nd year lease with them. We were told in order to qualify for more for our new home we needed to rent out our condo for 1-2 years. Well we did and we rented a home and our 1 year lease is over and they'd like to renew for another year. We would like to be in a month to month so that after the new year we can re apply for a loan and qualify for more because we will be able to show the condo has been rented during 2 tax years. The current house we are renting has a problem with the main sewer line and the owner only did the minimal repairs to allow the water down so we are a bit upset.
0 votes Thank Flag Link Fri Sep 28, 2012
Mrs. Dumas,

I agree with Cory, you should ask yourself if this other Realtor is looking out for your best interest or someone elses. Sometimes if it sounds too good to be true then it probably is. With so many variables in this situation you should hire a Realtor to represent your best interest. I'm sure there are other great opportunities out there for you that you may not be aware of, so hiring the right Realtor could give you more options.

Feel free to contact me and I would love the opportunity to meet with you to discuss your options and how I feel you should approach this situation.


Rashard Scott
Keller Williams Realty
0 votes Thank Flag Link Fri Sep 28, 2012
Thank you for you time in responding. The more I'm researching on line I'm finding more and more about something called "arms length" transaction and it seems that renting from the current owners may be a "buisness relationship" as considered by some banks? We don't know the owners by blood, mariage, friendship, etc.... I'm no lawyer, but I don't mind doing my research and trying to become educated on what I'm getting myself into. I have read though in some cases like this the sale went through just fine.
0 votes Thank Flag Link Fri Sep 28, 2012
Hi Mrs. Dumas,

Wow, already the agent is not intending to market the property properly so she can get two commissions, instead of getting a possible higher offer from another agent's buyer and splitting it? And you trust her to take care of YOU? Tell her you want your own agent to represent just you and then see what she says.

One thing she didn't tell you and should have, not all short sales close! So, you might move in and be the only buyer and STILL have to move out. Nothing is certain with a short sale. If you do live there, I'd recommend getting EVERYTHING you want fixed while you're there as a tenant, including getting a termite report, because you can end up paying thousands to get termite repairs done and any lender-required repairs. Lenders will not fund a loan with certain things not done. And this goes doubly if the owners are taking your rent money and not paying the bank.

There is nothing to verify in a short sale - nothing is certain, not even the price of the property. You can ask if the current owners only have 1 loan by email, so there's a paper trail - which should be your #1 concern when dealing with this dual agent. If the bank knows you are renters, they'll know the house probably wasn't marketed at all.

And, your right, the bank would not be very happy at all if the current owners stopped paying them but pocketed your money. But, if the agent is willing to not market the property like she's supposed to, I'd imagine she'd be up for more unethical practices here. I'm surprises agents here think this is OK, just goes to show you what the real estate climate is like these days.

I can let you know if there is a Notice of Default on the property, just shoot me an email - it takes less than a minute.

Warm Regards,

Cory La Scala, REALTOR
Independence Realty
Lic # 01443391
0 votes Thank Flag Link Fri Sep 28, 2012
Mrs. Dumas,

Please give me a call, my specialty is Chula Vista and short sales.

Hector R. Gastelum
Realty Executives Dillon
REALTOR #01382940
2240 Otay Lakes Rd. #306
Chula Vista, Ca 91915
efax 619-270-2516
0 votes Thank Flag Link Fri Sep 28, 2012
Yes that is on my list of questions also to find out if the property taxes, water, & HOA are also current. I'm wanting all this in writing since I don't know what kind of situation the current owners are in as far as payments. I don't want to be hit with all these late payments and fees. Is possible for me to find out if they are current or intend to pay or not?
0 votes Thank Flag Link Fri Sep 28, 2012
The Realtor can represent both the Listing and Selling Agent. She just need to have a special form for the seller to sign ackowledging that she is representing more than 1 side, and both of you have to consent to it. But she has the fiduciary duty to protect whichever party(ies) she represents.

Also find out if there is a Notice of Default (NOD) on the property and whether there is a Foreclosure Date set on it.

Good luck.
You are welcome to call me if you need more help.

Linda Chupco
Keller Williams Realty
0 votes Thank Flag Link Fri Sep 28, 2012
Thank you both for your responses. One of my first questions for the realtor (I'm assuming she is both the seller, buyer, & property manager... I will verify all before I do anything more, but I'd that ok or some kind of conflict of interest? Should I have my own agent or since I've already explained my situation to her do I have to use her?) I also am wanting to make sure the current owners only have 1 loan and I'd like that bank to know about us being the renters... Is that allowed? Also I need to verify (if I can) where will the money that I'm paying in rent be going? I can't imagine that the bank in charge of approving the short sale would be very happy if the current owners stopped paying them and pocketed our money. That is just wrong. Is there proper documentation that would allow this? Thanks again for your responses any advice is appreciated. My list of questions is growing as I read more and more online. I'm starting to think I may need legal advice before proceeding.
0 votes Thank Flag Link Fri Sep 28, 2012
Hi Mrs. Dumas,
Sounds like a great deal!
Once the owner accepts your offer it is submitted to the bank for approval of the short sale and it could take six months. The status of the listing will change from Active to Contingent and it will no longer be available for showings, although they can accept back-up offers.
It is common for the owner to move out when they short sale their home.
Good Luck
Janet McCarthy
Connect Realty
0 votes Thank Flag Link Fri Sep 28, 2012
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