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Ape, Home Buyer in Oregon

Can we rent out the house we walked away from?

Asked by Ape, Oregon Sat Oct 15, 2011

In February of 2011 we stopped making payments on our house. We walked away that July. We were in a Chapter 13 bankruptcy in an attempt to save the house. We are currently trying to convert to a Chapter 7 in order to get the house out of our names. With all of that being said, the house is sitting empty and I am quite concerned about vandals and looters. I have a friend that would be willing to rent the house from us. The monthly rent would be $800 but I have explained that she can work that rent down by keeping up on maintenance of the house. The house is a 100 year old farmhouse in a remote area and quickly falls into a state of disarray if not kept up. We do not want the house but also do not want to see it in shambles. We have heard nothing from our mortgage provider, even though we stopped making payments, and we do not know how long the house could sit empty before the bank forecloses and does something with it. Plus, the additional income from rent would be very helpful!

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You should talk to your attorney. If you've filed for bankruptcy, you probably have someone helping you with that? Why did you leave? It's technically still your house until the bank forecloses on it. I know it's sad to see a home sit empty and unkept. Talk to your attorney and see what your options are.
1 vote Thank Flag Link Sat Oct 15, 2011
Ape,
Short and sweet, if you are the legal owner of the house; yes you can rent it out. Please disclose to any tenant that their stay may be interrupted by the foreclosure. Many people have stopped making payments, but remain in their house until they either get the loan modification, complete a short sale or foreclosure. I'm not an attorney and I'm not advising this to anyone, but these options should be considered.
1 vote Thank Flag Link Sat Oct 15, 2011
I'm not a lawyer, so this isn't legal advice. And you do need to consult a lawyer.

My initial reaction is that you've gotten some pretty bad advice up to this point. For instance, whoever told you that a short sale and a foreclosure are the same from a credit standpoint was wrong. You should have pursued a short sale.

A bankruptcy can stop the required monthly payments, as Scott explained. And, depending on the nature of the bankruptcy, the whole idea is to allow you to restructure your debts. So bankruptcy really is good if you're planning on remaining in the house and hope to save it. At the very least, it's designed to buy you time. It still might be necessary to give up the house at some point, but I think whoever suggested that you walk away during the bankruptcy gave you poor advice.

I'm going to give you some non-legal advice you don't want to hear: Talk to an attorney. But if your previous attorney was giving you the bad advice, find another one. Then tell your attorney you are done with it. Don't worry about the house. Yes, it'll fall into disrepair. But unless there's some reasonable way of you getting back into the house (and from your question and follow-up comments it sounds like there isn't), it's over. It's done. Finished. You've lost the house. Don't risk getting into more trouble by renting out the house (which might get you into some legal trouble). Don't rent it to a friend. You may not have the authority to do so, if there's a bankruptcy trustee. Yes, you're still the owner, but you give up some of your rights (such as disposing of property in a bankruptcy proceeding) when you file for bankruptcy.

And it'll get mucked up further with you establishing rent, but perhaps giving a discount if your friend does maintenance on it. It'll get mucked up when your friend comes to you and tells you that there's some $2,000 repair that needs to be done and she needs you to pay it. It'll be mucked up when the bank starts moving on the foreclosure again. And there are other pitfalls, too.

Walk away. Just walk away.

That's not the advice I'd have given you initially. But the situation looks unsalvageable. Technically, you still may own the house. (Are you even sure of that?) But you haven't paid the mortgage since February. You walked away in July. And I'm not sure how converting to a Chapter 7 would "get the house out of our names."

It's over. It's done.

Move on to the next stage of your lives.
1 vote Thank Flag Link Sat Oct 15, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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If you are not adhering to your bankruptcy plan you lender will file for a motion from relief so they can move forward with foreclosure. They cannot collect with the bankruptcy being filed. If you can convert your options will be to surrender the home, retain it and keep it current which you are not, or reaffirm it which obviously won't happen. I AM NOT AN attorney but a modification won't happen now if you are involved in a BK as it would be considered an attempt to collect if they rewrote a new loan on the one included in BK. Consult with your attorney.

Why did you move out? Most people would just live there for free for as long as they could.

To rent it out and keep the money could be damaging to your bankruptcy case it smells like fraud so I would say don't do it.
1 vote Thank Flag Link Sat Oct 15, 2011
Thank you to everyone who has responded! I very much appreciate you taking time out of your day to respond to my question! The information you have provided has given us a lot to mull over.

For those of you who wondered why we did not remain in the house, mortgage free, well... as silly as this might sound, it was too depressing. The state of limbo was driving us crazy. In addition, we have farm animals and, knowing we would have to rent, jumped on a unique rental situation that allowed us to keep our animals. The rent is also low enough that we can get back on track financially.
0 votes Thank Flag Link Sat Oct 15, 2011
We did apply for a home loan modification in June of 2010 (second time we sent in an application), were informed by the bank SIX MONTHS (and many calls to them) later that we would have an answer in 20 days. That was January 2011. No answer ever came and we were dying a slow financial death. We sapped every financial resource available to us in order to save the house. I cannot say this strongly enough...the bank was not willing to negotiate. We did have possible buyers interested in a short sale but we have been advised that a short sale, in no way is beneficial to us. Our credit will still be shot whether we foreclose or do a short sale. We do have a bankruptcy lawyer on board and will probably consult him, but my question is still a hypothetical.
0 votes Thank Flag Link Sat Oct 15, 2011
Because you are in bankruptcy the lender has to stop collections, the proper thing to do is for your attorney to call the lender and have the lender secure the home. This is a reaosn people should not walk away from their homes. If you stayed you probabily could have had them rewrite the loan for current market value and you reaffirm the mortgage at a new price. you also could have sold it through a short sale and saved yourself from bankruptcy and a foreclosure, at this point if you collect money on it and are not paying your mortgage the bank could come after the rent. Definately ask your attorney for assistance
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Sat Oct 15, 2011
After reading my initial comments, I realize I never actually asked a question. My question is, would we be breaking any laws by renting out the house?
0 votes Thank Flag Link Sat Oct 15, 2011
We walked away because the house is approxiamtely $200,000 underwater, my husband's civil engineering (residentail) business went belly-up and we could not make the $2800 mortgage payments. Same story, different faces as so many other situations.
0 votes Thank Flag Link Sat Oct 15, 2011
Before considering the idea, do consult with your attorney....
0 votes Thank Flag Link Sat Oct 15, 2011
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