1) If the owner still has 'control' of the property, you would be paying the owner but then you never really have any control over whether he is paying his mortgage. Most tenants get this surprise when the sheriff is serving you papers that foreclosure has been initiated. In that point, your lease is still valid & would be honored.
2) Assn has taken over property for back association dues which is happening more & more since owners are not paying & the association is loosing money hand over fist. Don't forget that in some condos the gas is included in the fee & must be paid even if the owner isn't paying it. Puts alot of stress on the finances of the association. But back to the point - you make the rent to the association directly & you have a month to month lease with the association. Not a very secure lease if you ask me as they can ask you to move quickly. Good for someone looking for a short stay only.
Good luck to you & you are correct to be careful & knowledgeable!
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Additionally, how motivated is someone who is going to ultimately lose the home - be willing to spend money to repair anything that goes wrong while I'm living in it?
Thanks, but no thanks - it should be illegal for people not paying their debts to be able to "rent" out a property they do not own. The "owner" does not truly "own" the property - the bank does until the mortgage is paid in full, in my opinion.
Your concern is legitimate about giving a security deposit to an owner who is in financial distress. I'm not a lawyer, so this isn't legal advice. But you might be better protected by having the security deposit held by a third party--perhaps put into an escrow account managed by a third party. I certainly would not give the security deposit directly to the person in financial distress.
Check with a lawyer for more information.
Hope that helps.