I am concerned about signing a lease on an apartment that could go into foreclosure if the landlord does not

Asked by Adam T, Washington, DC Thu Aug 7, 2008

pay. Is it possible to place the security deposit in escrow? This is in Miami, Florida.

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Adam T, , Washington, DC
Fri Aug 8, 2008
Thanks Don. I just saw your answer, including the part about the "Authorization to Release Information" form. I guess I can check on the status of the landlord's mortgage and homeowners payments as a tenant, if I think that will be important.

Pam, I agree that you should not sign a lease on an apartment if you are concerned about the landlord's financial situation. It's better to find another rental. I am learning how to discern whether an owner is financially healthy. And I want to protect myself in the event something goes wrong. Unfortunately, in the current real estate market even financially sound owners are at greater risk of default. They could run into financial trouble for any myriad reasons and be unable to sell for the amount they still owe on the mortgage. I will take a look at the Landlord Tenant Act.

Thanks for the advice, everyone!
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Adam T, , Washington, DC
Fri Aug 8, 2008
**I am not a real estate professional or lawyer. This is how I understand things work in the Florida market. Consult a professional or lawyer if you want to be certain about the law and how to proceed in your own situation.**

Thank you for the informative responses. I did some investigating on my own and came up with a checklist of things to verify...

In the topsy-turvy real estate market of today, it has become just as important for a prospective tenant to perform a financial health checkup on the property owner.

1. Perform a credit check on the landlord.
2. Check if the property is listed with agents or advertised for sale.
3. Locate the property/owner records and look for any recent judgements or lis pendens that might indicate legal action on behalf of a bank (e.g. foreclosure proceedings) or home owner association. [Thank you, Chris Griffith!]
4. Locate the property tax records with the county property appraiser and verify the owner is current on his taxes.
5. Check that the owner has not missed any payments with his mortgage company.
(This is different than checking if the property is in foreclosure. A property does not enter foreclosure until the owner has already missed several payments or a single missed payment has been outstanding for several months.)
6. Check that the owner is up-to-date on his homeowners assessments. [Thank you, Chris Griffith!]
7. Place the security deposit and last month rent into a third-party escrow account. Write into the lease the conditions upon which the deposit and rent will be released to either the landlord or tenant.

Point #7 is especially important in my situation. I plan on writing a lease for a seasonal winter rental. It will be another 90 days before I move-in, which is enough time that even if the owner is current on his mortgage now, he could go into foreclosure before I ever step foot in the apartment. I wouldn't want to lose both my security deposit and the last month rent without ever having lived in the place!

Q:
Does anyone know if a property managment company can act as a third-party escrow holder? All the independent escrow services that I have found web sites for are focused on the escrow process surrounding real estate sales rather than leases.

Q:
Is it possible to get special dispensation to check with the mortgage company on the status of the mortgage? I know that in certain sales situations, it is possible for an investor to check-up on the status of the property owner's mortgage by having the owner sign an "Authorization to Release" form.

Tip:
Pay your rent on-time every month even if the property enters foreclosure. The owner not meeting his obligations to the bank does not absolve you of meeting your obligations to the landlord as specified in your lease. Failure to pay rent could lead to eviction. That would be a permanent black mark on your credit record. If you do not think the landlord should continue to receive monthly payments, especially if you suspect he may not return your security deposit or last month's rent, you may be able to request that the local court handling the foreclosure receive the rent payments. [I am not sure about this last point. If it comes to this, you definitely should have a professional representing you.]

Tip:
In Florida, it is possible for you to recover attorneys fees if you take your (potentially broke) former landlord to court. Section 83.48: Attorney's fees.--In any civil action brought to enforce the provisions of the rental agreement or this part, the party in whose favor a judgment or decree has been rendered may recover reasonable court costs, including attorney's fees, from the nonprevailing party.

Tip:
Note that in a short-sale, as in a regular sale, it may be that your lease is not automatically terminated. Check your lease agreement for a phrase similar to, "The Lease shall be binding upon and for the benefit of the heirs, personal representatives, successors, and permitted assigns of Landlord and Tenant, subject to the requirements specifically mentioned in the Lease." If you are signing a new lease, make sure this provision is in there.
0 votes
Don Tepper, Agent, Burke, VA
Fri Aug 8, 2008
Good question.

I'm not a lawyer, so this isn't legal advice. For legal advice, consult a lawyer. However....

There are lots of ways to protect yourself.

First, why just place the security deposit in escrow? Set up a trust account (a local lawyer or bank should be able to do it for you). You pay into the account, and then your money is disbursed from the account. For example, if your rent is $1,000 a month and the landlord's PITI is $800, then the lawyer/bank would take your $1,000, send $800 to the lender, and send the other $200 to the landlord.

If your rent is $1,000 a month and your landlord's PITI is $1,200, then the lawyer/bank would take your $1,000; the landlord would send $200 to the lawyer/bank, and then the full $1,200 would be sent to the lender.

A more formal structure would involve a land trust but, for a variety of reasons, wouldn't really be necessary in this case.

One other thing that would give you advance notice of any default is to get the landlord to sign an "Authorization to Release Information" form. This form would allow you to contact the owner's lender and verify the status of the mortgage. You'd do that once a month, to find out if the mortgage had been paid on time. If you're in a condo, get a second "Authorization to Release Information" so that you could confirm that the condo fees were being paid on time.

Good luck.
0 votes
Pamela Mayers, Agent, Coral Gables, FL
Fri Aug 8, 2008
There are so many rentals why worry about it, go to another. If you must have this do not give them three months. Just 1st and security. Have your realtor look up the tax roll to doulble check but if it is a condo double check with the association to see if they have paid up on their monthly dues. The security is suppose to be placed in escrow but I doubt if most people do that. Remember to sign the Landlord Tenant Act and Read it-Pam Mayers=EWM Realtors -305-216-5864
Web Reference:  http://www.pammayers.com
0 votes
Chris Griffi…, Agent, Bonita Springs, FL
Fri Aug 8, 2008
The last few people that I spoke with that had this concern I directed to the county clerks website. Locate the property/owner records and look for any filings that could be recent judgements or lis pendens that might indicate legal action on behalf of a bank or home owner association. Every month when you write your rental check, check the clerk's website.

It would be wise to verify that the "landlord" actually owns the property by this method and also checking with the management company to make sure they own the condo and are current with assessment payments. If they do not make the assessment payments the management company may turn off fobs or other electronic passes that provide entry to amenities.

Good for you for being careful in this languishing market. I've heard a few sad stories of tenants losing their deposits. You're a smart man.
0 votes
Bill Eckler, Agent, Venice, FL
Fri Aug 8, 2008
Adam,

Since policy varies from association to assoiation, the best direction to present this question is to the landlord. Your reservations are warranted. Don't enter into an agreement where uncertainties are present.

Good luck,
0 votes
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