Can a home that is in escrow (a short sale) be rented out during the escrow?

Asked by Greengirl, Bend, OR Sun Apr 17, 2011

I inquired about renting the home I am trying to buy with a short sale since no one is living in it. Supposedly the owner got an okay from the bank (who holds the first) so it is now available for rent ,but the price is higher than I think is reasonable (especially since it is a distressed sale- no carpet, etc.) so I'm not sure I want to rent it (and I will be traveling for about 6 weeks so don't need it yet). Meanwhile, there is apparently someone interested in renting it (an out-of-town party who has only seen pics) for 3-4 months, but our closing date is in 2 months. I am concerned about rental issues holding up the closing. Should I be, or does this seem standard?

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Dan Tabit, Agent, Issaquah, WA
Sun Apr 17, 2011
You may have opened up a can of worms. If someone rents the house, but refuses to vacate on or near closing you may be stuck with pursuing an eviction. This can take time and money, not to mention the potential the tenant may damage the home.
I don’t blame the seller for trying to earn something out of this, they are trying to make the best of a bad situation.
If you have lender approval and a clear closing date in two months, reconsider what you may be willing to pay for rent. The difference between what you want to pay and the other tenant may be small compared to the cost of eviction.
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Greengirl, Home Buyer, Bend, OR
Sun Apr 17, 2011
Thesa- Thanks for your reply-- it was not the 2nd but the first (as I stated) that supposedly gave permission to rent it out (of necessity if the terms of the loan were that it was to be owner occupied). The seller has little at stake since the first can do what- call the loan due? They are already beyond that. Dan's answer and encouragement to reconsider putting out the $ to rent it myself, even though I will be absent most of the time, is probably what we should do. No loan (on my end- we offered cash) is involved. Basically, I need to be prepared to walk away if this turns out to be a bad situation.
2 votes
Tarris Rogers, Agent, Bend, OR
Sun Apr 17, 2011
My suggestion would be for you to have your real estate agent that is representing you draft an addendum to your contract that states that the seller will not rent the property during the closing period of the Short Sale and have them give it to the listing agent for the sellers signature. The reason is, as others have mentioned, it can be a real hardship to remove a tenant after they have moved in and you don't want any further issues or possible damage done to the home then what you are already aware of.

Secondly, unless you're given written proof, you really don't know whether or not the sellers lender has OK'd that the property be rented, and you don't want any red flags being thrown up which could stop the sellers lender from completing the Short Sale. It's just too risky for too many reasons.
1 vote
Thesa Chambe…, Agent, Bend, OR
Sun Apr 17, 2011
just be careful - I recently had a cash offer on a short sale - at over $100k - bank stalled and stalled and stalled - then foreclosed - put the house back on the market at just under $80k - this happens all the time - obviously if you are a cash buyer - the floor coverings and stuff are not an issue - just make sure you are protected the best you can - obviously none of us have a crystal ball - but you can protect yourself - just know that until the bank(s) say yes or no - you could be throwing your money away if the second did not come through - I would hope if the first says yes I would hope for your case the second will come to their senses
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Thesa Chambe…, Agent, Bend, OR
Sun Apr 17, 2011
The first think I find odd about your question and statement is that the bank that holds the second gave permission to rent it out - the home belongs to the seller and the only thing the lender can approve is the terms of the sale - IF THE SALE IS SHORT - the seller owns the home not the bank - now collecting rent and not making payments could be considered a lot of things - and keep in mind that if the seller does rent this home out there are laws to protect the renter in a foreclosure - Tarris makes a great suggestion - you agent should be protecting you - also keep in mind if the home has no floor coverings and such when the time comes if you are purchasing with a loan you may have issues - not all loans will allow for an easy closing on a distressed property
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Lana Lavenba…, Agent, Grants Pass, OR
Sun Apr 17, 2011
I would suggest that it not be rented, or if it is that you require the seller to give notice prior to your close of escrow. You do not want to be responsible for getting a renter out AND your lender could call it an income property instead of your home changing the type of loan available to you, if you are not going to live in it at close of escrow. So, there are many concerns there...just be aware of them. I hope it all goes well for you and you get to move into it shortly!
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Fred Glick, Agent, Mountain View, CA
Sun Apr 17, 2011
The seller can negotiate a rental since he/she still owns the house.

When the house is sold, any leases come with it unless the seller can negotiate with the renter for them to get out.

The short sale and the bank have no bearing.

Good luck,

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