can the seller of a short sale property rent the premises?

Asked by artfind, Marblehead, MA Fri Dec 16, 2011

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Gene Clements, Agent, Lynn, MA
Tue Jul 9, 2013
At some point the bank will ask that all rents be turned over to them. It is in the mortgage documents signed at the closing when the owner bought the property.
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Roschpropert…, , Utah
Tue Sep 18, 2012
All the time yes. Some say you need to turn the rent over to the lender though if your not current.
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Christine Mo…, Agent, Wilbraham, MA
Fri Dec 16, 2011
As long as you still own it yes. I think that is what you are asking.
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Heath Coker, Agent, Falmouth, MA
Fri Dec 16, 2011
Both of the first answers address the different ways that your question could be read. It is an example of trying to get as specific as you can when you ask a question here.

So to summarize:
1. Yes, an owner who is short selling can rent their property the same way they could any other time.
2. A seller might be able to rent the premesis after a short sale IF certain conditions fall into place. However, there are forms, verifications, and other things that will make it hard for the short seller to stay in the property durring, upto, and after the sale. In order to comply with all the condidtions of a short sale, I think the seller would actually have to move out before the closing, and move back in as a tenant after the sale - assuming that the statements made and forms signed don't prohibit it.
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GB Short Sal…, Agent, Boston, MA
Fri Dec 16, 2011
It depends. The seller can typically rent the property from the new homeowner following the sale as long as the lender's short sale approval letter doesn't contain a provision prohibiting the former homeowner from renting the property following the closing. Lenders will also prohibit any "side" agreements so you should be certain disclose any rental agreement to the short sale lender prior to completing the sale. That way, the lender cannot come after you for any alleged short sale fraud. Short sale fraud is extremely prevalent so lenders will scrutinize any transactions that might not be an "Arms Length Transaction." I would also be wary of any buyer that promises to sell the property back to you following the sale. In short, make sure to disclose all agreements to the short sale lender prior to closing in order to limit any potential liability following the sale. I would also encourage to speak with an attorney and or tax professional prior to agreeing to a short sale.

Andrew N. Coppo
Greater Boston Short Sales, LLC
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Don Tepper, Agent, Burke, VA
Fri Dec 16, 2011
Sure. The owner is the owner until the title is transferred.

However, there are a number of problems with that. First, the rental income is income . . . and that should be reflected on the financial documents the seller is providing to the lender to demonstrate hardship. If it's not included, then the seller may be committing fraud.

Second, it's highly unfair to unsuspecting renters. It's one thing if the owner tells the renter: "I'm in financial distress. I'm trying to sell this home as a short sale. If I'm not able to, the lender might have to foreclose and you'll have to find another place to live." But if the owner doesn't reveal that information, that's really bad behavior.

Third, it'll make the short sale property more difficult to sell. Generally, when a property is sold the lease continues in force, applicable to both the tenant and the new owner. (The lease can be written so that it's terminated upon sale of the property, but most aren't.) Suppose a tenant is 4 months into a 1-year lease when the property is put on the market. A potential buyer would be faced with the prospect of buying and then having a tenant in place for half a year or so. That's enough to discourage many buyers.

So, the answer to your question is "yes." However, it may not be the best decision for the seller.

Hope that helps.
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Yes, I'm a renter who is in that situation. Neither the owner or property manager told me of financial distress. I gave a large deposit and first months rent when I signed lease and only after moving in saw that property was in default. Now they are playing games with who has my security deposit and have short saled the property, but are telling me to still pay them rent, because they think I don't know it is sold. They are so dishonest I wouldn't be suprised if owner neglected to report to lender the rental income he gets from me every month...I would love to report him to lender, but don't know how to do it. Also, they have stopped repair maintenance in last couple months....I need to report them somewhere. Any advice???
Flag Fri Apr 26, 2013
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