You’re paying the rent, but is your landlord paying the mortgage?
If you are a tenant or looking for a rental these days… this has got to be the number one questions on your mind. There is nothing more frustrating than paying rent on time every month, than to be served paperwork from the local courts, and find out that you are being evicted. This is happening more and more due to the declining market.
Why is this happening?
Many homeowners and investors who have had a hard time selling properties in this market have had no choice other than rent it out to help offset their expenses. Many times, this home has a mortgage way above the mortgage amount. For example, in Central Florida… it is possible to find many 4 bedroom / 2 bath rentals as low as $1200 a month. What most tenants do not realize is, the owners expenses are way over this amount a month.
For example… let’s take a newer 2000sf home in Orlando where the home owner paid $315,000 for it in 2005. He has been trying to sell it for over a year now due to a job transfer and decided to rent it to try a recover some of his expenses.
Loan Amount: $315,000.00
Principal & Interest: $1,991.01
Homeowners Insurance: $112.87
Property Taxes: $548.33
Monthly HOA Fees: $90.00
Total Monthly Payment: $2,652.66
Now if you are paying your landlord $1200 a month for a property that was costing him $2653 a month, how long do you think that would last?
These are things you have to think about when you are shopping for a rental. If it’s too good to be true… it usually is.
How to protect yourself?
Know who you are dealing with. Check their ID. Make sure they are the owner. Before renting a property, be sure to check local public records. Make sure the home is not in foreclosure. Make sure the taxes have been paid. Also ask to see proof of insurance on the property. You can also ask the owners upfront, if they are behind in any payments or a party to any lawsuits. If they do not answer you, move on. This is to make sure your personal information & deposit(s) are safe and secure with them.
Never send deposit money out of the state of Florida! I always recommend that tenants ask the homeowner to hold their security deposit within an escrow account. Many banks and/or attorneys do this for a fee. Another avenue is to hire an experienced Property Manager who has an active real estate broker’s license to hold your escrow for you. Why? Because they are regulated and licensed professionals who can answer many questions for you and have access to mediation services if there is a discrepancy as to who gets the deposit, without costly lawsuits. If the homeowner has your deposit and loses the home… what is the likelihood that you’ll see your deposit again if it is in his own bank account? Licensed broker’s can also be hired to process your application as a 3rd party, to keep your personal information on record, instead of handing it out to someone who says they are the owner.
Finally, always read what you sign. Know what is expected of you, the late fees and move-out fees required and when you must notify the landlord of your intent to relocate.
What to do if you are served paperwork as a tenant?
Just because you are served, it does not mean you can live in a property without paying until evicted. The first set of paperwork notifying you that a law suit has been filed to foreclose is not permission to move out without liability. You are under contract and must follow that contract to avoid possible problems.
I always recommend speaking with the landlord and asking what their plans are. They may be planning on paying the lender to settle. They may be letting the property go into foreclosure…some may take many months to process therefore your lease may be up way before the property is foreclosed on. They even may give the lender a “deed in lieu of foreclosure”. Most of the time, you will be given adequate notice to move on.
You may want to ask the landlord to accept your deposit as the next month’s rent to make sure you do not lose that money once foreclosed on or to be let out of the contract all together. Make sure you get any new agreement in writing, dated and signed by both tenant and landlord.
Bottom line is… be very careful with rental applications, lease agreements and know what you are getting in to. If you are not comfortable with the paperwork and research, hire a real estate broker or attorney to assist you. It is not that expensive to protect yourself. Our firm charges a $149 fee to hold escrow and have a lease prepared by one of our attorneys.