Landlord in foreclosure

I have a question - I reside in IL

I work with people in foreclosure and why this is so ironic.

My landlord rented me this property AFTER a tax foreclosure on this property which I was unaware of. The taxes were sold at auction several weeks before he signed a lease with me.

There is more ...

He and his wife own 12 properties altogether

All of them with mortgages stating that they are owner occupied - including this on - except for one multi-unit property. All mortgages state that they are single persons - not married to one another. All mortgages taken out with 100% financing and all from different banks.

All of the mortgages on these properties received the last payments to the banks in October - one month again before I moved in.

All of the properties are delinquent in their taxes - not a dime has been paid since they were purchased and in one county - the same one I live in - they have all been sold at a tax sale.

Nope - there is more ...

With a few of these properties they were bought from the same person - who has 12 properties of her own in foreclosure - she had stopped making payments after August of last year.

And there is even more ...

It appears that the owner is trying to run ... he just put his own house on the market ... at least his property taxes are paid and it is not in foreclosure.

Now obviously - he is one of the biggest crooks I have come across in this business. He committed fraud on all of these mortgages by stating they were owner-occupied and that he was single ... he seems to have had a carefully laid out plan since all of them went down the very same month and he did not bother to pay the property taxes on any of them at all.

I know my rights - and I know that my extensive knowledge of what exactly he did gives me some leverage ... I just wanted to share this story to encourage others to look into the property owner's financial doings in all respects.

This crook basically stole 10k out of my pocket.

Oh ... and I had an option to buy the place after my lease was up - so in my case - that money I was paying legally should have gone to the the bank - not this crook's pocket.

Do a background check on your landlord before you ever sign a lease in the future - all of my own investigation is turning up evidence that there are a lot more crooks out there.

[OHlandlord]

You can check as many public records as you can find on your LL (look for lawsuits from former tenants, liens against properties, judgments against the LL). The problem is that you won't have some of the important information you need to do these. You don't know your LL's SSN or his DOB. Many court sites require a DOB in order to check records (to avoid mistaking 2 similarly named people). Your LL will not give you this info.

You also need the DOB or the SSN to check records from under another name they may have used (like a maiden name, a married last name, or just using a different first name). In many court sites, just trying to pull up "John Doe" won't show you records on Johnathon Doe. Nor will you have the information required, or the permission needed, to pull his credit report to see how far behind he is in payments to his creditors (like mortgage companies). So you may not get very far in trying to run reports or a background check on the LL.

I don't know what to tell tenants on how to check out their LL. One way would be to ask for a list of his current properties (and check to see if they are behind on tax payments). You can get this information from your county's auditor site. You may also want to drive by these properties and see how well they are being maintained. If he can't make mortgage or tax payments, chances are he can't afford to keep them well maintained either. You could also ask for a few tenant's names to see what kind of a LL he is. A good LL would probably give you a couple after checking with the tenants to be sure it is OK to give out their information to a prospect.

Please note the following: A LL could have a mortgage under owner occupied if he had lived in the unit when it was bought. Nothing prohibits an owner from buying under an owner occupied mortgage, living in it for a period, then converting it to a rental. He could have a couple if they were several years apart. He couldn't have done this 12 times though unless this guy was really old! That is indeed fraud, although some mortgage and real estate companies just don't care right now. If they can find someone to buy those excess properties who is willing to pay for them, that's all they care about. Most banks have way too many houses & loans in their inventory now.

Please note there is no law that says a property has to be in both husband & wife's names. I could buy a property and not put my spouse's name on the title. I really don't have to divulge my martial status (it would be discriminatory if they refused a mortgage based on martial status). So these two things mean less than you think.

The fact that he never paid taxes on any rental property could be caused by confusion in the escrow account. Normally, the mortgage company collects extra money beyond the mortgage amount and places it in an escrow account and pays the taxes & insurance from it. It is unusual that this owner failed to pay tax on any of the properties. Normally, they would pay at least some of those taxes so as not to lose all of their properties. There may have been some confusion on whether the escrow account was paying for the taxes and that is why they were not paid. Strange.

It also is not unusual to have each mortgage from a separate company. Mortgage companies are like car lots. Each wants to put their own price and amenities on the loan package. I shop these just like I would shop for anything else I buy and look to get the best price. Every one of my mortgages (all are current) are from different companies for this reason. Once a mortgage company has too much given out in loans, they raise their rates to discourage more people from borrowing from them. Loan rates change daily at every company. It is always best to shop around and find the best rates.

As for your rental, you say the taxes were sold at auction, but not the property itself? If only the tax lien was sold, the owner still owned those properties and had a legal right to continue to rent them out. If the homes themselves were sold, he would not have that right and you could sue to recover some or all of the money you paid him.

Are there any penalties for landlords who don't pay the mortgage? We were in a rental waiting for our house to finish, a trust company took over our lease agreement after the owners defaulted. We were assured by the new trust company that they were indeed paying the mortgage. However, we continued to receive trustee sale notices on the door. One month we paid 5 days late because the trust company would not return our call regarding theses notices, we then received the notice to quit or pay rent. After finally being assured from them when they finally called back, that everything was fine, we paid the rent, only five days late. After vacating the property we did not receive our full deposit back we were charged $200.00 for legal fees when they came out to attach the notice to quit or pay rent after we kept receiving theses notices. I just read that it is illegal for them to collect late fees also, which they did...Can you please help??

[OHlandlord]

"Are there any penalties for landlords who don't pay the mortgage?"

Sure there are. They can lose the house to foreclosure, trash their credit, and still end up owing a buch of money to the mortgage company if it sells for less than what was owed. If the bank forgives the amount still owed, they owe Uncle Sam tax on that money since it is considered income. (The legislature is working a making this unpaid borrowed money untaxable.) Once their credit is bad from not paying their mortgage, they will be unable to borrow money, buy on credit, and will possibly have the inerest rates on other existing sources of credit increased. Plus the fact that they lose the income from the rent they were receiving when they owned that house.

"One month we paid 5 days late because the trust company would not return our call regarding theses notices"

You cannot rent withhold for receiving notices. Rent withholding is only for habitability issues. Since your home was still inhabitable, it was not proper to rent withhold just because you got some notices. You should have handled this another way.

"we were charged $200.00 for legal fees when they came out to attach the notice to quit or pay rent"

Since you wrongfully withheld rent, they were correct to charge you any legal fees they paid to an attorney's office to handle the matter. If you had been evicted because you did not leave, you would have had to pay those costs too. You failed to pay your rent on time. In many states there is no grace period and a pay or quit notice can be posted on the 2nd of the month, eviction can be filed immediately after that.

"I just read that it is illegal for them to collect late fees"

I don't know where you read that. Late fees are NOT illegal. Some states regulate the amount of the late fees. Most judges won't allow a late fee of more than 10% each month the rent is paid late. A LL can waive his right to collect late fees if they are not pursued and you are not notified that you owe this amount. How long ago were these late fees for? Were you notified that you owed them? If so, why didn't you pay them? If a tenant is notified that they owe the fees and fail to pay, they can be deducted from the deposit.

If you post your state, I can give you more information on the regulations for rent withholding, late fees, security deposits, and grace periods for your state.

This was taken from a website I found, under rental rights in California...

If you looked up "late fees," this statute didn't show up, until recently, when the case of Orozco v. Casimiro [(2004) 121 Cal.App.4th Supp. 7] was decided. There, for the first time, an appellate court identified late fees as "liquidated damages" within the meaning of Civil Code 1671, and declared them to be illegal and void, absent extraordinary circumstances.

That interest is the "legal rate" of 10% per year, without compounding, or 1/3650 th of the monthly rent per day. On a $1000 monthly rent, that's 27 cents per day, or $1.92 per week. The word "deemed" in this statute is significant. It means that even if the landlord claimed personal injury by furrowing his brow and gnashing his teeth over your late payment, pain and suffering over his deep grief that he would have to cover the mortgage out of his savings, paper and processing costs from having to write you a 3-day notice to pay or quit, the LAW says he's only suffered and is only due the unpaid amount and the few paltry cents of interest. A $50 late fee for being 5 days late is NOT 10% interest, but 370% interest. Because the landlord's loss is "deemed" to be the unpaid rent plus the daily interest, it is neither impracticable nor extremely difficult to assess his actual losses. The defines his losses for him. Therefore, in light of Section 3302, it can never be impracticable nor extremely difficult to assess the landlord's losses, and his late fee will always be illegal, and void.

[OHlandlord]

I don't know that I agree with that case ruling, as you present it. I'm not sure you are interpretting the case law correctly. Although I don't have the time to read it now (I'll try to later) your explanation seems to rest on the definition of liquidated damages and the LL's ability to quantify actual damages.

It would actually be hard, if not impossible, to quantify the LL's actual damages. How could you say what food he was unable to buy, what repairs or maintenance he was unable to fix, what bills he had to be late on? How can you put a price on how his credit was damaged when he was unable to pay his own bills on time because his tenant did not pay him when due? What do you pay him for the "actual" cost of his damage to his credit - how much per point from his credit score? How much more will his rates go up on any credit purchases he makes in the future because of this? How much more will future purchases on those increased rates cost him? How much will it be worth to be denied to buy his next property because his credit score has slipped? There's no way to come up with an actual figure for these.

When a tenant doesn't pay on time, the landlord can't pay his bills on time. The rent is our income. (When you don't get your paycheck, can you continue to pay your bills on time?) How much it will cost him since he is failing to pay those bills is impossible to determine. How do you know how much those "30 days past due" notations will cost him on his credit score? His loss is not just the unpaid rent plus the daily interest. It is the cost to him personally for a lack of income. His personal injury is not furrowing his brow or having to write out a paper, it is the loss of his reputation and his credit score due to the tenant's failure to meet the terms of his contract.

And why should a LL pay the costs out of his own savings if the tenant is contractually obligated to make those payments on time? Can you pay all of your bills out of savings if your paycheck was to be held (if so, the rent should have been paid on time and the question of late fees would be moot)? A lot of people don't have that kind of savings. Without it, the tenants' failure to meet obligations is causing undue hardship on the LL. So it will ALWAYS be impracticable and extremely difficult to assess the landlord's losses.

I will look up and read this case. But I assure you that late fees are legal in CA and most LLs there do charge them. They do need to be within reason, and a judge can reduce them if he believes the fees are excessive. But late fees can be charged.

I am in a similiar situation as all above posts, with the exception that I have a lease with option to buy and my landlord says he is filing personal bankruptcy in July and our lease is going to be included, thus making it null in void (according to him). I am wondering if this is necessarily true or not. Our lease ends on January 2009. I live in California and it is my understanding that if he would sell the home, the new owners would be subject to honor our lease contract. Is that necessarily true if the new owner is the bank?

Any info is appreciated.

Thanks.

While he may include the bank (the property) in his BK, including you is another matter. I would guess that he forgets to include you individually(hopefully). Leases, by and of themselves, aren't debts to the owner, they are assets (money coming in, not going out). He must disclose this asset to the BK court. If he is still allowed to retain the property, your lease should continue. If he sells the property privately or through a realtor either by a conventional sale or by short sale, the new owner must honor the lease you have. Although the new owner probably won't have to honor any sale option you have since the sale of the house to them most likely negated the opportunity for you to buy it. (Your contract to buy should be separate from the lease and is with the current owner, not any new one.) Do you have any option money or downpayment on the house currently? If so, and he does include you in the BK, that money will be lost.

If the BK court allows the property to go into foreclosure and the foreclosure process is *completed*, the bank will either take the property back or it will be sold at foreclosure or sheriff's auction. If this happens, it will end your lease and you will be given notice to vacate. You will receive notice at your residence prior to the foreclosure sale (usually by a sheriff's notice left on the door or through the mail). Watch the sale date on it. If the new owner buys the property as investment property, he may want to retain you as a tenant. If he wants to live in the property, you will have no recourse but to move.

Thanks for the reply. Fortunately I do not have any option money in the property. I have saved that money in my bank account instead of giving it to him (even though he'd match) just in case I decided not to excercise the option and be out the money.

I am not sure if he is putting me personally in the BK or not. I wonder if I am included in it, will I be out my security deposit also. The bad thing is that my family and I really love this house, but let's face it, I can't stop his foreclosure. Who knows, once the bank takes it back and puts it on the market, I could by it at a $300k discount from our original lease option price!

[OHlandlord]

Some states require deposits to be kept in separate accounts so they are not subject to BK proceedings. Unfortunately, CA is not one of those states. If he co-mingled this deposit with his own money, it may be gone. If he lists you as a creditor (you should be notified by the BK court if he does), it will be gone. If he fails to list you, but has spent your deposit, you can sue in small claims after the BK is over and get your deposit back. (Once BK is complete, he cannot add another creditor to it and cannot discharge any debts for several years again, so wait until the BK is over before suing.)