In the op he says homeowner. Right now I am short selling a home I stopped paying on 2 years ago. It will hopefully sell this month. It was about 18 months before the bank said ‘GET OUT.’
You will get plenty of warning.
May I suggest placing what would have been your rent into savings and live normally. Might be a great time to get ahead with a little care.
That only works if the homeowner friend is amenable, however. If the OP quits paying rent, the homeowner could evict him for that.
Of course an eviction is a lengthy process as well, if not quite as long as a foreclosure. And in my opinion, if the friend has quit paying the mortgage, it’s a dick move (though likely legal) to then boot your tenant for not paying you the rent.
While we don’t know the homeowner’s circumstances leading him to consider walking away, the fairest thing (IMO) is for him to let his tenant live there rent-free as well, as long as the tenant chips in his share of utilities etc. If he does collect rent from the OP, I think it’s scummy to not remit at least that to the mortgage company.
If the OP has a lease, that’s binding on the OP as well as on the landlord. I wonder if “landlord has quit paying mortgage, so is gonna be foreclosed some day” is legal grounds for the OP to break the lease?
Again eviction could be very different in a room rental situation than a full private dwelling area rental. Depends on the state - your mileage may vary. What does your local landlord-tenat act say about that? It is also possible that room rentl is against city bylaws, which may effectively negate any signed lease…?
Of course, if the homeowner is a dick, he will not see the inequity in “I stopped paying mortgage in violation of my contract, but you must keep paying me full rent.”
Of course, if he’s evicted but you get to stay in your room (?) who will pay the full house utilities? Cut the grass, shovel the walk in winter, insure the house, assume liability for the postman slipping and falling…?
Check with your city about the legality of renting rooms, and how long a notice the owner has to give you before you have to move. Also find out if “self help evictions” (throwing all your stuff into the street and changing the locks) are legal in your state.
The right way to do it would be for the home owner to quit claim deed it over to the renter. The renter brings the p[ayments current and pays the mortage payments. The renter records the deed with the county. Yes the bank can do a demand on the mortage, in which case they will get the house but not the payments. Now if what is owed is way more than what the house is worth this could be a bad deal. But if the payment is less than what monthly rent on a new place would be then it may be a good deal.
But it all DEPENDS!
Not paying the rent would be insane. Even if eviction is improbable, have you forgotten what the landlord can send to your credit history? Where are you going to live next? What happens when your next would-be landlord finds “didn’t pay his rent” on your credit report, or when he asks you for the name of your last landlord you refuse to tell him?
I also doubt very much whether consulting a lawyer is cost-effective. A good real-estate lawyer is going to charge you $300-400 an hour for his advice, and even then is only going to be able to give you vague generalities unless he has had a chance to study all the fine print in e.g. your lease. What’s the point in spending $1,000 to learn that, yes, you might be able to negotiate a lower rent, based on the fact that your landlord’s expenses have fallen and he is clearly in a bad negotiating spot.
No, a quitclaim stands a very good chance of triggering the due-on-sale clause, so that is NOT the thing to do right off the bat. Conceivably the bank might be willing to work with the situation if they believe the buyer is creditworthy, but don’t do it without contact them!!! Also conceivably the bank might not notice the sale being recorded in the county records, or might not care as long as they’re getting their money.
There are such things as leases with option to buy.
http://www.mtgprofessor.com/a%20-%20purchasing%20a%20house/lease-to-own_purchases.htm
This seems to be basically what people are suggesting. It’s certainly legally binding (the seller can’t back away easily), though it does put the risk (to the buyer) that the seller might not pay the mortgage. In the OP’s situation, as he knows his friend / the homeowner plans to quit paying the mortgage, I’d insist on some sort of mechanism to ensure that his lease payments actually do go to the mortgage company - either paying them directly, or into some sort of escrow that then disburses the mortgage payment.
Otherwise, he’d risk paying the seller, the seller pocketing the money and defaulting on the mortgage, then the buyer is out a chunk of cash with nothing to show for it except some documents that the bank would be free to ignore (I think - people have talked about renter protections in a foreclosure but I don’t know what happens with lease-options).
With a lease-to-own, the seller would be protected because if the OP quits paying, then he can evict the OP and sell the house to someone else (or do the default he’s currently planning and let the bank duke it out with the buyer).
Note: All this may have zero relevance on the OP - he may not want to (or be able to) do this sort of thing, and it’s not what he asked about anyway.
Some attorneys will give you a phone consult for free. I’ve had one spend close to an hour on with me and didn’t pay a dime. Interestingly, he advised me against hiring an attorney and instead said I should go to small claims court, which achieved the result I was seeking (not money, but for a contractor to hold up his end of the bargain).
In another instance I had a lawyer draft a letter to my landlord for only $125 that saved me time, aggravation and nearly $2,000.
It would be wise for the OP to try and get as much free information as possible. Call around to several attorneys in the area that specialize in landlord/tenant issues. The worse thing they can do is say no.
Re paying rent, or not, the first thing the OP should do is discuss it with the homeowner.
I wouldn’t be surprised if his friend says not to pay him any rent since he’s not paying the mortgage any more; similarly I wouldn’t be surprised if the friend says “pay up, deadbeat!”.
In the former case, I’d tell the OP to take advantage of it and stay as long as the friend and the bank let him. This way he can live almost free and save money for as long as possible.
In the latter, move out as soon as it’s feasible, since he’ll really never know when he’ll HAVE to move and why pay for the privilege of getting booted with possibly little notice.
Unless his landlord is a large real estate company with lots of rentals, it is unlikely he maintains the annual subscription ($$$) to the three credit reporting agencies that is required to report delinquencies by renters.
You think? And yet here it sure looks like if I were a landlord I could order up your credit report for $35. And I surely would, particularly if you were not inclined to give me the name and phone number of your previous landlord on the application. (Actually, I’d just file your rental application in the dumpster as soon as I noticed this omission. Who needs the hassle? It’s not like rentals are a buyer’s market in any major urban area.)
You can look (if you have their SS# and date of birth), but you can’t place comments without a subscription as a credit reporting entity.
I’m pretty sure that Fear Itself was referring to the current landlord needing to pony up the dough (and do the work) to have a reporting account with the credit bureaus. This type of account is required to be able to submit to them that someone has not paid their debt.
A few years back I knew of a guy who did just that. He would find houses in the early stages of forclosure. He would pay the owner an amount based on conditions of the house and mortage. He would have the owners sign over a quitclaim deed to him and he would record it. He would bring the mortage current and begin paying the monthly payment. Find a tenant with a 5 year lease to own contract. Most of the time the banks just took the money. The few times the banks question what was going on after a meeting they were ok with the arrangement.
Banks advantage: They get their money on an existing loan with out any expence or paper work. Other wise they would have to go through the expence of foreclosing, preping a house to sell and the selling the house with costs of the sale.
Home owners advantage After 5 years they have had their loan paid off and do not have a big hit on their credit of a default. And they may get some cash for keys money to help them move.
For the op this will only work out if the mortage is near or less than the value of the house. If the rent to payment amounts are close. And the home owner is not too far behind in payments.