Landlord on road to BK

Hi All,
I am a landlord of 3 rental properties. I recently sold 1 and will use the 20k proceeds to replace windows in my primary residence.
After stopping payment of mortgage on all 3 props (and CC's) , but still paying maint fees, I have been afloat and positive with cash by about $1700 per month. Now that I am close to being served (public records show Chase starting foreclosure on 2 of the props), my attorney has advised me to stop collecting rent stating next month. Since 1 is close to end of lease, i wont collect last month from them as they had prepaid anyway. But the other 2 are fresh leases as of May 09. If i stop collecting on those I will be negative $1200 after all of my expenses, primary res mortage, tax, insurance, and maint fees on all props.
Has anyone been in a similar dilemma where they needed that rent money to keep afloat? If so, how did you handle it?
Thx
-tk

Let me see if I understand this You entered into a new lease agreement and are collecting rent on a property which you are defaulting on and its going into foreclosure? Meanwhile you're using the proceeds of your rental "empire" to live on and put new windows in your house (which I presume you are not allowing to go into foreclosure?) Wow.

The 20k i received from the sale of the other rental was 1/2 of my original down payment from 2003. So I look at this money exactly the same as I do an income tax refund.. It was my money and not profit. I put up with 6 years of headache and lost 1/2 of my down payment. i think that entitles me to spend it in any way i see fit. and i am spending it in a manner that will not raise a red flag. Home repairs/ replacements of 30yr old windows..

Also.. one of the rentals from May is a tenant who wants to buy the property thru short sale but wanted to rent it first so that he can get the ball rolling once the property entered into foreclosure status. the other property from May has a short least till the end of the year.
I was expecting to not have to file until early next year, but maybe will have to file sooner.. not sure..

I agree with PP - wow. I'll give you the benefit of the doubt since "posting" does not allow emoting; however, you sound like you haven't even thought about your renter(s) and the fact that they will be HOMELESS. Why on earth would you have new leases as of May '09? Your post sounds as if you KNEW that you were defaulting which means you executed the lease in bad faith. Your attorney is advising you to stop collecting rent so that your tenants don't sue you. They probably will anyway. I would.

The short sale thing sounds complicated but I'm not a legal expert in this area so I won't comment.

However, I still believe that you should make certain that you're keeping the property that has tenants in it out of foreclosure before you replace windows - I don't care if they're broken, leaking and 40 years old. You're putting your personal needs ahead of a legal contract that you entered in good faith. If you aren't going to maintain your part of the contract, then you have no right to collect their rent. If my landlord took my rent money, didn't pay the mortgage and let me get kicked out, I would pursue every legal option I had. If he has financial problems with medical bills, an accident, loss of unemployment, maybe I could understand. But if I found out he had a lump sum and used it ALL to make improvements to his home and completely disregarded our business relationship, I'd be P*SSED. JMHO.

Noone wil be kicked out as the lease will expire by the end of the year and foreclosure will be delayed by my BK lawyer every step of the way. If anything, the tenant will enjoy a rent-free stay.

That's different if you're honest with your tenants and aren't going to charge them rent. Honesty is always the best policy, IMO (which is probably why I have no friggin' money) :tongue:

But your original post made it sound like you wanted to continue to charge rent so you could make ends meet which I felt was misrepresenting yourself to your tenants whom you have a legal and moral obligation to. If I misunderstood, I apologize.

What changed in the last month? Are your tenants aware that they're going to be kicked out? You really should advise them to put the rent into escrow.

The tenants aren't the ones with the problem. They're getting a rent free ride for awhile.

The OP has the problem. Not paying debt he wishes to discharged and is still $1200 in the hole/month. Were I the OP, I'd not file until you can support yourself post bk or, your bk is wasted.

Thx keepmine.. that was the gist of my post..

The $1200 in the hole is caused mainly by the $800 per month that im still paying in maintenence fees on the 3 rentals. Everywhere that ive read says to continue paying the maintenence fees...
-tk

Okay looks like the one fella knows that the property is in danger of foreclosure. He only signed the lease in May though, what time frame was he looking at for going through with the short sale? If you've not discussed it with them I'd go ahead and start talking about that.

If the other tenants don't know now is the time to run by and let them know. Discuss with them the options.

Your attorney though is correct you shouldn't collect rent at this point. He's just trying to protect you from lawsuits.

Sadly you would need to pay the maintenance fees :(. So the sooner you could move on with the short sale the better. Any possibility of short selling the other property?

I could short sale the remaining properties or possibly even sell at a break even at the table, but I figure whats the point if Ive already chosen the BK route. Plus I have over 55k in CC debt.

Well you do have a point if getting rid of the properties is not enough to prevent bk then you might look to do it in one whole shebang. One consideration is that the sale of the property even though you got less than your initial down payment will most likely look as income to the Trustee. So you'd probably want to time your filing til after it drops off the 6 month mark. This is something to ask your lawyer for sure about though.

Will it cost the full 20k to do the windows in your home. If you are looking at 800 negative for 6 months that's 4800 dollars needed to cover it. Could you perhaps set aside 5k of the 20k and then use 15k to do the windows, using the remainder to cover the maint fees until such time as you can file? Just an idea.

Thanks for the reply JRScott..
Yes.. i will most likely put aside at least 5k to cover costs and attorneys fee. I may have to put aside even more now that I think of it, with a 5k tax bill that will prob arrive in November for my primary residence.
I didnt expect the foreclosure suits to start so fast on the 2 condos as ive only been 3 months past due and applied for hardship consideration thru them after the 1st month. I think my fatal error was not returning any of their phone calls :( as ive been bombarded by CC's and Loan Banks collection calls and have setup my VOIP to route all to voicemail.
The irony is that with the house that I may do the shortsale on, im almost 6 months past due, but I worked out a forebearance agreement with them.

You might then set aside most if not all of the 20k for attorney fees, property taxes, and maintenance fees.

Not sure what style house etc but could you actually do the windows for 5k?

And yes in the economic cycle we're in probably not talking at all to them may have sped things up.

Boy, this is pretty edgy. I don't know what I'd do in this situation. I take it you're out of work, and have some rental condos that you know you're eventually going to lose but why not collect some rental income in the meantime?

I think what I'd do is tell the tenants the situation and that you're reducing the rent to give them an allowance to cover their subsequent moving costs.

Of course if they had any brains, they'd immediately stop paying rent, cause what are you going to do, evict them?

This would be a great case study for an ethics class.

Hey,OP, what state are you in?

I have some direct experience with your situation.

I was a tenant in a FC property that the LL Bk'd on.

Just be aware that some states have laws on rent skimming (collecting rent while not paying the mortgage)

Signing a lease while in FC w/o disclosure of the FC may get you into some hot water in civil court as well.

Many states have reacted to the FC crisis by writing law that protects tenants.

California has rent skimming laws, I believe Oregon does as well.

You may have already informed your other tenant of the FC, but if you haven't I would highly recommend doing it.

It is not fun not knowing when/if/where you may have to go because of a LL financial mess.
If you have already informed them, kudos to you for being honest.

If you are in one of the states that typically has cash for keys offers on foreclosures, you might want to inform your tenants that an offer may be looming from the bank. Disclosing the FC is the absolute right thing to do.

Even though you are in BK, your lender will probably file a motion for relief from stay to move forward with FC, so don't count on knowing an absolute date certain for eviction for your tenants.

Hey DingDong,
Im in Florida. I leased both properties before I was in any state of foreclosure as i was still trying to negotiate with the banks and sending them all the paperwork they needed. However, I dropped the ball by not responding to all of their calls, and I received a card in my mailbox on Monday from a process server saying that I need to call them immediately. From my reading on this website and consulting my attorney, I decided not to call and instead let them find me. I also went on my counties public records and found that Chase has initiated foreclosure suits on me.
So.. havent been served yet. but will inform both tenants to not pay anymore after this month on advice of attorney. That will allow the next 6 months to have no rental income.. It will be a big drain on me with still paying all the maintenence fees on all 4 properties, but luckily i have 20k from a recent sale that I will use to cushion this period. As well as a few k to do some needed home repairs.

Thx

Are you allowed to exempt that sort of cash in Florida?

Not per sey shabam but if he uses it in his home then yes :)....florida has unlimted exemption for homestead. But as he says he'll need to use a lot of it for taxes, maint fees etc up to and through the filing process. Probably by the time he has to file he'll have used up most of it on legitimate expenses.

Yep I see. Wouldn't want them to go through it all and then have the trustee say thank you for the nice present.