Foreclosure question - Posted by jake

Posted by JT-IN on October 15, 2006 at 13:45:05:

Depends on which state the auction takes place.

The laws of each state govern time limits, so I would need to know which state you are located. Some states are possession the day of auction, while others you could be there as much as a year following the auction.

Foreclosure question - Posted by jake

Posted by jake on September 30, 2006 at 20:03:39:

Can a tenant sue you if your property goes into foreclsure and they are forced to move? I’m in a situation in which I have 9 properties with 3 current vacancies. For about six months I had 5 vacancies with a negative cashflow to the tune of about $3000 per month. I’ve lost nearly $30,000 on these properties which has wiped out my reserves.

Some of the tenants were paying late or not at all which lead to eviction and the resulting vacancies. Even though my management company is collecting the rents, it’s just not enough to cover the utilites, maintenance, management fees and mortgages.

One of the lenders told me today that if a tenant is paying, even though it’s late, they could sue me if they are forced to leave as a result of the impending foreclosures. Is this true?

Re: Foreclosure question - Posted by Sgt.Sausage

Posted by Sgt.Sausage on October 02, 2006 at 13:51:02:

Forget what’s legal for a moment, forget what the courts will allow.

You fully expect the tenants to 100% fulfill the terms of the lease … and they, in turn, expect you to honor your terms and conditions of the bargain.

That being said, successful lawsuit or not … you owe them, as a matter of honoring your word as you signed on the lease contract: Any and all additional expenses they’d have in locating a new place – that they would not have otherwise had if you actually held up your end of the agreement you made.

It’s the RightThingToDo™.

Foreclosure question - Posted by JT-IN

Posted by JT-IN on October 01, 2006 at 06:16:08:


First off, you didn’t mention which state you are located, and that will have a lot to do with whether or not a Tenant might be successful in a lawsuit. This greatly depends on case law and existing state law regarding such activities. It might also depend on the length of time you have owned the property, the length of tenancy of the agrieved tenant, and numerous other factors.

Sure, the Tenant can suit you… They could even prevail in the suit. However, it seems that your bigger issue might be the multiple foreclosures. Also, if you have depleted your resources, what difference does it make if the tenant files suit, and prevails…? What are they going to get…? The outcome of any suit may be driven as much by “intent on your part”, meaning that if you rented to a new tenant, knowing that you had issues, and shortly thereafter they were having to move based on actions that you should have known were going ultimately end in the tenants eviction due to foreclosure, then this would be judged more harshly, IMO.

Also, depending upon which state you are located, the foreclosing mtg lenders may be entitled to a deficiency judgment for any losses that they incur on the sale of the properties. If so, this is a much larger fish to fry, IMO.

Your lenders comments are likely pointed toward a practice of non payment by landlords, that is called “rent skimming”. This is a problem if a landlord were involved in the activity, but it is doubtful that you would fit this mold unless your props were newly acquired… within the past year.

Just the way that I view things…


Re: Foreclosure question - Posted by gerald(tx)

Posted by gerald(tx) on October 01, 2006 at 24:34:29:

Your lender is correct, particularly assuming your properties are leased, as opposed to month-to-months.

A lease is a two way contract, and if the tenant complies in good faith, he expects performance on your part. If you fail to perform and he incurs hardship or financial loss because of your failure, he is entitled to damages.

Yes, you most decidedly can be sued.


Re: Foreclosure question - Posted by BTI

Posted by BTI on September 30, 2006 at 23:18:10:


Your lender is an idiot, unless the lease is senior to the lenders lien it gets wiped out like any other junior lien.


Re: Foreclosure question - Posted by jake

Posted by jake on October 01, 2006 at 09:29:33:

I’m in Indiana. My intentions were not “rent skimming”. When I first bought the properties (the tenants were inherited), I had one tenant set a duplex on fire (which really hurt) then I had others who were late pays, and others that vacated a month after I bought them. I had to pay out of my own pocket to get the properties rent ready and make the mortgage payments while the properties sat vacant. I did not want to deceive anyone, it’s just that Murphy’s Law has been rally kicking my butt to the point that I just can’t do it anymore.

Would I be able to approach the current tenants, return their security deposits (those which paid a deposit anyway) and see if they would be willing leave the properties now instead of later when they would be forced to leave because of the impending foreclosures?

Re: Foreclosure question - Posted by John

Posted by John on October 01, 2006 at 01:25:24:

A lease is not a lien at all. The tenant is the holder of a leasehold estate. gerald(tx) is right on in his post.

Re: Foreclosure question - Posted by JT-IN

Posted by JT-IN on October 01, 2006 at 10:48:47:

Sure, you could negotiate a cancellation and release from the current Tenant, which should absolve you from liability and claim from the Tenant. Now if I were the Tenant, I would likely seek moving expenses, in addition to a return of deposit… so be ready for additional demands from them. However, if they perceive that a return of deposit is better than nothing, maybe they accept that, and go…

I have a couple of questions though… How long have you owned these units…? Are these new loans originated by you, or were they taken subject to, after being originated by another party…? Were you properly insured for fire and/or loss of rents…?

If it were me, and I was losing a handful of rental props to foreclosure, I’m not so sure that my biggest worry would be claims against me by the Tenant. In IN the Lenders are entitled to file for a deficiency judgment, and that seems to be the arger concern in my eyes… They WILL file, and if the props aren’t rentable, they will probably sell for less than what is owed as well; hence the deficiency judgment. Of course if you were not the originator of the mtg, this may not be a concern, but this could open other matters of concern as well.

Do you have other assets or equity that you are trying protect here, after the conclusion of the foreclosures…? I’m still not on track with your concern over the tenants, and any claims that they may make… I think that you are concerned due to the Lender Rep’s statement, which may not be enough cause for your concern here.


Re: Foreclosure question - Posted by BTI

Posted by BTI on October 01, 2006 at 19:46:47:


Glad I didn’t see you post before my brother and I once bought a shopping center and improved the value by setting up new leases and making 2 million dollars because all the leases had been wiped out at the foreclosure sale, the tenants attorney had to advise them on the facts of life. I guess my brother and I should refund them all the money we made because I didn’t know we couldn’t do that.


Re: Foreclosure question - Posted by jake

Posted by jake on October 01, 2006 at 11:53:28:

I’ve owned these units for about a year and it was rocky from the start. Like I said, I’ve made payments on the properties which were mostly out of my pocket. I don’t know what you mean by were the loans originated by me. I had an investor associate of mine contact a mortgage broker to step me through the process. I did not take over the properties “subject to” an existing loan. I was “insured” but not adequately… the mortgage broker that I used also lined up the insurance. However, the amount of coverage only covered about 2/3 of the total damage because of the age of the properties. This was not explained to me thoroughly as I assumed it would have covered all the damage. However, I did not keep the insurance check, I mailed that to the Mortgage Company.

The only assets I have is the house that I live in now which is about $120k-$125k, of which my mortgage is about $110k… only $10k-$15k in equity.

Since the mortgage companies will most likely seek a deficiency against me, will I have to file Bankruptcy? Will it do any good for me if I did file Bankruptcy?

As I said, I tried to do the right thing here. I made the mortgage payments as long as I could as I got the units in rentable condition, but it just killed me as they were sitting vacant. I’ve also been paying the utilites for some of the units as well. I don’t want these tenants without water, heat, or electricity… but that is becoming a problem now as well.

I certainly got in over my head and made some big mistakes, a major one being that I trusted other investors whom I thought were friends. :frowning:

Re: Foreclosure question - Posted by John

Posted by John on October 01, 2006 at 20:28:48:

I am not saying that the new owner can not evict the tenants. They obviously can. I am saying 1st, it is not a lien. It is in fact a leasehold estate that the tenant has. It is not wiped out by the foreclosure, they must be evicted. Second, and most importantly, a tenant still has a breach-of-lease claim against the landlord for damages. Though it would probably be a waste of time to sue someone that was foreclosed on. But they could, and therefore the lender that told him that is not an idiot.

Re: Foreclosure question - Posted by JT-IN

Posted by JT-IN on October 01, 2006 at 18:06:53:


If I were personally in your situation, I wouldn’t much worry about the tenant issues. I would do your best to keep the lights and other utils on and service what debt you think you can preserve long term… but even that seems kind of futile at this point. It seems like there is too much swirl in the wrong direction, and you may likely end up with NO rental props before long. If so, I wouldn’t be doling out refunds of deposits to any tenants. Just try not to do them wrong intentionally… and that is all you can do.

Once Humpty Dumpty slipss off the wall, with lots of leverage and not to mention other factors like uncovered casualty losses, it is pretty difficult to create a soft landing. At some point you begin to make funeral plans for Humpty… and stop concerning yourself with preservation.

Regarding the origination of the mtgs… I was referring to whether you were the person who applied for and closed the loans… or were these existing loans that you took over from someone else. You adequately answered that… The relevance of the question was, if an investor had bought prop subj to and let them go into foreclosure while pocketing the rents, you could easily face charges of “rent skimming”. In your case, I am not saying that this is not still possible, due to the fact of these being relatively new loans, as a Lender could say that this was your intent in the purchases from the origin… Proving that might be another matter. I am not saying this, but just clarifying the purpose of the question and how a Lender may look at things here.

Good luck on unwinding this mess, or reaching a resolution as best you can.


Re: Foreclosure question - Posted by BTI

Posted by BTI on October 03, 2006 at 12:58:56:


O.K., one more post, happened to go to the hospital this morning for a test and then went to breakfast at a little cafe in the hospital and ran into a real estate attorney I used in the past and who has been in practice for over 30 years.

Asked him if he had ever had a residential client sue under the breach. His answer was he was not aware of any cases and would advise any client to forget it.

First of all where are the damages, if the lease has less then half of it remaining the judge would probably take the position that the tenant was going to be incurring moving expenses anyway and at best would prorate them.

Secondly, the tenant received housing for the money he put out so far, and as for attorney’s fees that would go to him and not the tenant so why bother?

His impression was the lender was attempting to put a little pressure on him to keep him paying. Plus he agreed the foreclosure would wipe out the leasehold interest just as in other states that I usually do most of my business in.

Finally, instead of trying to work with the borrower for some solution that might be helpful to both of them the lender is being counter productive and in my opinion is still an idiot, an idiot with an interest to protect, but still an idiot.


Re: Foreclosure question - Posted by BTI

Posted by BTI on October 02, 2006 at 23:54:43:


O.K., I see what your trying to say and your right, there is the legal potential for the previous owner to be sued. That said, in over 40 years I’ve never seen it happen even though it must have happened somewhere, but as you said the potential is there.


autctions - Posted by beverly watts

Posted by beverly watts on October 15, 2006 at 10:58:23:

if a house is being auctioned how long do you have to get out?