Posted by B.L.Renfrow on March 17, 2004 at 18:06:09:
While I can’t speak for the original poster, this scenario is quite common, typically when the tax rate increases. How would the mortgage company know ahead of time the taxes are going to rise? Remember, they escrow the funds in advance to pay the taxes when they come due (hence, “escrow” account). So until they get the annual, or biannual tax statement, they don’t know the rate has risen and they haven’t impounded enough money, so they will increase the payment to cover the shortfall.
Have a tenant buyer who I feel is trying to pull a fast one with me.
Has an option to buy at 150K and there are recent sales as high as 165K yet claims his lender only appraised the house at 135K which I believe is false.
Tenants option and lease expires the end of the month and I was counting on putting that cash (40K) into my business.
Ironically, I received a frightening letter in the mail TODAY that my mtg payment on this property is going up over $200 a month due to a shortage in escrow last year and an increase in taxes this year…
The t/b understands that financing is NOT my problem and that if they aren’t able to exercise their option by the end of the month they will have to sign a new lease with the appropriate rent increase.
I would really rather see this person go as they have been problematic with paying on time (late every single time even after I adjusted the lease to fit their pay schedule).
So… with all of that being said is there a limit on how much I can legally raise the rent?
Does anybody have any other suggestions on how to rectify this problem?
I don’t know what your lease contract looks like or the option. Typically if the t/b can’t finance the property that is their problem. They loose their option consideration. Even if the property doesn’t appraise. The option consideration is (should be) non-refundable if the t/b fails to purchase for any reason other than fault of the seller.
As for the lease, give notice that you will not be offering a renewal of the lease. I can?t imagine you have contracted for an automatic renewal of the lease. Then find someone else or dump the property.
The taxes have happened to me. It is an adjustment to make up for the shortfall of last year and the increase of this year. Next year your escrow will be re-adjusted down (hopefully) since there won?t be a shortfall from the previous year.
In all cases, check with your attorney for advice. I am not an attorney and do not know the laws of your area (sometimes not even my area).
You should be working with a mortgage broker you know. If you are sure of your comps for the house, ask other investors who they use for financing in your area.
You’ll have to decide if you want to search for new tenants. You’ll need to spend extra money cleaning up the house and remarketing it without a month or two of rent coming in. Is that amount of money really worth getting rid of “late” payers? You may be losing money in the long run, with no guarantee the new tenants would be any better.
The late payers should also be paying hefty late fees, which means more profit for you. Are you enforcing the late fee schedule, or letting them slide? Tell them from now on the late fees will be due with all late payments.
As far as raising the rent is concerned, even though you have an additional $200 per month to come up with for a year, that doesn’t change the market rent for the house. You can generally get a little above market rent with a lease option, but be careful raising it beyond what the market will bare.
How long was the problem with not escrowing enough for the taxes going on? And why didn’t your mortgage company realize there was a shortage on the tax payments?