Rent Back - not advised, but sometimes ok…
I think you got a good advice by most of the posts, the best is to be done with the previous owner and get the occupancy at closing.
“Rent back with an option to buy back” is a big NO even if when it’s not prohibited by your State’s statute. It’s always a very bad idea to get a homeowner in foreclosure to sell you the house by promising them to buy back. High possibility of losing in a lawsuit, plus it’s unfair anyway. So NO.
Straight rental (what you’re talking) back to the owner is never advised, because you could have little more complications than with a regular tenant, HOWEVER, if you closed with a title company and especially when the seller is cashed out (when you don’t use Sub2 and use their loan), if you have a valid lease agreement you will be OK.
I have purchased many foreclosures Sub2, reinstated their loan, and ALWAYS tried to get the seller out before the closing… but many times I had to let them stay when it was not possible for them to move in a few days, and probably 50% of those times I had to evict them… AND never had a major issue because I had it all properly documented.
Yes, a few times they lied in the court that they didn’t know they sold the house because I did a “kitchen table” closing in a local UPS Store because it was a few days before foreclosure sale and not enough time to open escrow w/ a title co. It was not fair from them because I helped them a lot, AND their claim didn’t stand even that I closed like that because all my disclosures and paperwork was very clear so the judge didn’t believe them.
Plus, they gave me a nice “notarized” testimonial thanking me for buying their house – (getting a notarized testimonial helped me in evictions more than once, and BTW a “notarized” testimonial is a very good marketing tool…)
Here’s my point… what do you do when you’re 4 days before the f. auction, and they can’t move in 4 days… do you pass?
The answer is… if the equity is slim, you pass on the possible hassle. But if there’s a lot of equity, then you calculate for the worse case scenario - for example, you estimate that it may take you 6 - 8 mo to get them out (assume they’ll fight you) and add that cost of eviction and holding cost, and if there’s still plenty of profit left, you do it and properly document everything.
As I said, if in the worse case scenario, there’s still $30-50k in profit, I do NOT pass.
It all comes to having it all properly documented, plus it doesn’t hurt to voice record the closings.
Remember, you’re not doing anything wrong by buying the house at a discount as long as the seller is aware that he/she is selling at a discount and such a sale benefits them. If everyone wins, it’s a good deal.
And there’s nothing wrong with renting to whoever you want, including the seller, but it has to be all documented.
Again, the old principle stands here: ONLY DO DEALS WHERE EVERYONE WINS!! It has to be win win for the seller too. But document because they may turn into not as honest one later.
Summary: move the seller out before the closing whenever that’s possible. Consider renting back only when there’s a lot of equity and it’s not possible to move them out before the closing even when you tried hard-then document well
good luck!
M