Short selling a home is touch enough these days, but one with a tenant posses additional challenges.
First and foremost, make sure the homeowner is communicating with the tenant regarding their plan to sell. All to often, tenants find out the homeowner is in trouble when the trustee notice of sale has been posted on their door. This does not give a warm and fuzzy feeling to the tenant, who is still paying rent.
The tenant should be assured of the following:
- The tenant lease will be honored. - This opens up so many questions, and the first one that comes to a tenants mind is...will I be evicted? What happens when the property is sold? Make sure you understand the laws in your state regarding the eviction of tenants under either a short sale or foreclosure scenario. In Arizona, tenants are protected, even when bank owned.
- The tenant needs to know that their security deposit is safe and can be refunded when needed. - This is HUGE and can be the biggest hurdle to overcome. The homeowner is behind on mortgage payments and in trouble, what are the assurances that the tenant will recieve their security deposit back?
- Tenant cooperation for agent showings, inspections, etc. - Too many times the tenant is wary of the entire process due to lack of communication, and the result is no cooperation from the tenant. It is important to understand Tenant/Landlord act and the rights of the tenant regarding showings. At my brokerage, we MUST provide 48 hours WRITTEN notice of any showings, inspections, etc and we are NOT permitted to put a lockbox on the property. This can pose additional challenges when selling a short sale home, but with the correct planning and education of all parties involved, it can be done.
Now let's talk about the tenants. When they find out the homeonwer is in trouble, they may be tempted to stop paying their rent. The tenant needs to understand that they still have the obligation to continue paying, or move. Regardless if the homeowner is in trouble or not, the tenant have a legal obligation to pay their rent. The homeowner still has the right to pursue a tenant for non-payment and possible eviction regardless if the homeowner is in trouble or not.
As a buyer's agent, please take note of the tenant rights. The reason our broker has requeste NO LOCKBOX on any of our tenant occupied listings, is because the buyer's agents are not always respectful of tenants rights. I have had situations where buyers agents have appeared at the door with no appointment, agents have not given enough notice and upset the tenant, or agents have entered the property without approval. These are all lawsuits waiting to happen. PLEASE - be respectful and follow the listing agents rules, no matter how difficult it makes your job of showing.
This is just touching on the basics. As many more investor/landlords are in trouble, the more short sales we will see with tenants. Make sure you understand the laws as they pertain to your area.