Should tenant pay rent when Landlord is not making the house payment?

By
Real Estate Agent with RE/MAX Dallas Suburbs/PLATINUM PROPERTIES & MANAGEMENT 0534986

Should Tenant pay rent when Landlord is not making the house payment?

According to the Texas Attorney Hotline, the answer is yes. They are under a lease agreement and should continue to pay the rent. They are obligated by the lease agreement. However, with that said ,they should also file notice and move out before the home forecloses.

Unfortunately, This has happened recently to two of our tenants. They started receiving notices that the home was going into foreclosure. The sellers were not honest with us about their situation and we sent the rent to them every month as we were obligated to do.

All we can do as a Property Manager is work through the situation and refund the full deposit to the tenant when they move out. 

 

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PLATINUM PROPERTIES & MANAGEMENT

A full service brokerage with Home Sales, Leasing & Property Management

Russell & Tracy Lee Parker 

RE/MAX Dallas Suburbs

 (972)365-7198 Tracy Lee  

(214) 477-5609 Russell 

 

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Rainmaker
658,772
Michelle Cooks
Charles Stallions Real Estate Services - Pace, FL
Pensacola, Pace & Gulf Breeze Property Management

Here it is my understanding through out attorney and the boards that till it is foreclosed on they still have to pay rent to the current owner and I have had two that are still renting from the banks.

Aug 20, 2012 07:38 PM #17
Rainmaker
855,677
Jon Kolsky
Kolsky Group/Spellens Realty - Long Beach, CA
REALTOR® Long Beach, CA

Tracy lee~ In California I believe a renter is obligated to the contract unless otherwise canceled! If a landlord owns the property and has it contracted out, the lessee must keep its obligation...JMO

Aug 20, 2012 08:13 PM #18
Rainmaker
1,336,067
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

It's too bad when the owner is not making mortgage payments and the renter is paying the rent.  I think the owner shouldn't be able to get away with NOT paying their mortgage and pocketing the tenant's hard earned, which will eventually have them out on their ear.  Pity.

Aug 20, 2012 08:42 PM #19
Rainmaker
342,776
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley R since 1976;408-565-8177

Tough situation.  Since the lease contract is between the owner and tenant I understand that the owner's default on the mortgage doesn't relieve the tenant from their obligation to pay rent.  After all they are living in the property.  But, I wonder if the lease agreement had a stipulation something like: "landlords default on the mortgage invalids the terms of this lease" could provide some relief to the tenants?

In CA we use a Deed of Trust and Assignment of Rents.  It's different from a mortgage.  After a Notice of Default is recorded the lender can collect rents from the tenant directly.  They usually don't unless it's a big commercial property.

Aug 20, 2012 11:19 PM #20
Ambassador
1,600,867
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

Tracy - This is such a frustrating situation for the tenants and a hard place to be.

Aug 20, 2012 11:40 PM #21
Rainmaker
997,096
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Tracy Lee:  Although I think it is very wrong of the sellers to be doing this... as they are misleading the tenants... as it could end up with some unfortunate consequences.  The rental agreement is between the tenant and the home-owner... even if the home-owner is not making the mortgage payments.

One major problem that could develop is that the home may go into foreclosure while the tenant is living there.  What a horrible surprise for them to find the local sheriff at the door... with a notice to vacate immediately.

I have seen this happen.

Aug 21, 2012 12:17 AM #22
Rainmaker
1,089,576
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

I've had my first such situation and have offered the tenant their deposit back when they vacate so I can provide the property to the bank when the owner negotiates a deed in lieu....

Aug 21, 2012 03:13 AM #23
Rainmaker
579,695
Phil Leng
Keller Williams Eastside Market Center - Kirkland, WA
Phil Leng Team - Residential Real Estate Experts &

Each party to a contract has to fulfull their obligations.

If you are a tenant, you need to pay rent.

Phil

Aug 21, 2012 04:42 AM #24
Rainmaker
895,372
Michael Setunsky
Michael's Commercial LLC - Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Tracy, I agree the tenant should continue to pay the rent per their lease.

Aug 21, 2012 06:27 AM #25
Rainmaker
263,580
Bruce Kunz
Bruce Kunz @ Veltri & Associates, 866-483-5874 x464 - Howell, NJ
REALTOR®, Howell NJ Homes for Sale

Hi Tracy Lee. Talk about a tenant being between a rock and a hard place...
Any landlord that allows this to happen should be penalized severely. For that landlord to not notify their tenants of the problem(s) is inexcusable. It is amazing how some people treat people in general; let alone those who trust and depend on them.
Bruce

 

 

Aug 21, 2012 06:34 AM #26
Rainmaker
1,376,533
Richie Alan Naggar Author PEARLS SERIES of books
People first then business! Ran Right Realty Riverside, Ca - Riverside, CA
on LIFE and LOVE plus Real Estate too!

Yes because they have an agreement to do so...But , what if they don't? The landlord has one foot out the door already and needs the other foot to keep from falling. Here is a wild card to consider as well. Does the NOD notice of default bring into question the ownership rights? The trustee is challenging that pre-agreed to position by filing the notice of default....good post here

Aug 21, 2012 06:57 AM #27
Rainmaker
997,096
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Richie:  Without having seen it, I am going to guess that the original purchase agreement also included an "assignment" clause which would have the lease pass on to the new owners. 

I am not an attorney, so I do not have any idea how this would affect things in a case like this.

Aug 21, 2012 07:23 AM #28
Rainmaker
271,297
Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Marin Mortgage Broker

While it would be tempting to not make a rent payment if the owner was not making a mortgage payment, remember the contract (lease) is between you and the landlord, not you and the landlord's lender.  And I'm sure there's not a solid, legally defensible way to make a case that you didn't need to pay YOUR rent simply because the owner of the property was not current on his mortgage. 

If there is an issue with the owner/landlord, it should be dealt with in the appropriate context, legal or otherwise.  Withholding rent does not imply the real matter (where you are going to live once the home is foreclosed) is being addressed.

Aug 21, 2012 07:30 AM #29
Ambassador
1,133,915
Joni Staples
Berkshire Hathaway Home Services - Anderson Properties - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

This is a great post. Most renters assume they should not. Thanks for pointing out to them, that they really should.

Aug 21, 2012 07:41 AM #30
Rainmaker
398,024
Russell & Tracy Lee Parker
RE/MAX Dallas Suburbs/PLATINUM PROPERTIES & MANAGEMENT - Wylie, TX
Experienced Broker & Property Managers Since 2006

Thanks for all the comments! We do have to follow the law on these situations as property managers. That is why we like to escrow the security deposits.

Aug 21, 2012 09:06 AM #31
Rainmaker
855,677
Jon Kolsky
Kolsky Group/Spellens Realty - Long Beach, CA
REALTOR® Long Beach, CA

Tracy~ great post & comments. I think the thing that gets lost in translation, "commitment", just like the owner of the building has a commitment, so does the tenant. Renters have rights just like property owners, if a renter or property manger has an issue, small claim court is the perfect solution. Owners must abide by the laws, just like renters and property managers!

No one ever wants to be a lout by not paying the rent, just like no one wants to get screwed-over!

Aug 21, 2012 09:17 AM #32
Rainer
277,537
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA
- Pierce, King, Kitsap, Thurston, Mason Counties

Tracy -- interesting that you should bring this up -- have a client who is trying to buy the house he is renting, and he is concerned that the homeowner is not making the mortgage payments.  I told him, keep making the rent payments-- don't kneed to have that clunker in the process of buying.

Aug 21, 2012 10:50 AM #33
Rainmaker
1,376,533
Richie Alan Naggar Author PEARLS SERIES of books
People first then business! Ran Right Realty Riverside, Ca - Riverside, CA
on LIFE and LOVE plus Real Estate too!

@Karen Anne..most worthy and relevant point...thank you and thank the original poster (OP) too

Aug 21, 2012 11:09 AM #34
Rainer
246,693
Mike Dobbins
West USA Realty - Cave Creek, AZ
Scottsdale, Cave Creek, Carefree

In AZ the lease will survive a foreclosure, and if they are paying "market" value for the home and up to date on lease payments, they can stay in home till the end of their lease, per the AZ Landlord Tenant Act. They may have a hard time getting back their deposits, but the new owners, be it a bank or new owner who picked it up at trustees sale will not have the deposts to give back. Problem is most tenants stop paying rent when they find out owners home is going to foreclosure. 

Aug 21, 2012 11:17 AM #35
Rainmaker
457,560
Kathy Stoltman
Rockwood Realty - Ventura, CA
Ventura County Real Estate Consultant 805-746-1793

It is the same here, the lease is a powerful document and does a lot to protect the tenants, but in a case like this it is sad, however the tenants do still have a roof over their heads.

Aug 21, 2012 12:04 PM #36
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Rainmaker
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