(Flickr photo by Gavin St. Ours)
By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA
You don’t have to be a homeowner to have heard the term “short sale.” It’s one of the most widely used terms in the real estate industry these days, and unfortunately, it’s also a term that many renters are starting to hear more of as well. The prolonged economic downturn that engulfed the real estate industry, starting with the subprime loan debacle, which rapidly resulted in mass foreclosures of adjustable rate home loans, has now inevitably morphed into the “short sale” frenzy of the 20% down conventional homeowner.
Unfortunately, many of the affected properties are the homes of renters who abruptly find themselves caught between the bank and the landlord’s hardships. The typical scenario is as follows: An owner/landlord carrying an upside-down mortgage on a rental property finds himself under financial distress due to the economy. The landlord tries to hold onto the property for as long as he can only to realize that it’s either too far underwater or the loan modification offered by the bank isn’t going to reduce the monthly mortgage payment enough to help him through his current financial situation. At this point, it’s either foreclosure or short sale, and currently, most banks are starting to favor short sales. Either way, the unaware tenant is typically left with minimal notice to relocate.
So, what can you do if you find yourself in this situation? Tenants do have rights, and even though you may not be able to stop either proceeding from occurring, here in California, you do have options.
If you have a lease agreement in place, the new owner may be required to honor the terms of the existing lease agreement. This can be helpful in that it provides you with adequate time to find replacement housing. This is subject to many terms and should be reviewed by all parties in the transaction.
Tenants should be able to negotiate all of their security deposit back.
Tenants may be able to negotiate a “Cash for Keys” agreement with the bank, seller, or even buyer to ensure delivery of the keys to a vacant property based on a predetermined time frame. This could help curb some of the cost associated with moving and relocating.
If you are a tenant of a property that is currently being sold short, any one of these options can be helpful. Upon being notified of the distressed sale, communication with your landlord or property management company is essential to these negotiations and also to understanding important dates set throughout the transaction. Keep in mind that all parties involved experience some pain while going through this process, and that the best outcomes are the ones in which all the parties involved are fairly compensated, whether that be in terms of money, time, or understanding.
Salvatore Friscia is a seasoned real estate investor and a residential property management specialist, focusing on single-family homes, condos, and small apartment complexes. He is the founder of San Diego Premier Property Management as well as The Friscia Group One, an investment group focused on distressed properties. He is a regular contributor to Buildium’s All Things Property Management blog.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.