Is it illegal for an investor doing a shortsale to rent out the property?

Question

I have heard multiple opinions on this question, some refer to it as skimming others have said it is legal only if the property is not the primary residence of the home owner.

I would like to hear from more people as how this works.

Answer 1

It just so happens I AM renting a house that is a short-sale, and IS DEFINITELY going to foreclose on Aug 12, 2008. I'M not too worried about it because the house I'M buying closes escrow in the first week of August, so I don't see anything wrong with leasing this one meanwhile. I think it's still considered being in the "owner's possession" UNTIL the Bank forecloses on it, at which time THE BANK will then be "in possession", and it will no longer be available to lease.

Answer 2

"Rent skimming" occurs when the owner takes rents from the property and does not pay the mortgage.  In California, and possibly in other states, the practice is illegal.

In any event, the existence of a revenue stream applicable to the property is going to influence the terms, if any, upon which a lender is willing to consent to a short sale.  If the place is producing revenue, why can't you pay the mortgage, the lender is going to ask.

A "short sale" is a sale in which the lender is expected to take less than the amount due on the property and issue a satisfaction or release or reconveyance (depending on local terminology).  The typical lender is not going to do that except in a hopeless case, and certainly not if the owner is deriving a benefit from the property in the form of rental payments.  Even the lender consents to a short sale, the borrower may have continuing liability on the deficiency, depending on local law.

This answer is provided for general information only.  For legal advice, consult a lawyer in the appropriate jurisdiction.  Obtaining tax advice on the consequences of a short sale is also important.

Answer 3

Yes, to the best of my knowledge.  A short sale means that it has not yet been forclosed upon.  Meaning the owners are still the persons who occupied the residence.  Lets say this was happening to me.  I still own my house, but before it get's forclosed on, I'm doing a short sale.  Therefore the investor/lender has no rights to my property being that they didn't forclose on it.  Even if they had, I still have 6 months to redeem my property.  Until then, I don't have to move out, and they have no rights to it until that redemption period has ended.  It doesn't matter if the property is my primary residence or not.  That's trespassing as they are not the owners.

Answer 4

Not illegal, but I think it would be awful to have renters for only a couple months then tell them they have to move because you're selling.  Put yourself in their place.

Answer 5

Skimming?  skimming who?

Yes, the property can be rented out, it is simply for sale.

Answer 6

No.  If you sign a lease and then the property is sold, the lease transfers to the new owner.  If the property is foreclosed, however, the bank can terminate the lease and evict the tenants.