Rent during REO sale

When a bank owns a property due to foreclosure, different rules apply.  Here’s one worth knowing:

Sometimes, banks won’t collect rent from tenants while they own an income property.  Sometimes they do; it depends what their priorities are.  When you enter escrow for an REO property, find out whether the bank has been collecting rents.  If they haven’t, you, the new buyer, can collect all past rent not paid by the current tenants.

Other than cash, what does that buy you?  Leverage.  If these tenants are low paying tenants, and your priority is to relocate them in a rent controlled building, the money they owe you in past rent is leverage in your negotiation to relocate them.  Imagine thinking you don’t have to pay rent for six months and then you find out you owe $4,000 in back rent.  If you don’t pay you can be evicted.  Would you rather scrounge up $4K or get paid $4K to move somewhere else?

Man, I know this sounds harsh and most tenants aren’t in the real estate business like you are.  But when you’re making the biggest financial decision of your life, it’s important to know all of the rules involved, and which of them may be on your side.


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