How to Lease a Home in Pre-foreclosure

There are no laws preventing a pre-foreclosure home from being leased.

In some states, foreclosures can happen so quickly that you won't have the opportunity to rent. In states with longer time frames, you may not be able to keep the rent even if you do lease a property, if either your lender or homeowners' association has the authority to collect the rent payments from your tenants if you are delinquent in your payments. If this doesn't apply to you, go ahead and rent it; you are under no obligation to disclose that you're facing foreclosure.

Instructions

1. Read the mortgage document and homeowners' association rules. It's possible that your mortgage contains a receivership clause, which allows the lender to appoint a third party to collect the rent directly from the tenant and apply that money to any unpaid mortgage debts. In addition, if your state has experienced a large number of foreclosures, modifications to the state laws may have been enacted, which allow condominium associations and possibly single family homeowners' associations to receive the rent check directly from the tenant and apply the funds to unpaid maintenance or special assessment fees.

2. Hire an attorney to fight the foreclosure if there are no receivership concerns. There have been so many publicized irregularities in the way in which lenders handle loans, that it's entirely possible you can defeat the foreclosure action. At the very least, you're delaying the process, giving you time to collect rental income. This technique makes the most sense if the rental income is greater than the attorney's fee.

3. List the property for rent. In some states, the public may be able to search the tax records and they may see that a lis pendens -- litigation pending notice -- has been recorded on the property. This means that the foreclosure process has been initiated. However, unless state law declares otherwise, the homeowner is under no obligation to disclose the pending legal action. If a tenant is living in the property when you are initially served the court papers, the tenant will also be notified. But if you lease it after the fact, it may go unnoticed by the prospective tenant. Unless state law rules differently, a foreclosure notice is not a sufficiently legal reason for breaking a lease and, in some states, the process may take months or years.

References

• Bankrate.com: Foreclosure: Judicial or Nonjudicial?