Q: I'm in the market to buy a new investment property in Las Vegas. I'd like to buy a home with a tenant already living in the home, but I've heard from others who have purchased short sale homes that current homeowners are not allowed to stay in the home and lease the property. Can you please advise me?
- Greg P., Houston, Texas
A: As you suggested, people who sell their home as part of a short sale are generally prohibited from remaining in that property as tenants.
I'm not an attorney, so I can't give you legal advice. I can only tell you what I've seen in short sale transactions.
In a real estate transaction, all parties are asked to sign an "arm's length" document stating that no one involved in the sale of a property is related in the transaction and that there are no side agreements between the principals. This document also requires all parties involved in the transaction to confirm that the seller is not remaining in the home as a tenant.
We've seen lots of news lately about homeowners becoming tenants and about short sales, which occur when a lender agrees to sell a property for less than what the borrower currently owes on the mortgage.
For instance, Bank of America recently announced a pilot program where it is offering borrowers who meet its criteria the opportunity to present the bank with a deed (to the property) in lieu of foreclosure for the right to remain in their current home and rent it from Bank of America.
When the bank announced this program in March, it indicated it will be offering this "Mortgage to Lease" option to fewer than 1,000 of its borrowers in Nevada, Arizona and New York. Those selected by the bank will have to transfer the title of their homes back to Bank of America to have their mortgage debt forgiven.
Homeowners can then rent their homes for up to three years at or below-market rental rates for their area. As tenants, according to bank officials, these former homeowners will pay less than what they paid in monthly mortgage payments, and they will not have to pay property taxes or homeowner's insurance.
Here in Nevada, a new state law known as Assembly Bill 284 took effect on Oct. 1, 2011, to address the so-called robosigning scandal.
The law requires lenders to prove they have all the necessary documents in place before proceeding with a foreclosure.
Since the law took effect, we've seen a dramatic drop in the notices of default banks file to begin the foreclosure process and in the number of bank-owned homes being put on the market in Southern Nevada.
Among other things, this new law requires lenders seeking to foreclose on a property to sign and file an affidavit stating that they possess or know the location of the original signed deed of trust on that property.
This more stringent requirement could prompt lenders to find alternatives (including short sales) to actually going through the foreclosure process.
Our local housing inventory is now lower than it has been in a number of years. But even when we had more homes to sell, we have always had rental properties occupied by tenants that would come up for sale.
If a tenant is already renting the home, there should be no problem negotiating a new lease that will allow that tenant to stay in the home upon transfer of the title to the new owner.
Kolleen Kelley is the 2012 president of the Greater Las Vegas Association of Realtors and has worked in the real estate industry for more than 30 years. GLVAR has nearly 11,000 members. To ask her a question, email her at firstname.lastname@example.org. For more information, visit www.lasvegasrealtor.com.