We have assisted several clients with finding properties but it wasn’t until recently we started setting up lease agreements in a way that protected the renter in case of owner default. Many of our clients would put several months of payments up front to show good faith to landlords for bad credit. Sometimes, we had high value clients put upwards of 3 months rent at 3500 per month. That’s several thousand dollars at stake and what’s worse, is there was really no way to know if the owner was not making payments on the home. We received advise from one client and his attorney to setup an escrow account with the upfront rental payments and allow the owner to draw from the funds on a monthly basis.

As long as the owner stayed in good standing with his mortgage, the funds would be dispersed from the title company. In the event the owner foreclosed and the tenant was forced to leave, the funds would return to the tenant. This is the safest way to protect yourself when paying several months in advance. A special thanks goes out to our recent high value client for this idea and his attorney.
Another great concept brought up is having an outside credit company monitor the landlords credit during the lease commencing. In the event, the owner stops paying on the mortgage, the credit company would contact the tenant and advise them of the delinquency.
The tenant should also be aware of their rights during a foreclosure. If the owners mortgage note states the lender will honor current leases on the property then the tenant does not have to worry. The tenant can obtain any owners mortgage note by visiting maricopa.gov and reviewing the recorded paperwork on the property. Each property owners mortgage note is recorded and can be found at maricopa.gov.

Any clauses to protect the tenant will be located in the mortgage note, and possibly the deed of trust. Review both and look for any clauses that state, “lease, leasee, or leasor.” Other terms to look for include, Eviction, foreclosure, conveyance, trustee, trustor. If you have been served an eviction notice on the home you are renting, then it’s imperative you research this soon. Timing is of the essence.

Many of our clients renting homes are concerned the landlord could foreclose on them after they have moved in. Some of our clients are paying up to 3 months in advanced rent just to contract a home because of a recent foreclosure on their credit. A client paying $3500 per month in rent and 3 months up front could easily go to a landlord that’s delinquent on their mortgage payments. The only way to protect the tenant from the landlord foreclosing is to request a Verification of Mortgage or VOM. A VOM can be requested by the tenants broker representing them in the transaction and should take a couple days at most to complete.

A VOM will show the landlords payment history for the previous 24 months. This should give a clear idea of how the mortgage payment was paid and what the stability of the landlord is.

Another good strategy for a renter paying a lump sum upfront is to write in the lease agreement the funds being advanced will be placed in an escrow account. Once they’re in an escrow account the funds can be withdrawn monthly by the landlord. This protects the renter from a landlord that could collect all the funds and then bail on the property. For more information regarding a VOM or for assistance with searching for a rental, please contact us.