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Old 03-21-2012, 12:50 PM
 
830 posts, read 1,151,057 times
Reputation: 550

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I am looking for a new apartment, and found a unit that I want to rent. However, when I was looking at the unit, the property manager told me that the land lord is going thru a foreclosure and will eventually lose the unit. The bank has not yet taken ownership of the unit. I am doing some research, and I would be protected by a law that was passed in 2009 that protects tenants who signed a lease before the bank takes ownership of the unit. The law would allow me to stay the full 12 months, even after the bank takes ownership. In addition, I am interested in purchasing the unit from the bank, after they put it on the market. My security deposit would be held in escrow by the property manager (not the landlord), which is the company that the condo association uses for building maintenance.

Having said all of that, has anyone done this before and if so, what pitfalls did you find? Normally, I would not be interested in renting a unit where the owner is already in the foreclosure process, but I am interested in this specific unit because 1. it is a great unit, and has everything I want, and 2. I want to buy the unit for myself once the bank puts it on the market.

Does anyone think this is a good/bad idea? Any thoughts?
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Old 03-21-2012, 01:02 PM
 
Location: CHicago, United States
6,937 posts, read 3,566,494 times
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This depends upon where in the foreclosure process the owner is. There's a huge backlog in the courts. Banks aren't anxious to take-back properties. If it's rented the bank may just let you rent it indefinately until the market turns-around. I'm the president of a large condo association here in the city and we've gone to court to get the right to rent units in arrears and which the banks have not taken possession. We give a month-to-month lease good for 13 months, after which we have to return to court for additional permission. The longest one of our renters has been in our owner-occupied building is 6 months now. The banks love the situation. Someone's in the unit taking care of it. Assessments are being paid. It'll be easier to sell down the road. One of the renters is talking with the bank which owns the apartment to buy it from the bank, at an attractive price and rate of interest. A win-win situation. I'm certain there are some stories where everything has gone wrong, though. Our experience, and the experience of the people we've rented to has been good ... thus far.
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Old 03-21-2012, 01:25 PM
 
830 posts, read 1,151,057 times
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GoMexico - very interesting!! Thanks for this info!! This makes me feel better about renting it. I had a looong list of questions for the lady from the management company and she answered most of them in the affirmative for me. Some of my questions were like "When the bank officially assumes ownership, is the sherriff going to change the locks and have a cleaning crew remove all my stuff?" She said no, Cook County is not doing that AT ALL at this time. It was things like that, that concerned me, in addition to possibly having to move again in 12 months (which is a pain). So, this is good news.
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Old 03-21-2012, 05:08 PM
 
Location: Hyde Park
288 posts, read 418,765 times
Reputation: 173
There are Realtors on this forum and they can give their experience with renters purchasing a rented bank-owned property. I am a mortgage banker. There is a term called arms-length transaction that refers to the relationship between buyer and seller. Mortgage companies want transactions between parties that do not have a relationship. FHA allows non arms-length transactions, but it requires 15% down payment instead of 3.5%. Fannie/Freddie allow non arms-length transactions, but they want to see that the current loan on the property has been 0x30 days late in the last 12 months. The way they know it is a non arms-length transaction is when your bank statements (Driver's License, pay stubs, etc) have the same address as the property.

I have no idea how it would be treated if the bank owns the property for the 12 months before you purchase and there is no mortgage to verify. Here are some other random issues:
* FHA has an approved condo list www.tinyurl.com/BancorpCondoCheck (broken link) . Your association needs to be on there to get FHA financing.
* Fannie/Freddie have a condo questionnaire. It asks questions about the percentage of renters, the percentage delinquent on assessments, reserves of the association, etc. If the answers are not what they are looking for then you can't get a Conventional loan. PM me and I will send you the form.
* There is no guarantee that the bank will work with you to buy the place just because you live there. There are stories about banks holding on to foreclosed properties and selling them on their own timeline. They don't want to compete against themselves by selling too many properties in the same neighborhood at once.

Good luck!
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Old 03-21-2012, 09:02 PM
 
58 posts, read 78,344 times
Reputation: 39
I researched subject same time ago and find same answers in this article RIGHTS OF TENANTS WHEN THERE IS A FORECLOSURE | Tucson Real Estate Attorneys
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Old 03-21-2012, 11:41 PM
 
147 posts, read 197,840 times
Reputation: 78
I list foreclosures for a couple of bigger banks and the banks that we deal with will offer the tenant cash for keys. If tenant rejects the offer then they proceed with eviction, which can take a few months. If the bank does not own it at this point you probably have enough time.
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Old 04-03-2012, 04:06 PM
 
105 posts, read 152,935 times
Reputation: 64
The biggest issue would be dealing with the large number of showings..
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