Tenants and Selling the Sacramento Short Sale

Dealing with tenants in a short sale can be tricky. The first problem that often pops up is when the tenant learns that the home is on the market as a short sale, sometimes the tenant will stop paying rent, which is a big no-no. Tenants in a short sale are required to pay rent whether the home is a short sale or a regular transaction, it makes no difference. It also makes no difference whether the seller is current on the mortgage payments. No place in the rental agreement does it state that the seller is required to pay the mortgage lender. But tell that to the guy who answers the door at noon: a burly dude with wild hair who looks like you just woke him up, straddling the threshold by hanging on the door jamb with one arm and scratching his belly with the other, showcasing a pack of cigarettes rolled up in his t-shirt cuff.

With a wistful sigh, I’m sad to report that the days are gone when you could threaten to take a tenant for a walk in the river in cement shoes or haul him out back by his shirt collar and break his knee caps. Today, even the loser tenants have rights. Which I suppose is necessary for us to continue functioning and living in a somewhat peaceful society.

Tenants in a short sale also don’t like to cooperate with showings to potential buyers. They’ll often try to thwart the deal if they can be creative enough or they’ll just bolt the inside door when agents show up. I’ve seen some put signs on the door that say a pit bull lives there. Pit bulls are generally sweet little dogs, unlike some tenants. The tenants’ reasoning is there’s nothing in for them. In fact, if somebody buys the house, the new owner might increase the rent or, worse, evict them for non-payment of rent.

Then, you can throw rental deposits and rental prorations into the mix. But when it’s a short sale, the seller is prevented from contributing to a short sale. Moreover, if there is any money deposited into escrow, the bank will typically want it. It’s generally much easier if such matters are not complicating the short sale and clarified upfront.

Sellers can ask tenants to cooperate with a short sale by giving the tenants what they want most:

• money
• reassurance
• little inconvenience

This can be accomplished by letting the tenant use the security deposit as the next month’s rent, for example. Now, there is no security deposit to worry about transferring in escrow. Sellers can also offer tenants a rent reduction in exchange for cooperation. Showings can be set up to happen on a particular day of the week at a certain time, to lessen the intrusion of personal space. You need to work with the tenants in a short sale because they are your tenants. Either that, or kick ’em out and put the home on the market as a vacant home. But then you might worry about security and vandalism.

The point is you should work with your tenants if you’re going to do a short sale. Just don’t spring it on them and expect them to cooperate and play nice, because they might not. Tenants could create a barrier between you and your short sale approval.