Foreclosure and Rental…

Several clients saw the attached video clip and wanted to discuss the ramifications with their houses.;contentAux

The foreclosure crisis, and I call it a crisis because of the fact that it is happening all around to everyone, has the potential to affect the rental market. As highlighted in the video homeowners who are choosing to walk away are not going to be able to buy a house any time soon unless they have tons of cash. These ex-homeowners are most likely going to rent their next abode. A consistent fear for most landlords is whether a tenant will be able to pay. Because most ex-homeowners were not paying their mortgage for the last several months (strategic default) they have accumulated a healthy reserve for rent. At the same time, a landlord can logically infer that a potential tenant who just lost their house may not be the most responsible tenant to rent to. If the ex-homeowner just walked away from a legally binding contract with the bank why not walk away from a lease just as quickly when something else comes up? A simple solution for many landlords is to get more money on the front end of a lease. Although a potential tenant may not want to provide several months of rent up front, this may be there best bet to assure the Landlord that they are serious tenants. Another approach would be for a potential tenant to explain the business decision behind walking away from their previous house and make the Landlord better understand the rationale. The potential tenant can explain to the Landlord that they are actually stuck for several years at their next rental unit as they cannot come up with enough cash to purchase their next home, and that it takes a while for their credit score to bump back up. Until that time (which could be several years) the Landlord can perhaps be more assured of a good long term tenant.


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