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Posted On: 06/24/2009

Q: I keep hearing about banks that receive offers for homes and then take less when homes are sold at auction. I don’t get this. Aren’t banks supposed to get as much as possible for each home they foreclose?

A: These stories pop up with great consistency. Some are urban legends, but others are documented and true.

I’m in the camp that says that lenders must seek as much as possible when marketing a foreclosed home. Here’s why.

First, if the property was financed with a loan owned by an investor or within a mortgage-backed security, you can bet that the loan owner wants to offset any losses.

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Second, if the loan is actually owned by the lender then, again, the lender should want as much as possible to offset losses, otherwise the company shareholders will be hurt.

Third, in a foreclosure situation the property owner is supposed to get any money left over from the sale. By not seeking the maximum sale price the lender is hurting the interests of the former owner, interests which should be seen as real.

Fourth, while the government no longer tries to tax unpaid mortgage debt when a private home is sold, there are other tax issues. The loan investor is getting a larger write-off because the loss is not being minimized, meaning that Uncle Sam is collecting fewer dollars. In the case of an investment property, the investor can owe taxes on unpaid mortgage debt, therefore the possible tax bill will be larger than necessary if the lender does not get the maximum value for the property.

Q: I’m a landlord who reduced the rent on the home I own in return for lawn maintenance and snow removal, all duly noted in the lease. My tenant’s son is questioning my ability to impose this requirement. At the same time, the tenant is months behind on the rent but recently became a Section 8 resident. How delinquent does a tenant have to be before a landlord can begin eviction proceedings?

A: Many jurisdictions have extensive protections in place for tenants, but typically those protections do not apply when rent is not paid. Many jurisdictions also have careful and cautious eviction policies in place, rules and regulations that must be followed with care.

The wording of most residential leases provides that the rent is earned, due and payable as of a certain date. Payment after that date is literally “late,” though most leases also provide a grace period. As a landlord you want a grace period to avoid needless bickering and arguments.

Both landlords and tenants have a mutual interest in avoiding evictions. Such events can make it difficult for tenants to find a replacement residence and can leave landlords with a vacant property, no income and a place in need of costly fix-up and repair before it can be re-let.

Once the grace period has passed a typical lease allows the landlord to collect late fees. Late fees can be seen as a way to enforce timely payments, but the reality is that most tenants know when the rent is due and want to pay it. Charging a late fee just makes things harder for tenants who may have run into a financial glitch of some sort.

Landlords, depending on the lease terms and what’s locally allowable, can begin an eviction the moment a tenant is late. This is not an option to be favored; it’s an absolute last choice because it likely means significant owner costs and the loss of income.

In your situation you want to contact a real-estate attorney for advice regarding local eviction requirements and your right to claim deposit money. Once you decide to evict then contact the Section 8 administrators and explain that the tenancy is over. They will stop sending checks. Your attorney may advise that you confirm your conversation with Section 8 authorities by sending them a certified letter with a return receipt requested.

As to the snow removal and the lawn mowing issues, forget them. Just stick with the failure to pay rent. It’s a basic lease requirement and something everyone can understand.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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