Question: Here is the situation:
I bought a condo in CA and lived in it for 6 mo, moved out and rented it for the last 2 yrs to a couple who cover 80% of my mortgage.I claim it as income property on taxes. My “interest only” loan caps in 2 mo., then payments increase 2 1/2 times the amount I am paying. I cannot afford this. The bank wants me to do a short sale. The house is worth 75,000 less than the loan. I am not in default yet. Here are my questions: Should I tell the tenants to move, if so legally how many days notice? Do I keep making the 80% payments when the payments increase? Should I keep my property manager? He takes 8%. If I keep 2 mo. rent to refund the tenants their deposit is that considered “rent skimming”?
Answer: – Even if you make 80% of the payment, they will initiate foreclosure unless the other 20% is a 2nd mortgage in which they could initiate foreclosure, but will most likely just write it off and 1099 you for the amount they lost. Depending on how many properties you have now and the tenants you have living in your property, you definately want to consider whether or not to use a property manager. Some tenents you never hear from, others are constantly bugging you in which case a property manager is worth every penny. As for rent skimming, here is what it says under California Civil Code 890…
(1) “Rent skimming” means using revenue received from the rental of a parcel of residential real property at any time during the first year period after acquiring that property without first applying the revenue or an equivalent amount to the payments due on all mortgages and deeds of trust encumbering that property.
(2) For purposes of this section, “rent skimming” also means receiving revenue from the rental of a parcel of residential real property where the person receiving that revenue, without the consent of the owner or owner’s agent, asserted possession or ownership of the residential property, whether under a false claim of title, by trespass, or any other unauthorized means, rented the property to another, and collected rents from the other person for the rental of the property. This paragraph does not apply to any tenant, subtenant, lessee, sublessee, or assignee, nor to any other hirer having a lawful occupancy interest in the residential dwelling.
(b) “Multiple acts of rent skimming” means knowingly and willfully rent skimming with respect to each of five or more parcels of residential real property acquired within any two-year period.
(c) “Person” means any natural person, any form of business organization, its officers and directors, and any natural person who authorizes rent skimming or who, being in a position of control, fails to prevent another from rent skimming.
You may want to see if you can resolve this with your tenant and let them know of the situation, at least that way they know what’s going on.