“I have a friend right now who is in serious financial trouble because his mother-in-law is demanding to be repaid the down payment she loaned them.”

“I have a friend right now who is in serious financial trouble because his mother-in-law is demanding to be repaid the down payment she loaned to them (they thought it was more of a gift). This amount is basically all the equity they have so, if they are even able to sell the house for what they paid for it, they’ll be screwed. It has also ruined the relationship between the siblings. I can imagine this playing out more frequently if house prices take a significant hit.”
Observer at VREAA 23 Jun 2012 3:08pm

27 responses to ““I have a friend right now who is in serious financial trouble because his mother-in-law is demanding to be repaid the down payment she loaned them.”

  1. yltnboomerang

    Does anyone know what happens if you are renting and your landlord goes broke and the bank forecloses? Do you write your rent cheques to the bank, or do you just stop writing cheques and squat?

    • Stop paying and squat. If you know your landlord bankrupted do not pay him anymore rent. He cannot collect it anyway as it belongs to the trustee. The property will be in limbo for up to a year during which time pretty much nothing happens except you live rent free and it is unlikely anyone will go after you (except to send an eviction notice).

      • I don’t think so farmer. The bank (or bankruptcy trustee) will expect rent to be paid according to the original lease, and will pursue you for the missing funds. The rental income becomes part of the “assets” seized by the creditor.

      • RagingRenter, how does the bank get a copy of the original lease, or is the landlord required to cough it up during bankruptcy/foreclosure? I agree in principle though.

      • They don’t teach this in school, Raging, but Trustees are far too busy and the process is not really set up as a collections agency. Although they do have the power it is not generally executed and in the meantime month after month passes as the process works its way through the system. It is not like they come to your house with an eviction notice and give you ten days notice to leave when you miss a payment like the landlord does….and even if they do you can overhold, argue and delay which still does not mean you pay in the interim. In any case, they generally don’t want the home vacated while the process is before the courts so you stay on until the bank actually takes possession and/or puts the house for sale.

      • Maybe the banks in Canada will be more efficient, but you might prepare for the opposite problem: people renting out empty foreclosed houses that they don’t even own.

  2. You write cheques to the bank, or who the bank appoints to manage the property. The agreement you had with the foreclosed landlord remains in effect, so the bank can’t evict you if you keep paying the rent. For many tenants, the bank will be an improvement. If repairs need to be done, they will get done.

    • What if it is an “undisclosed” basement suite?

      • Good question. No bank in their right mind will summarily boot a tenant to the curb. They have to think about public relations and legal complications. It will be cheaper for them to assist in relocations (perhaps to another bank-owned property) then deal with bad publicity. You’d think they do something like that. But that is just a guess.

    • Nope, if its gone to bankruptcy there is a long period of time before the bank acquires it and takes over management or lists it for sale. It is all in the hands of the trustee. Kind of a grey zone where nobody has ownership once the landlord drops the keys and walks away. It all gets processed in the courts eventually. Then one day many, many months later someone will show up to assess it for sale on the banks behalf. They then inform the bank or trustee you are living there and you get evicted if you don’t make the payments. They could sue but don’t because your original lease contract was with a bankrupt and the agreement is frustrated by his/her default. Seen it in action. In the meantime…you live rent free. Its a gift. Take it.

  3. Carioca CAnuck

    You write the cheque to whomever is listed on the “Assignment of Rents”: which is a legally binding document, isued by the courts, normally at the request of the forecslosing bank. As the tenant you will be served with this order usually within a week or two of the foreclosure process having started.

    Having worked as a mortgage banker and foreclosed on many a home (hundreds in fact) we didn’t bother with repairs at all, and in fact, preferred a vacancy to a tenancy for many reasons.

    • Ralph Cramdown

      I’ve wondered about this, too. I assume banks wouldn’t have a copy of the lease, and the FC’d property owner wouldn’t be helpful or forthcoming, nor could the tenant necessarily be trusted –or forced — to produce an accurate lease. How do you know what the rent is, either as the bank or the amateur landlord who buys a tenanted FC?

    • Are you guys efficient in BC or what?

  4. Carioca Canuck

    I should add, in light of the previous comment, that we didn’t kick people out unless they were in arrears, but after they were served with the assignment of rents, they usually left of their own accord within 30-60 days anyways, because moving sooner to a more stable landlord/tenant situation, was better than waiting and knowing you’d most likely moving later on anyways.

    • What happened when they didn’t leave of their own accord?

      • Good question Zeb. And I will add, how long was it before you served the tenants with notice (from which point they still hung on for 30 to 90 days)? What I am pointing out is that many months go by before anything happens and in the meantime any and all rent techniccaly (and legally) belongs to the Trustee for bankruptcy not to the bank or assignee or original owner or his dog or anyone else.

      • I doubt the bank will let rent income go that easily. Doesn’t money collected by the Trustee eventually go to the bank? As for how long to process takes, I guess that will change as the crisis deepens. So yes, it could end up being a long time in limbo. Tenants better makes sure they know what they’re doing, but should take every advantage they have.

      • Don’t doubt it Zeb. It is all water over the dam at that point.

  5. The renting procedures are more complex today then ever. If you’re under 29 the landlord may have a rental agreement that imposes payment from family members. I’m witnessing this right now. The 19 year old in this case has his grandmother co-signing the rental agreement, where the stipulation is that the landlord can garnish the grandmothers pension for any rent missed or damage to the property while the grandson is tenanted.

    The lesson here is that the landlords are as crafty as the banks in their use of ‘derivatives’ to hedge their enormously leveraged property’s. The language in the rental agreements make your blood chill. I’d offer up some astrology to explain this but the forum can’t handle it.

  6. I realize some you doubt what I am saying. As proof of my point though I will point you in the direction of the US where homes in foreclosure continue to be occupied by both tenants and owners for YEARS with no repercussions. It is a no-mans land. There are book rules and then there is the real world. I am trying to tell you about the real world because a good education has obviously messed up too many minds and turned this whole society into rule-based zombies.

    • Parents of a friend of mine have been living rent free in Colorado since 2008, now, after bank foreclosure. It’s wild – that’s a lot of years. They have taken over paying water/sewage/utilities, but other than that, nada.

      Each month, I’d be thinking “Is this the month they catch up?”, but my friend says the parents have downsized their stuff and have stored the photos/heirlooms offsite in case they come home one day to locks on the doors – otherwise they don’t really care. Seventy grand worth of free rent moderates their anxiety, I suppose.

    • The US banks have incentives to be zombies though. They are trying to avoid marking assets to market. The Canadian banks have the CMHC which will cut them a cheque at the end of a process. They may have incentives for quick turnaround.

      • This will be true until timely processing threatens to flood the market and drive prices lower even faster, devaluing the other foreclosures in their own pipeline. I could see CMHC holding houses off the market to control the supply side. Doesn’t mean they won’t kick people out of them. Odds on they will not be in a position to become real landlords, or want to be. So I’m assuming they will sit on empty houses.

  7. The relationship must have gone sour. In normal circumstances, even if it wasn’t a gift, they could have given their children interest-free loan as a down payment. I know several white families in West Vancouver who bought their children cars as a graduation gift or on their 21st birthday and so on.

  8. These pretzels are making me thirsty

    “I know several white families in West Vancouver……..”

    Really funny…dude!!

  9. My close friend is a mother who took HELOC to make a downpayment for her daughter’s family home in Richmond 4-5 years ago -an older house on a good lot with 2 small rental sutes downstairs. Now she (like the one in the headline) is asking her money back. Their paper equity got a good rise in these years from 530 K to about 800K (unlike the ones that bought later last year that are flat or even lost some%), and they payed out about 80K in addition to that. So she thinks that they are ready to withstand the correction (although she does not believe it is going to be a big one) – is she correct here?
    I am curious what their monthly payment is going to be now and if the bank is going to change the rate..I’ll let you guys know when they are done with the paperwork. This approach – HELOC from the parent’s home plus they co-signed on a mortgage – worked well for a very short time in Vancouver RE when it was growing, to help the kids to remain close to the parents. Now it is over.

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