These past few years, with all the economic troubles and plummeting housing prices, a new phenomenon has emerged for some property owners — the accidental landlord. The accidental landlord is a homeowner who was trying to sell his or her house, but just could not get it sold, so instead, the homeowner decided to rent the house out. This generally will not impact renters, but in some cases, it could.
The term "accidental landlord" implies that the individual became a landlord by mistake. This is partially true, as most of these landlords never had any intention of being a landlord. Typically, these people bought their property between 2004 and 2007, but then the market plummeted, so when they tried to sell their properties, no sale was possible. To make the best out of the unfortunate situation, these homeowners ended up renting out their unwanted home, with a general plan to try to sell it again in a few years when the market improves.
However, the problem with this strategy is that being a landlord is generally hard, stressful, and time-consuming work. In addition, accidental landlords, since they never intended to be landlords, typically have little knowledge about what all goes into owning and renting real estate. Also, many of these accidental landlords were already in financial trouble or had to move out of town, adding to the stress. To better understand the issues involved with being an accidental landlord, you might want to read this article in Marketwatch.com.
But how does this concern you as a renter? For one, all of the problems accidental landlords face can cause your own accidental landlord to be less than responsive to you if there is something that needs attention. A good solution that some accidental landlords use is hiring a management company to handle the property, which should reduce a lot of the potential issues you could experience as a renter. But if the owner is managing the property themselves, there is a greater risk that you could experience some of the following troubles.
If the property was leased to you through a management company, that company should do a professional job of working with you and handling normal tenant issues when they arise. They have experience and are usually very responsive to tenants as that is their duty to fulfill their management agreement. They may also have control of the security deposit, which is a big plus for you in case the landlord ends up losing the property to foreclosure, as noted below.
However, if the individual accidental landlord decides to manage the property himself to save money and he’s never been a landlord before or does not live in the area, he may not do a very good job of being attentive to any property issues. These issues could be water or electricity problems that need immediate repair. This means that it might take some time to get an absentee and generally uninterested landlord to handle it, so you may have to get it fixed yourself. You may have the right to withhold some rent due to this, but either way, it is going to be a hassle for you as tenant.
Another concern is the possibility that the owner might stop making their mortgage payments. This would cause the property to fall into default, and probably result in foreclosure. In this scenario, you may be in tenant limbo for a while, though you'll likely eventually have a new property owner take over. This may still not cause you any substantive issues, but it certainly could, especially with respect to your security deposit. You'll likely have to try to get your security deposit back from your original landlord, as the new owner probably has no responsibility to repay you. And unfortunately, since the original landlord who held your security deposit lost the property, you'll likely never see that money again. You may be able to negotiate something with your new landlord with respect to a lease term and security deposit, especially if it is an investor planning to rent out the property, but it may be wholly up to you to work a fair deal with that person.
Also, your lease may or may not be void at that point due to the foreclosure, depending on the state you live in. The new owner may honor your lease term, but not necessarily. A new owner may raise the rent on you as soon as they can, which could be in just a few short months in some states. You would be able to just say no thanks and vacate the property, but moving is expensive and if you had planned to stay in the unit for a while at the original agreed upon rent, this will be an unwelcome expense. You may also have to vacate the property in a relatively short period of time, like 30-60 days. Google your state laws for more information on what is expected if this happens to you.
To protect yourself from any potential issues that could arise from having an accidental landlord, see if you can rent from someone who is at least managed by a management company. If the accidental landlord does not have a management company, you might want to pass on renting that property. In addition, make sure that under the rental agreement that your security deposit is to be held in trust by the management company and not the owner. This will increase your chances of getting your money back if the property is lost to foreclosure. You may also want to learn your state’s rules on the validity of lease contracts if a property is foreclosed upon, so that you'll be aware of what your options are if your current owner loses the property. With all that information, you can make the renting decision that best protects your interests.