Can I get the bank to allow me to rent out my place?

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Can I get the bank to allow me to rent out my place?

Postby SamGamgee » Sat Aug 31, 2013 9:17 am

I am interested in renting out our primary residence, which was just refinanced. It's a condo. There's no extenuating circumstances, but we would like to move closer to the private K-12 school my children will be attending beginning this year. We haven't advertised, but we happen to know someone that is interested in renting it.

The refinance mortgage language says: the borrower...

"shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control."

Ultimately I suppose that I'll have to speak with an attorney about it, but I thought I would sound out the bogleheads first. What do you think is the proper legal interpretation of "unreasonably" in this case? I may be biased, but I can't think of a reason why it would be reasonable for the lender not to allow us to rent the place out. What do you think -- Is this something I could probably get taken care of for a few hundred dollars worth of attorney costs?
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Re: Can I get the bank to allow me to rent out my place?

Postby Cherokee8215 » Sat Aug 31, 2013 9:29 am

Unless either you are dealing with a bank located across the street from the house, or you stop paying the loan, they aren't going to have any idea that you're renting it out. Just step back and think about it. There is no bank "rental prevention inspector." Just make sure you keep your loan-related mail going to the house and not some other address.

This "clause" was violated en masse during the bubble. I'm not advising you to cheat, but just trying to be practical about the situation.
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Re: Can I get the bank to allow me to rent out my place?

Postby prudent » Sat Aug 31, 2013 9:29 am

Are you going to get a mortgage on the place you're moving to?
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Re: Can I get the bank to allow me to rent out my place?

Postby SamGamgee » Sat Aug 31, 2013 9:31 am

prudent wrote:Are you going to get a mortgage on the place you're moving to?


It's possible, but we have the option to rent a place in our desired area on a month-to-month basis while we do a house search.

EDIT: within the first year some time we would probably get a mortgage on a new place.
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Re: Can I get the bank to allow me to rent out my place?

Postby SamGamgee » Sat Aug 31, 2013 9:33 am

Cherokee8215 wrote:Unless either you are dealing with a bank located across the street from the house, or you stop paying the loan, they aren't going to have any idea that you're renting it out. Just step back and think about it. There is no bank "rental prevention inspector." Just make sure you keep your loan-related mail going to the house and not some other address.

This "clause" was violated en masse during the bubble. I'm not advising you to cheat, but just trying to be practical about the situation.


Yes, you are advising me to cheat. No thanks.
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Re: Can I get the bank to allow me to rent out my place?

Postby ResearchMed » Sat Aug 31, 2013 9:35 am

"... at least one year after the date of occupancy ..." [emphasis added]

When did you actually first occupy this property?

To be on the safe side, you could ask an attorney how "occupancy" is determined. The wording doesn't specify "from date of financing".

RM
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Re: Can I get the bank to allow me to rent out my place?

Postby dickenjb » Sat Aug 31, 2013 9:38 am

I am not a lawyer but I negotiated a lot of contracts that included language like this.

Basically there is a spectrum of language and this set of language is pretty good for you.

"In the bank's sole discretion" is the worst. That means the bank can turn you down for permission to rent "just because" - they are having a bad day, they flipped a coin and it came up heads, or no reason at all.

"shall not be unreasonably withheld" means they have to justify saying no. This is favorable language to you.

Like you, I would not cheat. While the likelihood of being caught is low, the consequences could be high. I don't have your mortgage docs in front of me, but I bet you could be declared in default and the entire mortgage would be due and payable.
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Re: Can I get the bank to allow me to rent out my place?

Postby dm200 » Sat Aug 31, 2013 10:59 am

1. If you have not already done so, make sure there are no restrictions, limits or caps on renting the Condo.
2. In the last several years, in response to the financial meltdown relating to mortgages, real estate valuations, and related - the rules and practices on mortgage lending have expanded greatly. What is now very common is for the mortgage lender (and other interested parties) to follow-up AFTER the mortgage is disbursed and re-verify a lot of the information about the applicant(s), such as income, assets, and so on. In my opinion, it is much more likely that if you rented within the prohibited year, that the lender would discover this - than would have been the case a few years ago.
3. Thee may be (can't give a concrete example) some "creative" ways to live up to the letter of the contract for the first year, while still accomplishing your desire to move. Maybe something like "renting" to someone, while still maintaining some degree of "presence" there that keeps your "primary residence". Something like that would probably be difficult, unless your "rental" was to a relative with whom you have an excellent relationship.
4. I suspect (not 100% sure) that a big concern of the bank is that you did not have all this planned in advance of the re-finance. If or when you approach the bank, state your case so that it does not appear that this was "pre-meditated". I suspect that the language in your contract may be required for the loan to be sold.
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Re: Can I get the bank to allow me to rent out my place?

Postby SamGamgee » Sat Aug 31, 2013 11:09 am

dm200 wrote:4. I suspect (not 100% sure) that a big concern of the bank is that you did not have all this planned in advance of the re-finance. If or when you approach the bank, state your case so that it does not appear that this was "pre-meditated". I suspect that the language in your contract may be required for the loan to be sold.


I stated on the refinance that I intended to occupy the place, and that was certainly true at the time, but unfortunately I cannot really prove that, can I? This is a big concern of mine -- not that is was pre-meditated, but that it is so soon after the refinance that I would be creating the appearance that it was premeditated. This gives them more leverage than the mortgage language seems to imply. If they wanted to fight me, they wouldn't have to prove that they were acting reasonably. They would just have accuse me of lying on the loan application, and it's possible I'd end up in court putting my word against theirs. Even if I'm technically in the right, I'm not sure I want to risk that.
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Re: Can I get the bank to allow me to rent out my place?

Postby prudent » Sat Aug 31, 2013 11:41 am

SamGamgee wrote:
prudent wrote:Are you going to get a mortgage on the place you're moving to?


It's possible, but we have the option to rent a place in our desired area on a month-to-month basis while we do a house search.

EDIT: within the first year some time we would probably get a mortgage on a new place.


I asked because my thought was that the bank may have legit reasons to withhold consent if they knew you planned to carry two mortgages (depending on DTI, etc.).
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Re: Can I get the bank to allow me to rent out my place?

Postby Cyclone » Sat Aug 31, 2013 11:52 am

Believe it or not, banks do check (or at least they are supposed to). That is one of my responsibilities at the bank where I work. I don't do a rental inspection. I review if the customer's mailing address has changed to another location, or if the type of insurance policy has changed. For example, maybe a clause has been added for "loss of rental income".

What would happen if it appears that the original owner no longer occupies the home? I don't know, that hasn't happened yet. We sell the loans to Fannie Mae and I know they would want to know about it.

I think it would help your case if you went to the bank with a signed lease. They are mostly interested in making sure there is enough income to repay the loan.
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Re: Can I get the bank to allow me to rent out my place?

Postby BolderBoy » Sat Aug 31, 2013 10:17 pm

SamGamgee wrote:What do you think -- Is this something I could probably get taken care of for a few hundred dollars worth of attorney costs?

If the refi is with a brick and motar establishment nearby, I'd simply take the contract, make an appointment to chat with a loan officer, explain what's up and see about a written waiver.

Business-like behavior is generally rewarded.
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Re: Can I get the bank to allow me to rent out my place?

Postby eddiejov55 » Sat Aug 31, 2013 11:01 pm

Do you have an FHA loan? There are a lot of condo developments that have very strict owner/rental policies due to Government requirements for associations dealing heavily in FHA loans. Not sure of the specifics (perhaps the rules differ by state) but I believe that something like 90% of units must be owner occupied for the condo association to be allowed to offer FHA loans.

There are some really smart real estate people here, so maybe they can shed more light on this...
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Re: Can I get the bank to allow me to rent out my place?

Postby playtothebeat » Sat Aug 31, 2013 11:41 pm

Reach out to your bank and ask. If they say no, they have to show that their rationale is "reasonable" (meaning, it is something that other market participants would agree to be a common practice). The bank will also have to give you an answer in a timely manner (i.e. they can't withold their answer for 9 months - you would likely argue that that is considered "unreasonable").

In my line of work (commercial real estate lending), this is one of the most negotiated points in just about ever loan agreement. Truthfully, the concept of "reasonable" comes down to a judge's or jury's interpretation, which varies from one judge/jury to another. However, its intent is to be in-line with the rest of the "market" (which, of course, is a very broad term..) for a similar transaction.
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Re: Can I get the bank to allow me to rent out my place?

Postby lindisfarne » Sun Sep 01, 2013 5:55 pm

How long until the year is up? Why not just wait? You say you "just refinanced" but if that refinance was less than 6 months ago, didn't it occur to you then that it would be nice to be closer to the school? Usually you have to apply to private schools by about January.
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Re: Can I get the bank to allow me to rent out my place?

Postby SamGamgee » Mon Sep 02, 2013 10:11 am

lindisfarne wrote:How long until the year is up? Why not just wait? You say you "just refinanced" but if that refinance was less than 6 months ago, didn't it occur to you then that it would be nice to be closer to the school? Usually you have to apply to private schools by about January.


Refinanced about 15 days ago. We signed up for the school in, I don't know, July or some such. Of course it occurred to us that it would be nice to be closer, but we think it's worth it to send our kids there either way. The question of where we live is secondary.
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Re: Can I get the bank to allow me to rent out my place?

Postby Gus » Wed Sep 04, 2013 8:58 am

SamGamgee wrote:
lindisfarne wrote:How long until the year is up? Why not just wait? You say you "just refinanced" but if that refinance was less than 6 months ago, didn't it occur to you then that it would be nice to be closer to the school? Usually you have to apply to private schools by about January.

Refinanced about 15 days ago.

Your date of occupancy is not the date that the refinance was closed. It is the date you moved into the condo. If you moved in more than a year ago you are fine.
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Re: Can I get the bank to allow me to rent out my place?

Postby DiscoBunny1979 » Wed Sep 04, 2013 11:41 am

In my opinion, most people know what they are signing, but they sign anyway to get the loan. Then, after the fact, they want to find a loophole to escape from the contract. While banks usually don't follow up to see if someone is 'renting' out the house . . . sometimes the Insurance Company does follow-up to determine if the 'owners' are tearing out walls and renovating the place, or if there are dog exclusions, to see if any dogs are on the property. This could cause cancellation of an Insurance Policy. A Condo might be a different story, with the problem of the 'association' - following their rules IF property can be rented out and to whom.

The question is, does the OP want to risk renting the property out to people that might cause cancellation of an Insurance Policy, or cause disruption to the Condo/home situation that might require the association to revoke membership and therefore force the sale of the unit?
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Re: Can I get the bank to allow me to rent out my place?

Postby VgSince1982 » Wed Sep 04, 2013 12:40 pm

Among the individual disclosures that you signed at closing, there was most likely an Occupancy Disclosure. (I believe you are quoting the mortgage or deed of trust.) This disclosure relates more to the new financing. I'll bet you'll see 120 days or less as the occupancy you promised. If you did not get a copy of your signed docs, get the scan from your attorney or title agent.

And if your insurance is escrowed, there is a way that the loan servicer sees the change. If you switch to a 'landlord' insurance (usually with a price drop), they can be clued in to the change in occupancy.
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Re: Can I get the bank to allow me to rent out my place?

Postby NoVa Lurker » Wed Sep 04, 2013 1:23 pm

ResearchMed wrote:"... at least one year after the date of occupancy ..." [emphasis added]

When did you actually first occupy this property?

To be on the safe side, you could ask an attorney how "occupancy" is determined. The wording doesn't specify "from date of financing".

RM


OP - did you see this very good point? (Sorry if I missed it, but I didn't see you respond on this point, although you responded on others.)

The bank may not have intentionally drafted it this way for a refinancing, but that is not your problem. They have sophisticated lawyers. Just based on this provision, I would say if you lived the property when you refinanced (which it seems you did), then the one-year period starts tolling from whenever you began occupancy. If that was at least one year before refinancing, then you don't need to obtain any consent at all.
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Re: Can I get the bank to allow me to rent out my place?

Postby leonard » Thu Sep 05, 2013 3:43 pm

SamGamgee wrote:
Cherokee8215 wrote:Unless either you are dealing with a bank located across the street from the house, or you stop paying the loan, they aren't going to have any idea that you're renting it out. Just step back and think about it. There is no bank "rental prevention inspector." Just make sure you keep your loan-related mail going to the house and not some other address.

This "clause" was violated en masse during the bubble. I'm not advising you to cheat, but just trying to be practical about the situation.


Yes, you are advising me to cheat. No thanks.


Not a fair assessment. You don't know whether this is cheating or not - thus the reason for asking the question on the forum. So, pretty bold of you to flat out say it is cheating. Why ask the question here then if you already know it's cheating?
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