When renting out house is unethical

Q: Do I have the right to rent out a property that is subject to foreclosure without telling the new tenant about the foreclosure but stipulating a notice period of one month to vacate the property? Does a Realtor marketing the property need to be made aware of the foreclosure lawsuit?

A: You may have the right to rent out your property that is subject to the foreclosure, but if I were the tenant moving in to your home, I sure would want to know that I might have to move out in a short period of time.

Nothing is worse than having a landlord tell you one thing, then paying for movers and other expenses to move into a new home, only to find out that you have to move out in a month or two.

Although you didn't say so in your letter, I'm guessing that you're losing the property to foreclosure and have likely stopped paying your lender each month. Now you want to rent the property to someone who has no interest in becoming involved in the foreclosure. He or she wants only a place to live.

Are you planning to use the rental money to pay the lender? If not, it seems highly unethical to rent the home, pocket the money from the tenant and then have the tenant forced out when the lender takes over the property in short order. Would you want to be treated like that?

Your Realtor should know about the foreclosure. It's quite likely that he will work hard trying to find a tenant for the property, may even find one, and then the deal will fall apart when the sheriff arrives at the home to clear it out and give it to the lender.

If you're upfront with the Realtor and the tenant, and the tenant decides to use the home for a short-term rental, that's fine. But it's up to the tenant to make that choice.

Your job is to be honest when marketing the home.

Q: We bought a timeshare through a company in Minnesota. After buying it, my husband had a neck injury and is now disabled. He was unable to work and we got behind on our maintenance payments. I made arrangements to get the fees caught up but just found out through the paper that the timeshare company filed for bankruptcy. They notified us that this transpired but they are closed for business.

Are we obligated to continue making these payments? If we don't make the payments, what would happen to our timeshare? We'd like to sell but have not been successful in doing so because of the bankruptcy.

A: The turbulent real estate market doesn't just affect home buyers and sellers. As you, and many others, have discovered, it can affect ancillary businesses as well, such as your timeshare management company.

Nonetheless, you own an interest in a timeshare development. With that ownership interest comes certain responsibilities. One of those responsibilities is to pay your monthly maintenance expenses, real estate taxes and other fees associated with the timeshare.

While the timeshare developer or the timeshare operator might have filed for bankruptcy protection, your financial obligations will continue. If the timeshare developer is in financial trouble, you may experience problems with the overall experience of owning your timeshare. If you purchased your unit early on, and there are many units left to be sold, you may be in a precarious position.

If the building is not completed and there are units left to be finished and sold, the timeshare developer may never be able to finish the development. That would be terrible for you, unless some other timeshare developer comes in to finish the project.

But, if during bankruptcy, a new developer comes in and sells out the remaining units at a fraction of what you paid, you may never get your money out of this purchase.

If the development is substantially finished, the impact of the timeshare developer's filing for bankruptcy protection may be limited. There could be a cloud hanging over your development, but that may not last long as people use the development and see that it is a good place to go and stay.

If your timeshare management company has filed for bankruptcy protection, you want to make sure that the building and its amenities are maintained and the upkeep of the building is good. You and other owners need to make sure you follow up with the management company and the bankruptcy court to ensure that the standards for your building are being kept. If they're not, you might have to band together to hire another timeshare management company to come in and take over the management of your building.

The trustee in the bankruptcy proceedings may try to have a replacement company buy the assets of the company now in bankruptcy and find a company willing to manage your building.

You will need to obtain more information about the bankruptcy proceedings and make sure that money owners paid for the operations and maintenance of the building will be applied to the needs of the building. You should also make sure someone is representing the interests of the owners in court.

Finally, unless there are quite unusual circumstances, the bankruptcy court should not end your ownership interest in the timeshare, but you will have to continue to pay the monthly or annual expenses that you owe.

If, for some reason, your purchase of the timeshare interest was not papered properly or your interest is junior to other creditors, you could lose your interest in the timeshare.

Please talk to an attorney for more details.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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