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I am a landlord of a single-family house with a lease coming

up for renewal. The tenants...
I am a landlord of a single-family house with a lease coming up for renewal. The tenants are having financial difficulty, but they are wonderful people and I'd like to make it possible for them to stay, even if they can't pay the full amount of each payment.
What I'm thinking of doing is allowing them to pay as low a $x per month and the difference between the amount due and $x would become a note payable to me in the future with a set interest rate.
My understanding is that secured notes can't be wiped away by bankruptcy, so this note would be secured by the future income of the tenants.
My question is: would this note indeed survive a possible bankruptcy? If so, would the following language in an amendment to the lease be sufficient? "Tenant hereby provides a Note to the Landlord for any unpaid balances upon termination of this agreement for any reason, secured by his personal assets and his personal future earnings."
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Answered in 22 minutes by:
3/3/2010
Attorney & Mediator
Category: Bankruptcy Law
Satisfied Customers: 20,012
Experience: Attorney & Certified Mediator
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A secured note is a loan agreement secured by collateral. It is not secured by "future earnings" since you have nothing to foreclose on if they default. It can be secured by his personal assets and you would need to identify those. A secured note is similar to a mortgage, whereby the lender is making a loan to be secured by the house if there is a default. Given that there is an identified collateral it typically avoids bankruptcy since that debt would be first to be paid.

From the scenario you present I don't see how this would work since you are not making a loan but rather you are accepting an IOU to the difference which cannot be paid. Further for each event they cannot pay the entire balance you would need to create a separate note since you are required to provide specific terms of what has been in default and what collateral has been used to secure it. In my legal opinion I don't see how this would work since this is not a loan agreement and you would require specific terms for each amount that is borrowed and security for the note.

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Customer reply replied 7 years ago
Dear Sir or Madam,

Please help me with a creative solution to this problem. I don't want to turn them out. They are in financial difficulty with children in close-by schools and it would be a terrible problem for them. At the same time, while I am willing to accept less than market rent now, I'd like to be paid when they are finally able, and I want to protect myself if they later have to declare bankruptcy.

Here's another idea for new wording in their lease renewal: "Upon termination of the lease for any reason, if there are unpaid amounts due at that time the Tenant agrees to cooperate with the Landlord to facilitate the garnishment of future earnings until the balance due is paid."

Would this work? Do you have any other creative ideas to make this work?

Sincerely,
Hal Segal
No that will not work, you cannot garnish wages without a judgment.

Sorry but there is no way to defeat a bankruptcy on an IOU. You can only use collaterals on loan agreements and you can't garnish on wages. If you really want to help them, then just lower the rent to what they can afford and avoid the hassles of collecting the difference. In landlord-tenant law you either sue when the rent is due for the amount agreed or if you accept a smaller amount you are deemed to have waived your rights since you did not sue when you had the chance.

Sorry.

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Please Note: My answer or reply is limited to your facts presented and additional information you post may not come in after my reply or answer has posted, if this has occurred please let me know and I will answer further. Due to site tech reasons, oftentimes I am initially only able to see the first part of your post, so this may result in more interactions between us. There might also be a delay in my reply or answers, as I may be helping other customers, or called away from my office or have logged off. Please be assured your question(s) will be answered promptly.

If I have been helpful, please click Accept for my time and research, this is the only way I get paid. If you need more help or clarification, please click reply. Positive Feedback is greatly appreciated and reciprocated. Feedback should relate to customer service and not about the law, which I have no control over. You can always request me through my profile here or beginning your question with “Attention lawNinvest” Thank you.

Legal Disclaimer. The information given by me is not legal advice. I am not establishing an attorney-client relationship with you. I am providing only research, resources and information only for you to be informed and educated about your particular needs and my answer is limited to the facts presented. You are only paying me for such information given. No part of this disclaimer can be copied or reproduced without the express consent of the owner [lawNinvest]. Thank you.

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Customer reply replied 7 years ago
Well, you are being a devils advocate -- which is helpful. But I still need a creative solution. How about (1) my including a Note with the lease that he signs when he renews and the amount of the Note becomes whatever amount is still due at termination, and (2) he agrees to facilitate a judgement that would allow for garnishment of future earnings?

Again, if you still don't think this will work, please provide another solution. If you give me something I can use, I'll increase my payment to you from $15 to $50.

Hal
Sorry, I don't believe anything else will help your scenario. I will opt out to see if someone else can interject.
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Jim Reilly
Jim Reilly, Attorney
Category: Bankruptcy Law
Satisfied Customers: 1,805
Experience: California lawyer since 1976.
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HelloCustomerand welcome to JustAnswer.

I pretty much agree with what LawNinvest has already told you. I do have one suggestion which involves a somewhat complicated process, but which might work if the situation is of short duration.

For each month that the tenants cannot pay the full amount, loan them the difference (which of course they would return to you as rent payment) and have them sign a promissory note secured by their vehicle (assuming it has sufficient value to cover the note). The complication is that each month you would have to prepare a new note for the new total amount, once again secured by the vehicle. Depending on your state law, this might also require filing the security agreement with the DMV.

This could also work using other personal property as collateral, if they have anything of value (such as jewelry, furniture, collectibles, etc.), but the collateral would have to be described in the agreement with specificity (each item separately listed, not just "household furniture" or "jewelry", etc.).

Thanks for asking your question here on JustAnswer. If you have any other questions, please let me know. I have also suggested moving this question to the bankruptcy category, to see if any expert there has any ideas. That will require review by JA admin, so may take awhile to occur. In the meanwhile, if you find my suggestion satisfactory, you can accept my answer here.
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