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Ask Dimitry Esquire Your Own Question
Dimitry Esquire
Dimitry Esquire, Attorney
Category: Real Estate Law
Satisfied Customers: 41221
Experience:  JA Mentor, multiple jurisdictions, specialize in business/contract disputes, estate creation & admin
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I own 2 rental properties ( in WA State) that now are in foreclosure.

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I own 2 rental properties ( in WA State) that now are in foreclosure. The foreclosure date is October 26, but already lenders claimed that they have the right to collect rent based on the fact that I have signed a deed and my loan contract stated that. I don't believe that the law allows anything like that to happen before the foreclosure date.. They hired a law firm to post letter at tenants' door to demand them to send their rent to the lender instead of me. My manager got a letter that they are going to sue him if he continues to send the rent back to me and not to the lender. My manager decided to terminate the service this Sept 6, almost two months away from the foreclosoure date. What are my options? I am hiring an agent to do the short sale. He has to deal with whether or not to agree to send the rent back to the lender or forget about the short sale. In other words, if lender want the rent , lender is indicating that owner should give up their ownership right now, not until the foreclosure date. I am really upset and confused. Please help.
Thank you for your question.

When a mortgagor defaults on the debts, the mortgagee can foreclose on the mortgage, which is what is taking place here. However, a mortgagee may also wish to take possession of the property, or begin receiving the rents from the property before foreclosure. That IS possible and it depends under what theory of title your mortgage was granted. Under the "lien" theory, the lender is consider the holder a security interest only, which means that the lender CANNOT take possession before foreclosure. However under the "title" theory, the lender is deemed to hold legal title in the property until the mortgage is paid off or foreclosure. In that situation the lender IS permitted to possession or interception of rents. To find out, speak to your attorney and have him review the promissory note and the mortgage to see exactly how the title was recorded. It may well be that the lender is acting within the scope of the law here.

Good luck.
Customer: replied 6 years ago.
supposed the lender is allowed to demand the rent under the title theory, what will happen if I don't turn in the rent to them? Taking me to court? I am going to lose the property anyway at the auction (foreclosure). What more can i expect to see happen against me if I don't turn in the rent? There are not much to turn in anyway after I pay all the bills.
Thank you for your follow-up.

Supposing that this is under title theory, legally the lender owns whatever profits and rents the property produces. That may permit them to take you to court for the rents and profits, and also possibly cancel the short sale on grounds of bad faith breach on your end (if you are indeed pursuing a short sale). While it may not be much, they can absolutely demand and force you to turn over whatever assets they consider to be theirs, and hit you with their attorney fees as well.

Good luck.
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