When a house goes into foreclosure, the bank usually takes over ownership, at which point it goes through the process of putting it up for sale. However, this process takes some time, so it only makes sense that you might be able to find bank-owned homes for rent. Unfortunately, you won’t find foreclosure homes for rent primarily because the bank isn’t in the business of managing property.
Renting a Bank-Owned Home
Before a bank officially puts a house in foreclosure, it usually goes through a long, arduous process of trying to get the homeowner to pay. This involves multiple calls and letters, some offering the option of a payment plan to keep the owner in the home. Laws in many states protect homeowners by requiring lenders to first work with the homeowner, then wait at least 30 days to issue a notice of default.
The reason the question, “Will banks do rent-to-own on foreclosures?” comes back with a, “No” answer is simply that the foreclosure process doesn’t allow it. Following the default notice, there’s a 90-day waiting period in which the homeowner can pay the money and stay in the home. After that period has passed, the lender is required to issue a notice of sale that states the home will be sold at foreclosure within 21 days.
If you’re asking, “Will banks do rent-to-own on foreclosures?” you may be recalling the rent-to-own model that was popular in the latter part of the last decade. This practice was a brief trend during the housing crisis, when there were so many foreclosed homes that large real estate firms saw an investment opportunity. Real estate investors took these homes over from the bank with the goal of collecting rent with the promise of a future sale.
You can still find these homes today, but they still won’t be owned or managed by the bank. With a rent-to-own agreement, you pay an upfront fee, called an option fee, and sign an agreement requiring you to pay rent for a fixed period of time. Depending on the contract, at the end of that timeframe, purchase of the home will either be optional or mandatory.
Buying a Bank-Owned Home
Will banks do rent-to-own on foreclosures? No. But you do have some other options. One is that you can simply find a good deal on a foreclosed home that negates your need to rent. There are several websites that list those homes, including RealtyTrac and Zillow.
Although such searches won’t lead you to bank-owned homes for rent, they will help you get a good deal on a foreclosure. It’s important to note, though, that if you’re buying a foreclosed home at auction, you may have a tougher time getting any required inspections completed since the turnaround time is so short. If you’re looking for foreclosure homes for rent, buying will be an alternative as long as you can buy one that is on the market for sale, rather than relying on auctions, where cash is preferred.
Dealing With Foreclosed Rental Home
There is one time you could find yourself renting a foreclosed home from a bank. If a home you’re renting goes into foreclosure, the bank has to give you time to move out. This protection falls under The Protecting Tenants at Foreclosure Act, which legally gives you time to move out of your house. With this protection in place, foreclosure homes are for rent to you, the tenant, for either 90 days or the remainder of your lease, whichever comes last.
A foreclosure doesn’t necessarily mean you’ll be evicted, though. If the bank sells to someone who wants to continue to rent to you, you’ll find yourself with a new landlord. Bank-owned homes for rent are also sometimes taken over by servicing company handled by the bank. But this is only a temporary measure, and you’ll likely find the servicing company is geared more toward protecting the bank’s financial interests than managing the property.
- Marketplace: Here's One Reason Bank-Owned Homes Sit Vacant
- RealtyTrac: REO & Bank Owned Homes
- Zillow: Foreclosure Center
- Zillow: How Does Rent-To-Own Work?
- Investopedia: Rent-to-Own Homes: How the Process Works
- National Low Income Housing Coalition: SHARE Congress Permanently Authorizes the Protecting Tenants at Foreclosure Act
- Wells Fargo: What You Need to Know
- Joe Raedle/Getty Images News/Getty Images