QUESTION:  I WANT TO RENT A PRIVATE HOUSE OR CONDO, BUT I HEARD THERE ARE MANY SCAMS OUT THERE – HOW CAN I PROTECT MYSELF AS A RENTER?

Many home and condo owners these days are trying to rent-out their properties, NOT because they want to keep it as an investment, but because they are not able to sell it and have no other choice.  In fact, many homes and condos for rent may seem like great deals, but renters BEWARE – they may be scams.

I want to share with you a recent event that occurred to a friend of mine that illustrates the importance of investigating the property you are planning on renting, including its owner(s).  To protect my friend’s privacy, we’ll call him Mr. Lee.  Mr. Lee, his wife and children were looking to rent a house in La Canada, a great suburb just north of Koreatown - an area where crime rate is very low, and an area where one would expect no real estate related scams.

Mr. Lee found an attractive house for rent through the internet, and decided to see the property on a Friday.  The house was in good shape, it was priced right, and it was very close to one of the best schools in the country.  After seeing the property, Mr. Lee drove to the owner’s house, also in La Canada, to sign a one-year lease.  At the owner’s house, everything seemed perfect.  Family members were gathering, the house was beautiful, and the owner seemed very nice.  After executing the lease, Mr. Lee left a check for the security deposit, and went back home.  On Monday, Mr. Lee decided to look at the signed lease a little closer, and noticed that the Lease included the owner’s name, and the name of a Corporation.  Many landlords keep their properties under Corporations, LLCs, or Trusts, so Mr. Lee did not think much of it, but decided to check the status of the Corporation online (You can do this by going to the California Department of Corporations website). Upon initial searches, the name of the Corporation did not show up.  As such, Mr. Lee proceeded to check the websites of other popular states of incorporation such as Nevada, and Delaware, yet no records were found of this corporation.

Becoming more concerned at this point, Mr. Lee decided to contact me, and I proceeded to check the mortgage and title records of the property.  Upon initial searches, I discovered that the house was really owned by another company – an LLC, and that the house was transferred to that LLC by the owner back in 2007.  Furthermore, my searches showed that the owner had declared bankruptcy just a few months ago in 2008, and had probably transferred all properties a year prior, in order to try prevent the properties becoming part of her bankruptcy estate.  Also, the property only showed a $250K mortgage recorded, which implied that the home had plenty of equity, and perhaps the owner decided to just keep this one property, even after bankruptcy. Now, the property itself was not currently in foreclosure, but because of the other issues, I decided to conduct further investigation.  I enlisted the help of Dr. HeeYoung Kim, a regular contributor to the newspaper, and he was able to pull up detailed title records that are not easily available, even in databases that lawyers use.  Dr. Kim’s search revealed that the house was in fact in foreclosure before, and that there was a trustee sale date set, but was never auctioned off.  Somehow the owner was able to save the property.  Furthermore, Dr. Kim discovered that there was another mortgage note recorded in the amount of $850K, bringing the total encumbrance on the property to $1.1Million. Current value of the property? Only approximately $700K (according to zillow.com).  Given that the monthly rent asked for was less than $3,000, it was clear that the house would fall back into foreclosure at some point, and the owner was probably trying to make money from the rent as long as she could without paying her mortgage and ultimately losing her property.

I advised Mr. Lee that if he still wanted to rent the property for a one-year term, he could simply have the signed lease recorded at the county’s recorders office, which then makes any house sale, transfers, or foreclosures, subject to the lease.  The only problem was the lease had to include the real owner’s name – the LLC mentioned above.  In short, the current lease as executed was legally invalid.  When Mr. Lee attempted to contact the owner, he was unsuccessful, and thus it is likely that he lost his security deposit.  Upon further searches, we were also able to find that the owner’s own property (where the rent check was supposed to be sent) was involved in foreclosure actions just recently, but somehow these proceedings are currently on hold.  Whatsmore, Mr. Lee noticed that the owner’s own home was just listed for rent! – the very address where Mr. Lee was supposed to send his rent payments.  Again, Dr. HeeYoung Kim was able to pull up detailed title records of the owner’s own home, and it showed that the home was initially set for auction, but is currently on hold.  Likely conclusion? This owner was probably attempting to skim as much rent (and security deposit) as possible before walking away from her properties, leaving unsuspecting renter holding the bag.

The lesson from this story is two-fold:  First, DO NOT give any deposit or personal information until you first check public records on BOTH the house or condo you are trying to rent, AND the owner(s) full personal asset profile.  Second, once you have a valid signed lease agreement, make sure to record that against the property, so that at least you are protected for the duration of the lease term.

Thomas Suh

HOPE LAW GROUP (213) 670-0068