Homesharing to Avoid Foreclosure

Some people facing a potential foreclosure engage in homesharing—renting a room in their home in order to earn extra income with which to pay the mortgage. Homesharing can help avoid foreclosure by providing additional money to make mortgage and utility payments. But becoming a renter involves certain responsibilities.

Becoming a Landlord

In most jurisdictions, a homeowner who rents a room to a tenant is treated as a landlord and is subject to the same legal requirements. This means:

• Security deposits might be regulated both in the amount you can charge, and the details of their handling and return. (Many states require them to be kept in a separate bank account; most require an accounting be delivered to the tenant within a specified time-period after the tenant moves out.)
• Lock-outs—changing the lock or adding a new one to prevent the tenant from entering even though you own the property—are forbidden, and can result in civil and criminal liability.
• You may not be able to enter the tenant’s room without his or her permission, or at least without giving proper notice.
• If the tenant moves out and leaves belongings, you might need to comply with some laws that deal with the handling of abandoned goods.
• You can’t just throw the tenant out for whatever reason you want. And you’ll need to give proper notice to do it at all.
• You can’t discriminate based on certain types of characteristics, such as race, gender, age, and disability status.

Month-to-Month Leases

You may want to begin renting using a month-to-month lease. That way, if you don’t get along with the tenant, you can terminate the arrangement and get another one. Whatever you do, put the lease in writing. An oral lease creates too many risks.

Tenant Screening

While you are subject to many of the same laws as a landlord who rents out an apartment, you’ve got some additional risks. First, the tenant might not pay—and worse yet, he or she might run up your utility bills and not pay them either. Careful tenant screening is important. You are renting in order to make your mortgage payment. A tenant that does not pay rent hurts you. Get a credit report. There are websites for landlords that sell them. Also, make sure that you ask for references, preferably from previous landlords. Second, you will be allowing this person into your home. They might steal from you or worse. Consider getting a criminal background check if it is legal to do so in your jurisdiction.

Rental Income

You are required to report rental income to the Internal Revenue Service, and you can also deduct certain rental expenses. Go to the Internal Revenue Service website for more information.

Conclusion

Homesharing can be an effective method of boosting your income when you are unable to make your mortgage payments. You need, however, to make sure the terms of the tenant’s lease are clear and that you know the laws that apply to you as a landlord. You also should carefully screen tenants. You can’t afford to rent to a tenant that does not pay or poses a risk to you or your property. If you run into a serious problem with a delinquent tenant, you may want to consult a landlord-tenant attorney. See if you can find one that offers a free consultation.