Lose Your House, Gain a Landlord

07/30/2012 05:14 pm ET | Updated Oct 25, 2012

Landlords who hire me to draft leases usually do a very good job of screening tenants. They check credit, employment, and bank statements, and reach out to the prospective renter's last two landlords whenever possible. However, this landlord looking to engage my services proclaimed that after 15 years of examining and analyzing track records, he'd thrown away the desirable tenant selection playbook.

He shared that many of the people looking to rent from him lately were tenants by necessity; former homeowners who had fled or were drowned by underwater or unaffordable mortgages. "My last lawyer thought that I'm crazy renting to folks who sold their house by short sale or got foreclosed on."

Without waggling one finger of blame, I remarked that such wannabe renters were likely to have grim credit ratings and lack glowing references. "That's why I don't check on them with the usual methods," he agreed. "Most of the credit reports suck, and good references are rare."

I raised my eyebrows at the dearth of references and dreadful credit, so the landlord shared some insight. "People don't want to tell the boss they lost their house, and don't want anyone at the kids' school to know too much, either. That's why they like my condos. There's no sign outside the complex that says 'For Rent' like in front of [large apartment complexes on Long Island]. No one's the wiser about whether they own or rent."

While that was opportunistic, was it smart business? Were people who'd gotten in over their heads before, or suffered economic hardships, more desirable tenants than those who regularly paid on time?

The landlord chuckled. "I'm not stupid! If they've got no credit, no good track record, and no money, they get no roof from me! You see, people who haven't paid their mortgages in a long time... not ones who got sick or laid off, but the ones who just didn't pay because they owed more than their house was worth... some of those people have wads of cash!"

The light bulb went off above my head. I connected with why he asked me to quote a fee for drafting a non-standard lease requiring payment of three month's rent plus three month's security before the tenant moved in. He was approving those with busted credit only if their wallets were also brimming with bucks, right?

"Yep!" he concurred. "If they pay, they have a track record to help them fix up their credit. And if they screw up 30 to 45 days in, they'll be gone before the upfront money dries up. "

We agreed that I wasn't the lawyer for him, as I don't handle evictions, and his approach would probably result in quite a few. However, would he mind if I wrote about his semi-sanctuaries for some of those emerging from their mortgage morass? He said, "Go ahead. It's not like I'm hurting anybody, which is more than the banks can claim!"