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What to do if you're renting a short sale

It's no secret the foreclosure crisis has drastically changed the real estate sales market, no matter where you live. We've all heard the foreclosure horror stories: People being mistakenly foreclosed on, home values plummeting due to a glut of foreclosures in the area and empty homes being havens of criminal activity.

What's less talked about, but equally as frustrating, is the effect the foreclosure crisis has had on renters. According to updated data published by the National Multi Housing Council last September, 34 percent of U.S. households are considered "renter occupied." It's likely this number will continue to grow, considering multiple sources -- including the New York Times -- have reported a significant uptick in foreclosures during last quarter.

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There's a level of trust renters are forced to have with their landlords. They pay their rent every month assuming things will be fixed when they break (depending on the lease terms), that they'll be able to get in touch with their landlord and, at the very least, that the rent they're paying will provide the roof over their heads. Sadly, with the onslaught of foreclosures and the current prevalence of short sales, sending in your rent check no longer guarantees a place to live.

Though some renters become homeowners by purchasing short sale property for pennies on the dollar, many find themselves in a tug-of-war between their landlord and the bank. I've heard horror stories of tenants who were completely unaware their landlord was behind in their payments coming home to find they have a very short time to find a new place to live. It's stressful and scary, and many renters have no idea how to handle this predicament.

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So what should you do if you find yourself renting an underwater property that's listed as a short sale? The folks at Zillow have some suggestions for tenants in this situation:

Buy yourself some time. A lease is a legal document, and it's possible the new owner of the property is required to honor its terms. You won't know without contacting a real estate attorney. Get some legal counsel to find out how long you can stay in the property while looking for a new home. If you can't afford an attorney, search your area for a tenant's rights organization which may be able to point you in the right direction.

Get your money back. Get in touch with your landlord and ask for a refund of your security deposit. This money can go a long way towards securing new rental housing.

Buy your home. Provided you're living in a condo or house, and not a multi-unit apartment building, this third option is a great one if you have the money. If you like where you live and have the funds and credit score to do it, why not buy your place from the bank?

Whatever option is best for you, communication is key. Get in touch with your landlord to find out what the timeline is so you can best protect you and your family.

And if the landlord or property management company stops taking your phone calls, and you come home one day to find a foreclosure notice tacked to your front door, call the lender pronto. It's possible that you'll be able to make payments directly to the lender and stay in your rental unit long enough to figure out your next move.

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