There aren't any guarantees, of course, but the suggestions below may help. After five years, I've heard about a lot of the scams out there. Use the information below to protect yourself as well as you can. However, you won't have real protection until local communities are required to register rental units, so that you can find the owner's name and contact information easily. Often that requires legislative bodies to act, and you already know what I think of legislative bodies.
It's very important that you check out your prospective landlord before paying any money or giving out any private information--like your bank account or Social Security numbers. There have been a raft of stories now detailing the perfidy of landlords who, facing foreclosure, rent out the house to unsuspecting tenants, and opportunists who break into foreclosed properties, and then collect security deposits and rents for houses they don't own.
As a tenant, you have to protect yourself. You have NO friends. The State Legislature is not your friend. The Board of Supervisors is not your friend. The City Council is not your friend. All of these people work to support and defend the interests of the real estate industry. So here's how you can give yourself a wee bit of protection:
1. Property management firms are not your friend either. They receive a percentage of the rent from your landlord and are therefore working for him, not you. Do not assume that the property management company knows or cares whether the house is about to go into default. Do not make the assumption that, because a landlord has hired a property management firm, he is somehow more trustworthy.
2. Insist on knowing the name of the property owner. Do not give out any personal information to anyone until you have that information. Ask to see identification. I mean it. Anyone can show up at a rental unit and say that he's the owner, Joe Smith. You want to know that he is--in fact--Joe Smith. If the person showing the house says that he's a property manager, get his card and the telephone number of the owner. Then call both the property management office AND the owner to verify that it's a legitimate rental. Reputable landlords and property managers should expect that tenants would want to insure that they aren't paying large sums of money to people who have no right to rent the property.
If you have one of those cell phones that takes pictures, take a couple of pictures of the unit, and just get the person showing the property into one of them. Then, if it does turn out to be a scam, you can present your local police department with a photograph of the scammer.
3. Then call your County Recorder and find out the following: when the last mortgage was taken on the property, whether or not a Notice of Default or Notice of Trustee Sale has been filed. A Notice of Default is the first step in foreclosing on the building. A Notice of Trustee sale means that the landlord failed to pay the arrears and the lender is going to take back the building. If either of these has been filed, you don't want to move there. Really.
4. Be very careful when considering any property with a mortgage taken out in 2004 or later. You will need to ask a lot of questions of your prospective landlord and listen carefully to all responses to those questions to determine whether or not the landlord is in trouble. If the landlord is not forthcoming, it's better to pass on the property.
5. Take a copy of your credit report with you when you look at a property, after inking out your Social Security number. If enough tenants do this, and do not permit their landlords to have that information, perhaps landlords will change their practices. You are, after all, being required to hand out your most important personal number to a complete stranger.
6. Do not sign a lease. If your agreement is month-to-month and the landlord defaults, you can just move. If you sign a lease, you have to pay rent until the foreclosure sale. (I know that this goes against the ruling conventional wisdom, but so many soon-to-be-foreclosed landlords have signed leases that it no longer makes sense to sign one.)
If you want to sign a lease, consider adding a provision that allows you to break the lease if any lender (many properties have more than one mortgage) files a Notice of Default or Notice of Trustee Sale on the property. If the landlord will not agree to such a provision, it's a clue that all is not well with his finances.
You should also insist on a provision, whether you have a lease or month-to-month agreement, that allows you to withhold rent to recover the amount of your security deposit if any lender files a Notice of Default on the property you are renting. If, for instance, you paid a month's rent and $250 for each of your two pets, you would, after a Notice of Default was filed, be allowed under the terms of this provision to withhold an entire month's rent and then part of the next month's rent for the $500 you paid for your pet deposit.
Don't spend the money though. Were your landlord to cure the default (pay the arrears or renegotiate with the bank), you'd have to pay back the entire deposit to your landlord.
I know it's odd, as tenants haven't generally been able to negotiate lease terms. But the landlord puts your home in jeopardy by not paying his mortgage(s) and you should be able to protect yourself as any contracting party can.
7. Be very suspicious of any landlord who overlooks your foreclosure or credit problems in exchange for a large deposit. Many people who have suffered foreclosure themselves are being victimized by the unscrupulous, who allow tenants to rent in exchange for large deposits. Then the tenants finds out the landlord hasn't been paying the mortgage.
8. You do not want to get into a "lease option." Really. Some landlords are offering "lease options" to unsuspecting tenants. What this means is that you agree to pay an upfront deposit of $5-10,000, and a higher monthly rent, for an option to purchase the property at a set price at the end of the lease period (which can range from one to three years). Lease options are never a good idea in the best of times and, in the present period, are potentially disasters. First, the value of the house may fall over the option period, and you will have agreed to pay much more for the house than it is worth. But you've also put in a lot of money, so not exercising the option (not buying the house) means that you are giving up your deposit and the additional rent you paid. Second, if the landlord defaults on his mortgage during the lease period and the lender forecloses, you lose all the money you paid for the option. And if you did enter into a lease option, you'd have to keep track of your landlord's mortgage payment--demanding copies of the canceled checks or a print-out from the lender showing that the payment had been made. I've had a couple of tenants tell me that their soon-to-be-foreclosed landlord offered them lease options, but the tenants refused them--counting themselves lucky when the building then went into foreclosure. Landlords are trying this scam to either get enough money to pay the mortgage for another month, or to milk the building for everything you're worth before foreclosure. Please--just say no.
9. Do not ever pay the rent and deposits in cash. Cash is untraceable. You can't stop payment on cash. Pay by check.
10. You can do a lot of checking online, so take advantage of the resources out there. You can check the property history on Zillow, which will often tell you if the property is a recent foreclosure. That's not bad, as the new owner may have bought the property out of foreclosure at a very low price. (This will not be reflected in the asking rent, however.) You can also check the neighborhood crime stats on Trulia. Type in the address of the property, then scroll down to the map. Click on "Crimes" and the map will show the extent and nature of criminal activity around the property. If the map is colored orange or red, you don't wanna move there. Really.
It's important to do this, as investors purchased a lot of foreclosures in bulk from lenders and Fannie Mae/Freddie Mac. Some of these properties are in neighborhoods best described as "dicey".
