Prepaying a Year of Rent to Landlord?Use Caution

Due to of the collapse of the Arizona real estate market an Arizona couple has some bad credit problems. Unfortunately, they are losing their Scottsdale home to foreclosure before long, but they want to rent a home in the same neighborhood for one year. But, because of their bad credit, they are having issues renting any homes in their same neighborhood. They have the funds to pay all of the rent for one year in advance. Is it possible to pay rent in advance for one year? If so, will they forfeit any of this prepaid rent if the landlord loses the home to foreclosure in the next year?

The first thing you should know is, the Residential Arizona Landlord-Tenant Act generally prohibits a landlord from charging a security deposit, including any prepaid rent, of more than one and-a-half month’s rent. A.R.S. §33-1321. If the tenant, however, “voluntarily” pays more than one and-a-half month’s rent (usually for winter rentals when the tenant pays the entire three or four month’s winter rent in advance), the landlord can accept this additional security deposit. Therefore, if the couple is “voluntarily” prepaying one year’s rent due to credit problems, the landlord can accept this one year of prepaid rent.

Secondly, if the couple does pre-pay rent for one year, and the landlord loses the home to foreclosure, under a 2009 federal law the renters are generally entitled to stay in the home for the remainder of the lease term. If the new landlord after the foreclosure never receives any of the prepaid rent, however, the protection under the 2009 federal law is unclear. Therefore, as an Arizona real estate attorney, it is recommended that the tenants and the landlord deposit the one year of prepaid rent into an escrow account, to be distributed monthly to the landlord, or to any subsequent landlord after any foreclosure.

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