Question: Because of the collapse of the Arizona real estate market, my wife and I have bad credit problems. Unfortunately, we will be losing our Scottsdale home to foreclosure before long, but we want to rent a home in our same neighborhood for one year. However, we are having problems renting any homes in our same neighborhood because of our bad credit. We have the funds to pay all of the rent for one year in advance. Can we pay rent for one year in advance? If so, will we forfeit any of this prepaid rent if the landlord loses the home to foreclosure in the next year?
Answer: First, 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 you are “voluntarily” prepaying one year’s rent because of your credit problems, your landlord can accept this one year of prepaid rent.
Second, if you pre-pay rent for one year, and the landlord loses the home to foreclosure, under a 2009 federal law you 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, I would recommend that you and the landlord deposit in an escrow account the one year of prepaid rent to be distributed monthly to the landlord, or to any subsequent landlord after any foreclosure.