Buying a Short sale with tenants?

[zzz]

Anyone have advice on whether or not to pursue purchasing a short sale of a home that has multiple tenants living in it? its a single family home, but have yet to inquire on the situation with the lease agreement. Do the banks help out in this case with offering cash for keys to compel tenants to move on?

thanks

[Diego Mamani]

You could make it a condition of the sale that the tenants leave prior to closing of escrow. In that case, the bank may have to pay cash for keys. Otherwise, once escrow closes, you have no bargaining power, and you will be the one who has to pay cash for keys.

[CA renter]

[quote=Diego Mamani]You could make it a condition of the sale that the tenants leave prior to closing of escrow. In that case, the bank may have to pay cash for keys. Otherwise, once escrow closes, you have no bargaining power, and you will be the one who has to pay cash for keys.[/quote]

I second this. Make it a condition of the sale, and be sure to do the final walk-through AFTER everyone has moved out. Accept no excuses.

[SD Realtor]

The banks have nothing to do with the tenants or the lease that is currently in place. A short sale with tenants is not any different then a standard sale with tenants. Understand that the lease is between the tenants and the landlord and that the conditions of the lease will still be in place once the sale is complete.

Any conditions that you want to impose on the seller with respect to having the tenants out of the home prior to the close of escrow will be between you and the seller. However when close of escrow rolls around and the tenants are not out, then your recourse will be to either back out of the deal, or stay in the deal and deal with the tenants. At the very lease get a copy of the existing lease so you can check the time frame on when the lease expires.

Just remember the banks have absolutely nothing to do with the tenants, nor do they care. All the negotiation is between the bank and the homeowner.

As a first step, ask for a copy of the lease. Have your agent ask the listing agent about the situation with the tenants. Plan your strategy after you find out more information.

I have had short sales where there were tenants in the home and they always were out prior to escrow. I have heard stories about people that were not able to get them out.

[bearishgurl]

[quote=SD Realtor]…As a first step, ask for a copy of the lease. Have your agent ask the listing agent about the situation with the tenants. Plan your strategy after you find out more information.

I have had short sales where there were tenants in the home and they always were out prior to escrow. I have heard stories about people that were not able to get them out.[/quote]

This is good advice and I agree with everyone here. Realize that these “tenants” may actually be friends or relatives of the owners who have decided to stop paying rent (or are paying a severely-reduced rent) from the point where they discovered the owners were no longer making their mortgage payments. Or there could be a “tacit agreement” outside of their lease or rental agreement (IF they actually have one) that they pay the reduced amount in cash to the owners or continue to squat as long as possible.

It is VERY difficult to get tenants out who are “renting” for free or far below market. The cost of “cash for keys” or eviction will be on the new buyer who closes with tenants still in occupancy. Tenants who are renting a property that is in default know this and there is nothing standing in the way of them “playing the game” to the very end to receive “cash for keys” (similar to what is offered by lenders to overstaying, deadbeat owners).

As CAR posted, accept no excuses. Your offer (or counter offer if you find out the property is tenant-occupied AFTER you place the initial offer) MUST have a contingency that the property be delivered to you vacant and free of the tenants’ (and landlord’s stored) debris (which could cost you thousands to dispose of). Do the final walk thru as least 3 business days before funding and if the premises are not to your satisfaction per your contract, do NOT close.

Deadbeat “short-sellers” either must adhere to the sales contracts they (and their lender[s]) have accepted or be foreclosed upon. They have no other choice so don’t let them get away with this.

[zzz]

[quote=SD Realtor]The banks have nothing to do with the tenants or the lease that is currently in place. A short sale with tenants is not any different then a standard sale with tenants. Understand that the lease is between the tenants and the landlord and that the conditions of the lease will still be in place once the sale is complete.
[/quote]

SDR and others, thanks….yes I understand the lease is between the seller and the tenants, but I would think the bank SHOULD care because in this case, I know the tenants and the agents involved on the seller side are certainly not helping this short sale move along.

So I was curious whether the bank will step in IF sale of this house is contingent on getting these tenants out. While the house is not trashed currently, the house is a total pig pen and from what I’ve heard, the tenants are not very cooperative.

I do understand in CA, the lease survives the sale of the home, hence my concern. Even if the lease for instance, were month to month, I might still have to deal with eviction and possible damage to the home in that process, so I’m trying to figure out how much of a headache this is all going to be.

So it sounds like based on other comments, should make this a condition of the sale that the SELLER needs to get the tenants out, one way or another ( IE paying them off)

[sdrealtor]

zzz
The bank is powerless with regards to the tenants and wont do anything. There simply is no mechanism for them to do so.

I am assuming you are buying the home as a principal residence. If so, I would not close or allow you loan to fund until the tenants are out of the property. its the sellers responsibility and you dont want to get stuck with holdover tenants. Isnt your agent advising you to do this? If not, you probably havent hired the right one.

[bearishgurl]

[quote=zzz]…So it sounds like based on other comments, should make this a condition of the sale that the SELLER needs to get the tenants out, one way or another ( IE paying them off)[/quote]

zzz, as a potential offeror on a SS, its none of your concern HOW the seller gets their “tenants” out, only that they DO along with their (and possibly the owners’) debris (which could easily weigh more than a ton and cost you a fortune to get rid of) not to mention the work! You shouldn’t give a rat’s a$$ how this happens … only that it DOES and your final walk-thru scheduled as far ahead of funding that you can get them to agree to, but not closer to 3 business days before funding. If not done, call their bluff and WALK!

In your case, the “sellers'” agent could very well be a relative of the seller and also the tenants … thus they’re dragging their feet re: the tenants. This is commonplace in these situations.

Prepare your offer very carefully. If your agent is worth his/her salt, they should already know all of this. And lastly, do not become “emotionally involved” in the property at any time BEFORE you take title free of the tenants and their belongings.

[zzz]

SDR and BG…yes he’s advised as well, but I like to cover my bases, so while I trust him, I always do my homework as well, and know folks here have a lot of experience, so know its good to get the collective thoughts. He presented 2 scenarios, make the tenants out a restriction the deal, or deal with it if we REALLY want the property as expect this house will have multiple offers. The sellers agents are not that responsive, so yes working on getting the lease details. Thanks for the feedback.

And no, I’m not an emotional buyer at all…

[SD Realtor]

As sdrealtor pointed out, you can simply walk away if the seller cannot coerce the tenants into leaving.

If you refer to the standard residential purchase agreement, there is terminology that obligates the seller to deliver the property to you unoccupied. As sdrealtor pointed out, you can go through escrow, get your inspections done, do everything that you need to do presuming this will happen. When you come up to the closing date and you need to sign the loan docs, if the tenants are still occupying the home, then you don’t sign the loan docs and walk away.

Now, you will be out the money you paid for your inspections, appraisal etc, but that is a small price to pay. You can try to get the seller to cover those losts costs after escrow is canceled but that will be your task, not your realtor’s task. It will most likely involve small claims court. You can attempt to obligate them contractually and to be sure the default will be the sellers fault, but trying to get blood from a turnip is never easy.

You may think the bank has a vested interest in this but they do not. The bank will either get money from the short sale or they will get money from an eventual foreclosure. Don’t delude yourself and think the bank needs the money. The banks have all been bailed out to the hilt so they have no vested interest in anything. The only think the bank has a vested interest in is removing any and all liability from everything they do. No bank would ever obligate themselves to any obligation from a tenant. There is no relationship between a bank and a tenant so why should the bank create that relationship? Makes no sense.

[bearishgurl]

[quote=zzz]SDR and BG…yes he’s advised as well, but I like to cover my bases, so while I trust him, I always do my homework as well, and know folks here have a lot of experience, so know its good to get the collective thoughts. He presented 2 scenarios, make the tenants out a restriction the deal, or deal with it if we REALLY want the property as expect this house will have multiple offers. The sellers agents are not that responsive, so yes working on getting the lease details. Thanks for the feedback.

And no, I’m not an emotional buyer at all…[/quote]

If the house is really a “pigpen” as you say and the sellers and their agent don’t really care, then they are attempting to “test” the contingencies or lack thereof of the offers they might recieve and see if they can “cherry pick” the ones with no contingencies re: the tenants and present ONLY those offers to the lender(s), regardless of price.

It sounds like a possible SS on this property here is far from being “approved” by its most senior lienholder in default.

Realize that if you close on such a property without demanding eviction of the tenants by the sellers, you may very well have to wait out the balance of a “just manufactured” lease the tenants come up with (at the 11th hr?) which allows them to rent the property below market. During the balance of their “tenancy,” they can easily do MORE damage to the property which could negate the presumed “discount” you think you are receiving by purchasing a “short sale.” And to break their “just manufactured” long-term lease (lol), these tenants could demand far more from you to vacate than the typical $3K “cash for keys” payment. If they are friends or relatives of the seller who began “renting” AFTER the seller stopped making payments, they may very likely have paid NOTHING in security deposits. Even if they DID post a damage/security deposit with the “seller(s),” it has likely been spent instead of deposited into a “trust account” as required by law and so cannot be deposited into escrow for you.

I wouldn’t do it nor would I allow a “client” to do this. As the new buyer of this cesspool, you could very likely end up swinging in the wind with not only a legal bill for eviction, but a WHOPPING bill for fixup and repairs in order to live in it yourself, not to mention having to pay PITI on it during the months you cannot take possession of it (if you purchased it with a mortgage).

[zzz]

thanks sdr and SD R, yep i think its a small price to pay as well . bg, thanks for chiming in, but lets not get melodramatic here, i get it.

[sdrealtor]

Good luck z and probably nothing nefarious going on here. Probably just unmotivatyed seller who is happy to collect rent as long as they can and tenants who dont want to move. You can sign loan docs to let listing agent and sellers know you are ready to go but mkae sure escrow has instructions not to fund the loan until tenants are gone and you have verified that as well as condition.

Cheers and good luck!

[bearishgurl]

[quote=zzz]thanks sdr and SD R, yep i think its a small price to pay as well . bg, thanks for chiming in, but lets not get melodramatic here, i get it.[/quote]

zzz, you might be shocked to learn that I know of two families who have been “renting” ONLY distressed houses in default (some listed as SS’s) for a reduced rate and low/no deposits. The one family headed by a RE agent (lol) has successfully “rented” five homes since 2010 and the other family has “rented” 15 homes since 2006. The “RE agent family” only “rents” luxury homes in excess of 3500 sf. Both families have managed to stay in the same school attendance areas all during their rental occupancies and their kids have never left their schools of attendance except to advance to the next school (ie MS, HS).

Professional “tenants” know the game, play it until the end and leave just after a 3-day notice to pay or quit is taped to their door (to preserve their credit to successfully “rent” again). The “RE-agent family” has a flatbed truck at their disposal whenever they need it and the other family owns two open trailers.

There’s nothing “melodramatic” about my posts. I’ve seen all of this and then some. You, as a potential offeror, “adopt” holdover tenants at your own peril.

[zzz]

BG- I GET IT! I understand, no need to post more. Have you heard of less is more 🙂 Again, thanks for chiming in.

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