I'm under contract for a house I believe may be rented illegally

Member since 2018 · 9 posts · 0 votes

Hi all,

I'm under contract for a house in South GA that I believe may be being rented illegally. The house is expected to close in a few days but I believe the broker may have rented out the house illegally. If title has cleared and the transaction is cleared to close, what should someone do in this case? If the lease is technically illegal, will I be able to evict the tenants once I have legal ownership? Are there GA laws that would apply to this that I should know?

Thanks,

John

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Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

Who is "he" that has no lease? Can you explain who the parties involved are?

You keep saying you believe the lease is illegal. Why? Are you saying the person who leased the property did not have authority to do it? Like a craigslist scammer that rents someone else house, collects the deposit and first month's rent and runs away?

If someone is living there after you close, you have a tenant. Even if they were just squatters who moved in without anyones knowledge, you have tenants. You will need to follow local law as far as giving them notice that the tenancy is being terminated and they have to leave. With no written lease, that's typically 30 days notice. But that varies by state. Consult with your landlord/tenant attorney. Find one if you don't have one. Then, if they refuse to leave you would start the eviction.

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y
If you tell us whqt exactly is illegal, it might be easier to offer advice. On the surface here, you have not mentioned anything that is illegal.
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Johnathan Kimbrow
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Member since 2018 · 9 posts · 0 votes
8y
The property is in foreclosure but the broker listed the house for rent and there are currently renters in the house
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Marian Smith
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
8y
A house owned by the bank has been foreclosed upon...and is almost always vacant before listed for sale ...whereas a house in foreclosure is still owned by a person and if they do not get current on the mortgage the house will be auctioned off in a foreclosure auction. Is the house in forclosure or has it already been foreclosed on?
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Johnathan Kimbrow
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Member since 2018 · 9 posts · 0 votes
8y
The house has already been foreclosed on and he put tenants in the house
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
To be clear: 1) Do you mean the House was In The Process of being foreclosed, the foreclosure auction had Not occurred yet, and the owner/borrower rented it out, or 2) The bank or a third party bought the house at the foreclosure and Then the house was rented by someone who was not the new owner? If number 1, the lease is “valid” but there is no longer a federal Protection For Tenant’s In Foreclosure....state law will prevail, usually 60-90 days notice required to terminate/vacate.
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Johnathan Kimbrow
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Member since 2018 · 9 posts · 0 votes
8y
@Wayne Brooks it's situation 2
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
Was the someone that's not the owner acting on behalf on the bank that owned it? If I understand correctly, the agent that is selling you the house is also the one that placed the tenants. That may be perfectly legit if he did that for the owner. OTOH, if he did it on the side, the bank is unaware, and he's pocketing the rent, then its not legit. If its a legitimate lease he should be able to provide you a copy signed by authorized persons, either him or someone at the bank. If that's the case, it remains in force after the sale. If there is no lease, request the property be vacant before closing. If you close with them in there, they are your tenants and would have all the rights of any tenant. You cannot evict for no cause, but you could terminate the tenancy per the terms of the lease. Or per local law if there is no lease.
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Johnathan Kimbrow
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Member since 2018 · 9 posts · 0 votes
8y
thanks @Jon Holdman. I asked this morning and he has no leases. I believe it was illegal. If there is no lease can I still evict? I will deal with the broker as well as this is in bad faith but do I have rights to evict when I own the house even without a lease?
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
Who is "he" that has no lease? Can you explain who the parties involved are?
You keep saying you believe the lease is illegal. Why? Are you saying the person who leased the property did not have authority to do it? Like a craigslist scammer that rents someone else house, collects the deposit and first month's rent and runs away?
If someone is living there after you close, you have a tenant. Even if they were just squatters who moved in without anyones knowledge, you have tenants. You will need to follow local law as far as giving them notice that the tenancy is being terminated and they have to leave. With no written lease, that's typically 30 days notice. But that varies by state. Consult with your landlord/tenant attorney. Find one if you don't have one. Then, if they refuse to leave you would start the eviction.
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Johnathan Kimbrow
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Member since 2018 · 9 posts · 0 votes
8y
Parties Involved:
Broker representing the bank on the already foreclosed house
Me as the buyer who is under contract and will be closing in the next 10 days
Current "tenants: who are living in said property but they have no lease associated with the house
@Jon Holdman Correct, I believe he used Craiglist to rent the houses out while the house was vacant in order to make money while the house was unoccupied
Now the said house is under contract and will close in the next 10 days. What are my responsibilities in this case and what steps should I take?
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
I assume you mean the same broker who's representing the bank also placed the tenants in it. I doubt he would have done that without permission from the bank, but of course people do the wrong thing all the time.
You have two choices. Either get the tenants out before closing or accept them as your tenants. If you're OK with the tenants and their current lease terms (security deposit, rent, and background check, in particular) you could keep them. In that case, you want an estopple letter signed by the tenants and this broker. It should outline the rent, deposit, lease term, who the tenants are and anything else that might be in a lease that's important to you. Without a written lease, they are on a month to month tenancy. Again, consult with your attorney (you MUST have one if you're going to be a landlord, do not cheap out on this) about exactly what that implies. If you keep them and you want them on your lease, you would then give appropriate notice that their tenancy is being terminated and they can either accept your new terms and lease or leave. You also want to be sure any partial month rent and security deposit gets transferred to you at closing.
If you don't want them, and your contract doesn't require you to keep them, insist that they must leave before closing. You might have to delay closing. With REOs that almost always has penalties. Though its very common for the selling bank to delay closing and there's no penalty for that. I've done this before, though not with a REO. I was buying a supposedly empty house, went to closing and asked "are the tenants out". Nobody knew, so I left closing and drove to the property (quite a ways, this was a rural property). They're still there. Called the agent and said no closing until they're out. They left the next day.
What does your contract say?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Johnathan Kimbrow:

@Wayne Brooks it's situation 2
if the broker put the tenant in without the banks permission.. and is ripping rent.. thats criminal conduct..
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Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
So, there is alot of muddy waters in the explaination of this thread. It wasn't really explained very clearly, but let me see if I can provide some thoughts and ask questions that may help clarify a little bit....
You (the Buyer) are under contract on an REO (bank owned foreclosure) for which there is a Tenant currently occupying, which you believe was placed by the listing Broker on the DL in order to make money on the side. Is that correct?
Let me first ask...what are your goals for the property? Are you going to rent it out yourself? If so, what do the current tenants pay? Is that sufficient for you? If so, then don't focus on the broker's actions, just meet with the new tenants and write up a lease after you close.
If the current Tenant is NOT sufficient for you, and there is no lease, you can either ask the Broker to make sure that they are vacated by the COE, or issue notices to vacate, following whatever your state and city laws dictate as the process.
What the broker is doing (if it is the way you describe it) is wrong. Whatever you decide to do, you should report him to the local RE board for investigation. However, you have to separate his actions from the situation before you. His actions don't have any impact on your deal other than you have to decide what to do with the Tenants afterward.
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Johnathan Kimbrow
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Member since 2018 · 9 posts · 0 votes
8y
@Cara Lonsdale cara thank you for this explanation. Sorry my initial thoughts were not clear. Still just shocked by situation. But that is exactly what is going on. And I did not know if this means I should cancel the deal myself because of the criminal actions / what my rights are once I close
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Johnathan Kimbrow
OP
Member since 2018 · 9 posts · 0 votes
8y
I am going to rent it out and what the tenants currently pay is not sufficient
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Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @Johnathan Kimbrow:

I am going to rent it out and what the tenants currently pay is not sufficient
Then my suggestion would be to submit IN WRITING to the listing Broker and the bank, that you require that the Tenant be placed on notice asap. This may not allow for a vacancy by the COE, but at least you will start the clock, AND in the process, you will alert the bank to the agent's actions.
In AZ (where I am), if the agent doesn't pass along communications to the Seller within 24 hours, the other agent or principal has the ability to go directly to the Seller, and go around the broker. If your state laws provide similar abilities, then I would reach out to the bank after 24 hours of not having a response to ensure that they got your notice.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
If this broker really is skimming rent from this place (i.e., he has rented it without authorization and is pocketing the rent) he should be reported to the state board. If that's really happening I'd be concerned with what else he's doing.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
I highly doubt the listing broker for an reo is renting out that reo, on the side, without the bank's knowledge. Notonly is it criminal, he will certainly lose his relationship with the bank, and his license.
@Johnathan Kimbrow Do you know for a Fact that the listing broker rented the house out, without the bank's knowledge.
Was the property advertised as "occupied" or "vacant"?
If you're under contract, and the property was listed as "occupied" its too late to make any demands about being vacant. If there is no Legitimate lease, or on a month to month, you simply have to follow your state laws....give proper notice to vacte, if they don't vacate, then evict.
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Johnathan Kimbrow
OP
Member since 2018 · 9 posts · 0 votes
8y
Hi all,
I have an update on the situation. The broker in this situation has gone missing and now I do not know what to do. According to him the property was short sale approved but I need the short sale approval letter and I have no idea who to contact to get this.
Is there a way I can reach out to the bank or find out which bank is in the middle of this process?
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Adam Odom
Columbia, SC · Member since 2014 · 133 posts · 190 votes
8y
A short sale is not a foreclosure then - that means they are working with owner in place of a foreclosure and will take a discounted price compared to going through the foreclosure proceedings. That "tenant" is technically the current owner.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
Buying a short sale is a radically different transaction than buying a REO. With a REO you're buying from a bank that has acquired the house through the foreclosure process. With a short sale you're buying from the current owner, with approval from the bank that they will accept less than the full amount they're owned. Your contract would be with the current owner, not the bank. The current seller may well have leased this house. "Rent skimming" is when someone leases a property but doesn't pay the mortgage. And that could well be the case in a short sale.
Do you have any contact info for the sellers? They should be named in your contract. Are the people who are living there the owners or are they tenants?
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