Buying property with tenants in place - Lease Verification

Buying property with tenants in place - Lease Verification

Rental Property Investor · Lawrence, KS · Member since 2016 · 84 posts · 20 votes

Is there some legal reason that would preclude a Seller from providing copies of leases to a potential Buyer? I'm under-contract for an eight unit multifamily and the Seller was refusing to provide me copies of her current leases until at the closing table. This is my first deal so with all the talk about phantom leases and such I definitely wasn't about to move forward with the deal without a chance to review the leases prior to closing. I'm in for about $4k already not including earnest money so it would have burned to walk away but not as bad as making a bad deal.   

I did finally get all the leases today, three days before closing. Thankfully because I've been going through them for 90 minutes, matching up all of the information with the rent-roll spreadsheet she provided earlier. Everything checks out but I can't imagine trying to do all of that at the closing with everyone sitting around staring at me. 

Her premise for not wanting to provide them was that she could not do so legally because of her obligation to protect her tenant's privacy. My attorney basically called her on that and suggested she check with her lawyer to get herself straightened out. Just wondering how others feel about this, particularly those with legal expertise.   

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  • Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
    9y

    Stanci, 

    Honestly man. the lease is worthless. It is not going to matter if they do not pay. I know someone on here will debate me and say you can collect, but it is not worth your time. You need to talk to them somehow. I always talk to the tenant prior to close. I  would ask to see the sellers bank deposits or the tax returns. that will tell the tale! 

    Just my 2 cents. :-)

    Good luck!

  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y

    Hi @Stanci March,

    It looks like you've solved this already, so this is more for the lurkers than you. Good on you for ensuring you got copies of all leases before closing, and I'm about to share with you why. :)

    That's crap. If this were residential (1-4 unit) instead of commercial, and you were getting an Agency loan, the conversation would have been very very simple (I'd have coached you and/or your agent on it :P ): 

    If curious, the reason Fannie Mae needs to see copies of all leases is to ensure there is no rent-to-own-type agreement that could threaten Fannie Mae's as 1st position lien-holder position, and secondarily to ensure no equal housing laws have been flagrantly violated in the leases. 

    To quote the lovely lady herself:

    For those not getting an Agency mortgage, you should absolutely, 100%, without a doubt, get copies of leases well before releasing your inspection contingency. The rights / responsibilities / liability / etc of what is in those leases is generally interpreted as all falling to the new owner.

    If there are leases in place that YOU are about to be liable for, that are sexist/racist/etc, that otherwise violate fair housing laws, or that give a tenant an ownership interest in the property, don't you want to know BEFORE closing? I think you should. 

    So, Mr. Sanci March, good on you for getting the leases prior to closing. Lurkers, I'd suggest getting them the first week in escrow, and being a pain in the butt about it if you need to be! 

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