Estoppel agreements enough???

6 Replies

Hi BPers! 

I'm set to close on a 9-unit building in Chicago in the beginning of next week. Everything is as smooth as can be for an off-market estate sale (judge involved), however there is definitely a point of concern that even my attorney isn't 100% sure about. 

In the last 10yrs there was a person/investor that has an installment contract for deed on the property, they stopped paying their payments, and also collected security deposits from the tenants. This person has now waived all claims and rights to the property and it has been recorded against the property, however the tenants (4 out of 9) have pursued this person in a class action lawsuit. It's been denied 3 times by the judge but they're still fighting it. The "owner" at the time claimed that he no longer has the security deposits because the tenants were behind on their rent payments. Besides this lawsuit this person is no longer tied to the property...it's back in the hands of the estate partners. 

All this being said, I want to cover myself as much as possible from this. I'm getting a letter certifying that I have not received any security deposits from the estate and that the estate itself never had security deposits to give me. I'm going to have the tenants sign estoppel agreements, however my attorney tells me that the tenants may come after me as new owner of the property. 

Any and all advice would be appreciated! Thank you!!!

I would say as the owner of the property you are responsible for the security deposits irregardless if you actually receive them as part of the sale.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

@Russell Brazil Would you recommend I nip it in the bud and refund their security deposits from Day 1 so they can pull their class action lawsuit? Of course this would have to be in writing so I don't give them money and they continue the suit. I spoke with the tenants and already have a good relationship with them...what I do know is they're seeking security deposit x 2 (plus attorneys fees I'm sure when they realize how much they are). 

Any recommendations on how to protect myself? Other than this issue this is a great deal well under market value with great value-add opportunities. Thank you Russell!

Originally posted by @Edouard Pierre :

@Russell Brazil Would you recommend I nip it in the bud and refund their security deposits from Day 1 so they can pull their class action lawsuit? Of course this would have to be in writing so I don't give them money and they continue the suit. I spoke with the tenants and already have a good relationship with them...what I do know is they're seeking security deposit x 2 (plus attorneys fees I'm sure when they realize how much they are). 

Any recommendations on how to protect myself? Other than this issue this is a great deal well under market value with great value-add opportunities. Thank you Russell!

 Not sure why you would refund them if they still live in the building.  

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

@Russell Brazil That's true. Some of the tenants are behind on rent and made it obvious that they were hoping to get this lawsuit finished so they can pay rent with the proceeds. If I pursue any evictions I can see this getting a little messy. Oh the fun! 

@Edouard Pierre  

First, I would suggest that you obtain an assignment of rents from the current owner and a certification from the current owner that there is no rent. 

Second, If possible, obtain a certification from each unit that they do not have a security deposit and indemnify you from any such claim. 

Third and this is just some advise I provide my Chicago clients, consider taking a half months non-refundable administrative fee instead of charging a security deposit. 

In the city of Chicago, the local ordinance is so tough on landlords, in that there are various requirements from depositing the security deposit in a separate interest bearing account all the way to a procedure that has to be followed if you intend on not refunding the earnest money deposit. Many of my clients, who should be entitled to the security deposit and have withheld have been sued by tenants for not following the notice protocol of withholding the security deposit. In fact there is an entire industry of attorneys who just handle tenant security deposit type lawsuits. 

Ahmed Motiwala, Attorney in Illinois (#6305840)
847-786-8999

@Ahmed Motiwala  

Thank you very much for your suggestions! I have already started getting the assignment of rents from the current owner and will be meeting with each tenant to get estoppel agreements signed indemnifying me of any security deposit claims. 

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