Buying property with a Lien on it

Buying property with a Lien on it

Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes

Hi, I am in contract to close on an apartment building, but while closing we found that there was a lien on the property. Basically it's a lien stating that the service company (lets just call them company A) gets exclusive right to the laundry room in the building.  The lease stats the lease term is 7 years starting from final installation of the laundry unit.  There is a clause that any person who takes over the possession is tied to the lien as well.  There were no coin operated laundry machines installed (actually there is a free washer and dryer in the apartment building) so technically the lease has not started yet.  I have no intention of installing a coin operated machines in the apartment.  One concerning point is that the contract states the number of units in the apartment, and that the lessor shall not reduce the number of living units without prior written consent.  The number of units on there is way more than actual number of units that the building currently has, so I assume the current owner has combined some of the units (but most likely without a written consent).  This is a very great deal from the numbers perspective, but should I be worried about this Lien? I know i will most likely have to go through the same issue when I sell the property but should I be worried otherwise?

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Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
6y

Just me, I’d have no concerns whatsoever. From a practical point if they ever pursued it....they have not done anything with the space, obviously they are not paying any royalties to the owner, so I’d confidently argue they have abandoned the agreement/space. 

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  • Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
    6y

    bumping to see if anyone can help.

  • Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    Just me, I’d have no concerns whatsoever. From a practical point if they ever pursued it....they have not done anything with the space, obviously they are not paying any royalties to the owner, so I’d confidently argue they have abandoned the agreement/space. 

  • Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
    6y

    Thanks for your input.  I think they may have tried contacting the seller and seller just ignored.  I'm not 100% sure.  I'm just stuck on the part that says no reduction of living units without written consent, and i know the seller has breached this so I don't want this to come back to me.

  • Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    @Michinori Kaneko You don’t know that the owner combined units....and again, I think you are over concerned about nothing. 

  • Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "Basically it's a lien stating that the service company (lets just call them company A) gets exclusive right to the laundry room in the building."

    That's pretty standard, so it's not unusual.  I've told owner that if they hire a laundry service guy to be aware.  They are about as bad to get out of as garbage (assuming you're a non-franchise account) contracts.

    You can get out, but you'll pay back an amortized amount of the up front payment they gave the previous owner and then NPV on future collections.

    I'd say, I wouldn't call off the deal, but read the contract to see when you can get out VERY CAREFULLY.  You usually get like  2 week window with specific notice details or it just rolls over for another term.

  • Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
    6y

    So did you already pass your due diligence period, or did you find out all this within the timeframe? Regardless, I think these are small issues, but still something that can be an annoyance. If you really want, get a written statement from the seller (will be difficult to do) stating that he did in fact reduce the number of units and that any liability will fall upon him (an additional indemnification statement, which already should be in the purchase agreement). Just so I understand correctly, the laundry service contract states that you cannot combine units, or is it another agreement altogether? 

    As for the laundry, it doesn't hurt to give it an attempt to have the current seller request this to be re-negotiated (maybe for a small fee) and remove this contract between them. I'm not sure if this is truly a lien on the asset (would have to see verbiage) or just a simple service agreement stating they get to service it first. Especially if you don't plan on installing coin laundry, then it doesn't hurt to attempt to have them rescind. Still, I don't think this is a major issue. 

  • Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
    6y

    @Wayne Brooks i do, because on the lease it stats that there were 77 units in the building, but now there are only 62.

    @Steve Morris Thank you.  You are right we are actually trying to settle out of this lease before closing.  I feel like they probably make more money from something like this than actual laundry service lol

  • Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
    6y

    @Ujwal Velagapudi  Thank you.  I am past the diligence period, but deal actually fell apart once and this issue didn't come up until we tried closing at the very end so I think I can walk away any time if I needed to.  Lease says they have exclusive usage authority of small laundry area within the building.  I believe the core problem was that when they came to look at the property they needed the seller to modify water pipes and drier hook up, and that would have cost the seller a fortune to make that change so he decided not to pursue.  Then, he installed a free washer and drier on his own.  I have suggested that option about getting written agreement from the seller, but because how vague the contract is, the title company and closing coordinator suggested that we do not go that route.  We are trying to settle out of the lease before closing.  I am not happy im paying a small portion of it but i'd rather be free and clear than worrying over next several years so I think we will go that route.  thanks for your input!

  • Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "this issue didn't come up until"


    OK, you need to talk with your broker.  You should've gotten a PTR with title exceptions from title.  In my PSAs, buyer needs to waive those ion writing to continue to close.  Should've happened within the first 30 days.

    That laundry contract would've been recorded (at least everyone I've seen) on title.

  • Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
    6y

    @Steve Morris Def didn't know about it until last week when we were trying to rescue the deal after it fell apart once.  It was recorded as a "exception item" on prior title (and not sure what it means by "exception").  But then again, we've been verbally talking about this offer since February but we didn't sign a physical purchase order until late May so maybe it was technically within 30 days.

  • Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "was recorded as a "exception item" on prior title (and not sure what it means by "exception")."

    I think title calls everything recorded on title as an exception.  That means they either get removed at close (like prop taxes due lien) or survive close (like an easement).

    Sorry, I still think this is on your broker.  He should've seen it and told you since he has some (I hope) experience in comm RE.  It also should've been a contingency in the PSA.

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