Seller will not evict tenant for wholesale deal?

12 Replies

I am about to lock my property under contract with a seller who's father passed away and had a bunch of SFH properties. I got the property for a good price and I was telling him for a week that we would likely evict the tenant as we would do work to the property. She's been there for over 10 years and he said she doesn't even have a lease agreement she just pays him every month when he shows up. However, the day of me sending the contract when I mentioned if he could remove the tenant by COE, he freaked out about it and said we would have to proceed with that ourselves (basically the cash buyer would) after closing cause he says anything can go wrong before closing. I understand where he is coming from but do buyers typically have major issues with this? Is this such a strong market currently would they even care? What are your thoughts?

I think it depends on who your target buyer is going to be.  If it is a seasoned investor/flipper, they won't have an issue with it.  If it is going on the retail market, that will be a huge red flag for most people.  Either way, it is going to be a headache in addition to holding time so that should be factored into the deal. 

Originally posted by @Sheldon Zimmerman :

Well, this can really depend on the Landlord/tenant law is in your area. I can talk you through a few things if it is in PA. But if you are in another area then I probably can't help. It all depends on the local laws. If you don't mind me asking what area? 

I'm wholesaling virtually from Georgia but this deal is in Louisiana. The property is certainly a fixer upper style property so I don't think there would be retail buyers even though there seems to be more than enough margin for a wholetail deal.

Originally posted by @Adam Silvers :
Originally posted by @Sheldon Zimmerman:

Well, this can really depend on the Landlord/tenant law is in your area. I can talk you through a few things if it is in PA. But if you are in another area then I probably can't help. It all depends on the local laws. If you don't mind me asking what area? 

I'm wholesaling virtually from Georgia but this deal is in Louisiana. The property is certainly a fixer upper style property so I don't think there would be retail buyers even though there seems to be more than enough margin for a wholetail deal.

 This is exactly why sellers won’t evict paying tenants….if you can’t wholesale it, you walk away, the seller has no sale and an empty house. If you offered $5k non refundable EM, then maybe. 

Originally posted by @Adam Silvers :
She's been there for over 10 years and he said she doesn't even have a lease agreement she just pays him every month when he shows up. However, the day of me sending the contract when I mentioned if he could remove the tenant by COE, he freaked out about it and said we would have to proceed with that ourselves (basically the cash buyer would) after closing cause he says anything can go wrong before closing. I understand where he is coming from but do buyers typically have major issues with this? Is this such a strong market currently would they even care? What are your thoughts?

First thought is YIKES!  A person with no written lease living there for a long time would have scared me right off the bat.  If there is no formal agreement I wonder if the tenant could be protected under squatters rights, which can be a very sticky wicket.

My main question is this: Did you have anything within your purchase agreement that stated that it was the responsibility of the seller to ensure that the property was unoccupied by the time of sale?   If not, I would think that you're on the hook.

The only alternatives that I can think of is that you would have to proceed with an eviction(following state law) carefully, or draw up a short term lease agreement with a non-renewal.  I am not a lawyer, however, so take it for what it's worth.

If I’m listing a property with a tenant, the price depends on how complicated the tenant is. If it’s a squatter, the price is really attractive because the buyer will start from evicting the occupant.

If we do have a lease or some kind of agreement- then it’s a market price.

This is not even a listing: if you won’t find a buyer, the seller will lose the tenant. Why would he do that?

Originally posted by @Nick C. :

You think the seller should evict a tenant of 10 years because you may or may not find a buyer. Good for the seller for pushing back on this, what happens when you use your weasel clause and leave him with a vacant property. 

Nick, I'm not sure who exactly your post was aimed at, but if it was me, here's my retort.

If the wholesaler's plan was to sell the property to someone without a tenant in place and had an agreement with the seller as such, then hell yes, I would proceed with having that renter relocate(this does not mean maliciously).  But by your response, it looks as though you feel that the OP should now change his whole business plan because of this?   And you support someone not holding to their word?(i.e. the Seller). That is rather unseemly...

In that case, how would you feel if you took your family on vacation only to find someone sitting in your hotel room, uninvited?  Are you going to tell your family, "I'm sorry kids, were going to go home now, change of plans..."

As for a "weasel clause" I have no idea what that means.  First a verbal/handshake deal means nothing (just ask the relatives of the McDonald brothers), and if the intention was to wholesale the property without a tenant, then you need to have it in writing.  Wasn't that the plan and isn't that the dilemma?

If this is not the dilemma, then let the tenant stay, but have her at least sign a lease.  That's the more responsible way to rent, in my opinion.

@David Cozzi my post was replying to the OP. You might want to re-read the original post again, especially these parts: 

"I (wholesaler) was telling him (seller) for a week that we (wholesaler) would likely evict the tenant"

"the day of me (wholesaler) sending the contract when I (wholesaler) mentioned if he (seller) could remove the tenant by COE, he (seller) freaked out about it"

This doesn't sound like there was any agreement to sell the property vacant. Sounds more like the wholesaler told the seller he would deal with the tenant and then tried to change the terms last minute just before signing the contract. And now predictably the seller is pushing back. 

So for the OP's post, using your analogy the family on vacation would be the seller and the someone sitting in their room uninvited would be the wholesaler. 

A weasel clause is an "out" for a wholesaler. Something like "contract is subject to partner's approval". That way they can tie up a property for weeks, or even months, and then walk away with no repercussions to the wholesaler. The seller usually gets screwed, they end up closer to foreclosure, down whatever their holding costs are, and miss out on valuable time they could have sold the property to someone with the ability to close, etc. 

I do no not think this is an issue with most investors, we frequently purchase properties with tenant in them.  

We do however want proof that the of the tenants payments.  If they are not paying (or there is no proof) we require one years rent in escrow to cover ourselves if the tenant does not pay.

I wouldn't do it if I was him.  Also why are you going to evict her?  Simply give her notice to move.  If you evict someone, you need cause and it goes on their record.  If she's been there for over 10 years and paid her rent on time, she does not deserve to be evicted.  Yes she can move, but not evicted.

@Adam Silvers You would reduce your buyer pool, especially with the eviction moratorium out there but it's not impossible. In my market I have a buyer list of +8000 cash buyers, out of that 300 are my active "Preferred" buyers but only 6 guys are buying properties with unpaying or problematic tenants right now... it'll get better when/if the moratorium gets lifted... 

Btw, even if she doesn't have a lease you should check your state regulations, if she's been living there for 10 years and has been consistently paying rent... there's a big chance she'll be considered as a tenant.