Eviction

12 Replies

Hello Biggerpockets,

I have a questions regarding eviction or possible evictions.

I am currently under contract with an owner who is in pre foreclosure process. The property is a 3 family, and I currently have it below appraised, and market value. Even with though the property needs work the price that I am purchasing it for and putting into it will still be below appraised value. I've had this property under agreement since Thanksgiving. Thereafter, we decided that is would be best to have closing on the 2nd of January to allow the two tenants that live on 1st and 2nd unit 30 days to leave the property. They have been tenants at will for sometime and haven't been paying either.

During P&S we decided we'd extent closing to the 9th. A week prior to closing we were informed that the tenants haven't found a place, and it doesn't seem the seller wants to do eviction. I forgot to mention that I will be renting back the 3rd unit to the seller for up to 6 months until he finds a place. Now on January 9th I agreed to give the seller two more weeks to get the tenants out.

My finance people, who are hard money are asking for status because that two week is approaching. (Closing on 23rd) they suggested either taking the tenants on and conduction an eviction if he can't deliver vacant or walk away. Now if he doesn't deliver of vacant he will have breeched the contract.

My question is what is to be done? I've never done an eviction before, and feel the seller isn't working hard enough towards this. By February he will be in a full foreclosure, and most likely will be asked to leave himself.

Is the seller underwater in value??

You say 3 family meaning a tri-plex right??

Many parts of Mass. is pro-tenant.

Ann Bellamy is a hard money lender on here but also an investor and is in Mass. so I would give her a call.

Is the seller insolvent?? Meaning is their credit already trashed and their liabilities exceed their net worth.

Are you buying this on a short sale??

If the seller will not deliver it vacant then you might need to re-visit your offer price. Count on long eviction times of months and months and thousands per unit for rehab to get rent-ready again. Are you trying to flip this after rehab or hold??

Bottom line is if the seller is insolvent they do not care generally what happens. The rent back for 6 months to the seller is a mess. This deal can turn really bad based on what the seller is trying to stick you with. I wouldn't do it but that is just me.  

@Caleb Charles  Have you knocked on the door and talked to the tenants?  Build communication with them and say... hey were about to take over this property... move out in 5 days and I will give you $500 cash money.


Frank

Frank Romine, Real Estate Agent in CA (#01957844)

Without knowing the sophistication of the tenants it's hard to say what they would do.

In a pro-tenant state and especially if the tenants have bad credit they do not care about eviction and getting 500 bucks.

In fact when you factor in their moving expenses, first and last months deposit with rent payment they would have to come up with likely thousands of dollars just to break even going to another place.  They would also have to stop utility and transfer elsewhere etc.

If they know they can milk the system for months on end with free rent they won't take 500 when they can save 5,000 in total costs.

So you can offer 500 as some banks do for "cash for keys" left in broom swept condition and see if they go for it. Usually the tenants balk at the offer and the offer is raised substantially into the thousands and higher or the tenants say just evict me and milk free rent.

It's all based on if the tenants haves something to lose or not.  Do you have complete files on these tenants for credit and income or did the seller keep bad records and you have almost nothing??

@Joel Owens
Hi Joel, thanks for the useful information. Yes, this is a 3 family triple decker. Very common in MA, and all throughout Boston. Very solid buildings, and depending on the location are priced extremely high.

Aside from that, I presume the seller is insolvent, because he's been in pre-foreclosure since March of last year. From my understanding he has until the 1st of February until the bank starts to kick him out.

This was brought to my attention by my broker. The seller hired a broker within the same office to sell the property, but they never listed it on MLS. My broker quickly notified me and asked if I wanted to take a shot before they list it. I originally didn't agree with price, because of the work needed, and I thought it was unreasonable. So I offered $80k less than asking. Especially after learning about how he would be making money from the sale since the money owed was way less than what they were asking for. Originally they thought it was too low of an offer, than he came back and said fine if he can occupy his unit, until he finds a place to move. I agreed only if he paid rent, and removed the 1st and 2nd unit tenant before close. We created a certificate of occupancy, and schedule A on the P&S that stated the terms of me renting back the unit to him. He can't exceed that amount of time, and has to allow me to do repairs where is necessary.

My original plan was to fix it and rent the property, and than refi with conventional. It's 4br 1,500SF each unit and has 3 garage in the back, which is somewhat rare in the Boston area. Most 2 family or 3 family have off street parking. In that area rent would be $2,000+
Than when I conducted an appraisal for my lender it came back way higher than we were anticipating. Than I thought of maybe wholesaling it.

I just received updates last night that the 1st unit tenant has started to move their stuff, and the 2nd unit needs until the 30th to move into their new place. Since my lender is hard money, they told me to ask for a letter from the tenants and updated P&S if we are going to move closing again.

Frank R. Hi Frank, I've been informed about the "cash for keys" but I haven't met the tenants. Everytime I went they weren't home.

@Joel Owens I also tried to go back on the rent back, it was either that or walk away before P&S because we already agreed within the offer.

@Frank R. , $500 as cash for keys won't cut it in MA.  Rents are high, courts are pro-tenant, and evictions can take years, especially when the owner doesn't live in the property.  So $500 in MA is probably laughable to the tenants.     I know an investor who offered 30K  (yes that's $30,000.00) and still couldn't get a previous owner out of the property.  Took him years.  He actually presented at my Black Diamond networking group on the situation, it was so bizarre.  

@Caleb Charles, I'm not your hard money lender in this circumstance, so I can't speak from their perspective.  And you appear to be a Dave Lindahl student from your use of the term "emerging markets".  Have you run this deal past your MA coach from the Lindahl program?  He should be cautioning you in this deal.  I'd ask for his perspective if I were you.

Assuming it is in MA, there is not much about this deal that is good for a beginning investor:

1.  If the seller were good at managing tenants, he probably wouldn't be facing foreclosure.  So since he doesn't have much motivation in this deal to get the tenants out for you, (Read:  he's not going to make any real money from this transaction)  assume that he won't.  You will therefore be stuck evicting two non-paying tenants in the most pro-tenant state in the union, bar the possible exception of California. 

2.  If the seller had enough money to pay rent, wouldn't he be paying the mortgage on the property?  Oh, wait, he doesn't have any income from the tenants.  Hmm.  He has very little money or he wouldn't be losing it to foreclosure.  I would be expecting that you would soon have to evict your third non-paying tenant, namely the seller.  By putting a rental agreement with the seller into effect, you are affording him all the protections of the Commonwealth of Massachusetts' very liberal Housing Court.  

3.  If you insist on going forward with the purchase, I would negotiate the heck out of the price to purchase, to compensate for the considerable loss you'll incur considering no rents, months and months of 3 evictions, while you pay taxes, insurance and hard money interest.  Not to mention repairs from vindictive tenants.   Sounds great, doesn't it?  

Sorry, Caleb Charles, I'd tread very carefully in this deal.

Caleb why not wholesale it and let another investor take all the risk with a deal that has so much "hair" on it.

Hair in case you are not familiar is a term for a deal that is very messy with a lot of layers to overcome to make it successful. So in other words a longshot where a lot of things could go wrong. If you are putting a little capital into a longshot it is not generally as bad but you don't want to put a ton of capital into something they might play out very badly.

I do not know if you can do this with a 3 unit as I do commercial but in a situation like this I would require "holdbacks". So if the seller is getting proceeds from the sale then those will be held in a neutral escrow account and given to the buyer upon default of the seller.

We do this in commercial and it keeps the sellers honest. They know once it close they just say "sue me" because they know most do not want court costs and time to go after them. So you learn their true intentions with a hold back. If the seller really believes what they say they are telling you is true they do not have an issue with it. If however they are running game or believe it is not going to happen they will fight the hold back.

Is this a short sale?? How is the seller getting proceeds if the property is in trouble?? Seems like important missing pieces here. 

@Caleb Charles Ideally you want to purchase this 3 decker "broom clean" (no debris or Tenants) and with a "clear and marketable title.

Otherwise, NEXT!

The last time I, almost, purchased a property, I found that all the Tenants were related (different surnames as in-laws) and it would've taken forever to get them out!

Although the Tenant/Landlord laws in Massachusetts seem unfair it's in your best interest to learn them before you get into any more situations. Have you spoken to the Tenants?

@Joel Owens  Hi Joel, thanks for the info. I have received offers from interested parties. Seasoned investors are trying to grab as much multifamily in these areas due to the fact rents are climbing, and properties are at a premium.

We've also heard that the 1st unit tenant is starting to move, and the 2nd unit tenant needs until the end of the month to move into their new place. For more reassurance my lender and I have requested a signed letter from each tenant stating that they will be out before closing. Also, pictures of the empty units. That was a first for me. From my review it showed that the owner owed 190k. I'm getting the property above that price so I assumed anything above that is going into his pockets. I know I shouldn't assume, but I don't know what else he owes. Also, I've been informed that his window of opportunity to sell is fastly approaching. 

@Ann Bellamy  Ann, thank you for the detailed note. I have communicated with my coach, and he's advice the same. I've since asked for an additional $25k. Currently waiting for a response. I will keep you informed of the progress. I spoke with an investor who just evicted an owner's family member to purchase a property in a prominent area. He informed me that the owner was scared to evict his own family so he stated if he went lower on the price, and gave him some time he would help him through the process. The investor stated since the tenants weren't paying he got his attorney involved, and he took over from there. 

Aside from that he has agreed to deliver it vacant, and most likely I won't purchase it if he doesn't. I've also tried to go back on renting back to the seller, but stated that was the reason why he agreed to sell it to me. I'm going to talk with my attorney again but we are now past the P&S and have created an addendum.

Caleb, Ann is right regarding it not being so easy to get people out here in MA. The first thing is: do they have a lease? If so, what are the terms? If not then they are tenants at will based off the expired lease (if there was one). You can kick them out you just have to send a notice to quit and follow some other rules I am not familiar with. If your attorney isn't familiar with the process get someone who is.

With that said, always always always have a lease. The Greater Boston Real Estate Board has a standard lease (fixed term, never to self renewing) mold addendum, lead law forms, rent and security deposit receipt and condition statement. Use a landlord addendum also. I'll email you mine if you want a template.

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