Bought a foreclosure but it’s occupied

63 Replies

I’m in contract with Hudzu on a foreclosure. I’ve only seen the outside but someone is living there. It’s a 1700sqft 4/2 in a good spot and I’d like to turn it into a rental. I’m looking for suggestions and laws regarding how to best approach the people living there. I don’t know if they were the owners or renting from the owner. Thanks for the advice!

@Jason Smith stop by and negotiate a cash for keys with owner/tenant. you might also want to consult this with an attorney as well. Luckily, you're in Texas and not in Illinois. The eviction process should be a lot easier than most states.

I like that idea. It would benefit us both. How much is appropriate? The only traffic I witnessed was a girl that’s probably 20ish. She had a sticker of our local junior college on her car. 

each state is different but federal law dictates if they have a valid lease you have to let them stay there until the lease expires.. if they are owner occ you can move to evict pronto.

sometimes it comes to a shock to the person living there that the home was lost.. so be prepared for some drama.

@Jason Smith . Cash For Keys. Try $500 to start. Sweeten the offer with paying for a Rental Van (U-Haul type) to move their stuff if needed. 

As @Jay Hinrichs says, if the folks have a valid lease, they are now YOUR TENANTS until the Lease Expires. 

Originally posted by @Jim Cummings :

@Jason Smith . Cash For Keys. Try $500 to start. Sweeten the offer with paying for a Rental Van (U-Haul type) to move their stuff if needed. 

As @Jay Hinrichs says, if the folks have a valid lease, they are now YOUR TENANTS until the Lease Expires. 

I have paid for resident motel for a month before.. :)  you run some real risk buying occupied homes.. I have had them stripped to the studs :( by the time I got possession)  we will buy them occasionally but pretty much only bid on vacant any more..  

Originally posted by @Jason Smith :

@Jim Cummings another great idea about the U-haul. 

Any benefit to putting a letter in the mailbox and then stopping by at a designated time to avoid putting them on the spot? 

 I don't think so personally.. if its the owner they have been getting nasty letters for better than a year .

I always knocked or sent one of my employees.. but most of the time I did it personally so I could size up the situation.

I could write a book or a white paper or a blog on all my hundreds of deals I bought and doors I have knocked.. 

but basically I want to look at it.. 

Originally posted by @Michael Plante :

It’s occupied

You want to turn it into a rental

Maybe you already have a tenant

 I did this probably 50 times and I would say 49 times I had to evict within 6 months.. maybe times they be changing .. but it seems to me or based on my experience once they go down this road.. its pretty hard for them to change their financial picture or spending habits.

Just like if you had a new tenant and their fico is crap because of a foreclosure a lot of times you may pass on them.

now it could be a tenant I have had luck  with that .. the people who lost it were just ripping rents from the lender. 

Originally posted by @Jason Smith :

@Jay Hinrichs.... help me with an opening line.  

“Knock knock”... Hi, I’m Jason______

Have your receipt..  and be matter of fact.. I was the winning bidder at public auction.. and I wanted to introduce myself and talk about what your plans are.

are you a tenant or are you the homeowner..  If they say tenant say fine can I see your lease please.  Owner then ask them what their plans are.. some will just say.. we are moving on Friday.. and will continually lie to you until you evict them..

I always give them a month or two if they are nice.. and are keeping the house in decent shape.. if you get hard nosed you can end up with a trashed house pretty quickly.. cement down the pipes etc.

Now some others do it different .. they just start eviction process with no personal contact.. if its a tenant the eviction flush's that out and then the owner is evicted.. and you deal with what you have.. Me I am more personal.

and I have made a lot of money doing it that you never know.. I have bought other distressed assets they owned.

one case in particular I got to talking to the lady it was very sad.. house was wreck .. lots of disabled type children adults living there stunk to high heaven.. and I could just see trying to get them out.. flushed out how she got there..  kids talked her into putting loan on house then blew the money ( common occurrence pre 08) when equity was all you needed for a owner occ loan.. it was on septic and well.

I ask where those are turns out the well was on the next door lot and their is no well agreement and the leach field same thing went across prop lines.. so I am thinking this could be 125k down the drain.. LOL.. so now I am thinking I am going ot need to get easements from the lot behind.. now keep in mind one reason I bought his is this property just came into the urban boundary and was zoned for development but it was a few years off.. but anyway.. I ask her who owns that 4 acres behind she says she does.. I say great .. how much do you owe.. she says ZERO... so knowing that the 4 acres one day would be worth stepped up value based on development I said to her.. and again most folks Would NEVER do this.. I said go to an attorney and come up with a number for that 4 acres if I like it I will buy the 4 acres and deed you the house back free and clear..   so long story short they come up with 150k for the land  I paid 125k for house so I sold her the house back and gave her an additional 150k for the 4 acres.. Her attorney valued it.. so I am relieved of any conflict.  So I go to work on it and turns out a developer is putting together 50 acres there and this was a key 4 acres.. I sold it to him one year later for 975k cash.. and walked away a year later with a 700k net profit.. and because I held it a year it was cap gains.. paid my tax and so on and so forth.. had I taken the avenue that most foreclosure buyers do and that is screw em .. kick their butt out they would have never got this deal etc.. I also gave the lady a stern lecture that now she owns her home free and clear.. ( oh and I gave her temp easement for water and septic until the parcel develops then we hook her up to city.. )  but stern lecture to not led the kids take her house and mortgage it.

@Jerel Ehlert thank you for that information.  It appears the bank has owned the house for a little while but obviously didn't take action to remove the residences. Would that 30 days start on the day I close and give them notice or when the bank foreclosed?

@Jason Smith great advice from @Jay Hinrichs how to approach the people. I would never lead with a cash for keys offer. People suggest that like it is some innovative idea when in reality, it usually not even necessary. Most people leave when you ask them to and if being nice doesn't work then most leave after getting served notice to vacate. If they won't leave of their own will, then bribing them (cash for keys) is a big mistake. Try to work with them on a reasonable time frame to leave, but if they refuse, get an attorney and evict so you legally regain rights. 

Originally posted by @Brian Garrett :

@Jay Hinrichs As usual GREAT story thanks for sharing!

 I have had it go the other way as well could not get them out.. I had 3 attempted suicides of which 1 was successful.

these are HIGH stress situations with owner occ's.. 

the one I described was human misery in the home at its worse.. Not full blown hoarder but children and such living in some pretty nasty environment .. I for the life of me could not figure out where they could or would go.. Most or should I say many in this line of work could careless about the hold over.. 

I once purchased an occupied property at tax auction in TX. A lawyer advised me to determine if at all possible if the people living there were former owners, tenants, or squatters, and to get their names (of all residents if possible). The eviction process would be somewhat different depending on who they were. That being the case I'd say you need to go talk to the occupants at least for this kind of info.

For the occupied property I purchased, the occupants were squatters. It also turned out that the squatter was at the tax auction and won the property, but didn' show up to pay. The county had a rebid late in the afternoon for that property. The squatter showed up at the rebid with a relative to bid again, but I won the auction. He approached me right after the auction and when I asked if he was the previous owner he'd only say that he 'lived there'. I posted a notice on the front door to vacate the property within 3 days and they did.

It might go without saying but I'll say it anyway:  If you're in escrow then you're not the owner yet.  Have all your ducks in a row and on the day you close, knock on the door.  Have your paperwork in hand and a roll of scotch tape ready to post your letter on the door when no one answers. 

On REO properties we always led with cash for keys. If they were able to vacate in 14 days, then the dollar amount would be higher. If they needed 30-60 days to move out, then the cash for keys amount was lower.

If you bought at auction, then the occupants have been getting notices posted on their door for a long time. They should be expecting you.  Fingers crossed it's the previous owner living there.  If it's a tenant then consult with a local property management company. 

Best of luck. 

 

Disclaimer: This example is in Hawaii, check your states laws. Also this was a court auction; your situation sounds like an REO sale which is slightly different.

I recently closed on a foreclosure that the owner had rented out with no lease. I notified the occupants 5 months before closing (before I even won the auction - but this was an educated decision I made ONLY because of what I knew about the tenant) and they said they would love to stay, agreed to have the $3,200 on the closing date, and I updated them every couple weeks as we approached closing. On closing date they had an excuse of how they lost their job and needed 5 more days to have the money (how a family that has been living rent free for 2 years was unable to save the deposit and 1st month to secure their 3 children's shelter is BEYOND me, but they didn't). I gave them 5 days, at which time they said they needed 2 more, etc. I finally told them it was time to go, and they had to be out by the end of the week. That's when they stopped being nice, started getting loud and nasty and telling me that I need to give them 45 days (the length of time they would be entitled to if this were not a foreclosure). 

Fortunately the lawyer that handled the sheriffs sale had filed a Writ of Ejectment, which gave me all rights to possession and gave me the ability to immediately have any occupants removed by the sheriffs department. I ended up paying a process server $125 to go over there and warn them that the sheriff would be physically removing them if they were still there when we came back. I was very lucky that it worked, because bringing the sheriff out would've cost me close to $2,000.

I would call some lawyers and process servers in your area to help determine if any type of writ has been filed on the property, and if not I would find out how much it would cost to get one filed (or go to the court house and see if the clerk will help you file it yourself). 

My situation was best case scenario, I got them out in 2 weeks for $125... the next step would've been offering them $500 to be out by the end of the week (then $750, then $1,000 or have the sheriff do it). I was also lucky enough to (VERY CAREFULLY) convince them to pay their entire outstanding electric bill, which would've been passed on to me, before letting them pick up their last two large items that they left behind. But that can be risky depending on your states laws and the occupants knowledge and awareness of those laws. I probably wouldn't risk that in most situations, but in this case I knew it would work.

Regarding a tenant that already has a lease in place: yes they have the right to stay and you have to abide by the lease (check your states laws to confirm, but this is probably true in all states). BUT, the tenant may not know that, SO if you can convince them to agree to move out WITHOUT forcing them to... that could be a possibility...some people won't want to stay once they realize they are not wanted.. just be careful and make sure you have a way to prove for yourself that you did not force them out... get something in writing saying that the tenant is choosing to terminate the lease maybe? 

At the end of the day, I bought this top floor renovated ocean view corner unit for 40% below market value in the hottest market since '05, on the highly desirable island of Maui, and had the occupants out in 2 weeks and had my new tenant moved in and cash flowing by the 3rd week after closing. I'd say I got pretty lucky, combined with my extensive due diligence of course. I hope your deal goes just as smoothly as this one went! Good luck!

Originally posted by @Greg Gaudet :

Disclaimer: This example is in Hawaii, check your states laws. Also this was a court auction; your situation sounds like an REO sale which is slightly different.

I recently closed on a foreclosure that the owner had rented out with no lease. I notified the occupants 5 months before closing (before I even won the auction - but this was an educated decision I made ONLY because of what I knew about the tenant) and they said they would love to stay, agreed to have the $3,200 on the closing date, and I updated them every couple weeks as we approached closing. On closing date they had an excuse of how they lost their job and needed 5 more days to have the money (how a family that has been living rent free for 2 years was unable to save the deposit and 1st month to secure their 3 children's shelter is BEYOND me, but they didn't). I gave them 5 days, at which time they said they needed 2 more, etc. I finally told them it was time to go, and they had to be out by the end of the week. That's when they stopped being nice, started getting loud and nasty and telling me that I need to give them 45 days (the length of time they would be entitled to if this were not a foreclosure). 

Fortunately the lawyer that handled the sheriffs sale had filed a Writ of Ejectment, which gave me all rights to possession and gave me the ability to immediately have any occupants removed by the sheriffs department. I ended up paying a process server $125 to go over there and warn them that the sheriff would be physically removing them if they were still there when we came back. I was very lucky that it worked, because bringing the sheriff out would've cost me close to $2,000.

I would call some lawyers and process servers in your area to help determine if any type of writ has been filed on the property, and if not I would find out how much it would cost to get one filed (or go to the court house and see if the clerk will help you file it yourself). 

My situation was best case scenario, I got them out in 2 weeks for $125... the next step would've been offering them $500 to be out by the end of the week (then $750, then $1,000 or have the sheriff do it). I was also lucky enough to (VERY CAREFULLY) convince them to pay their entire outstanding electric bill, which would've been passed on to me, before letting them pick up their last two large items that they left behind. But that can be risky depending on your states laws and the occupants knowledge and awareness of those laws. I probably wouldn't risk that in most situations, but in this case I knew it would work.

Regarding a tenant that already has a lease in place: yes they have the right to stay and you have to abide by the lease (check your states laws to confirm, but this is probably true in all states). BUT, the tenant may not know that, SO if you can convince them to agree to move out WITHOUT forcing them to... that could be a possibility...some people won't want to stay once they realize they are not wanted.. just be careful and make sure you have a way to prove for yourself that you did not force them out... get something in writing saying that the tenant is choosing to terminate the lease maybe? 

At the end of the day, I bought this top floor renovated ocean view corner unit for 40% below market value in the hottest market since '05, on the highly desirable island of Maui, and had the occupants out in 2 weeks and had my new tenant moved in and cash flowing by the 3rd week after closing. I'd say I got pretty lucky, combined with my extensive due diligence of course. I hope your deal goes just as smoothly as this one went! Good luck!

 Nice work Greg!

Protecting Tenants at Foreclosure Act expired on December 31, 2014. This federal law required 90-days notice before eviction. This federal law no longer applies, so the new owner does NOT need to abide by the terms of the lease and, in Hawai‘i, can kick out existing tenants before the lease terminates. In Hawai‘i, you need to get a writ of possession and judgment for possession. If the writ is not secured at the confirmation hearing, you would need to file one on your own. If you are going to win the auction, it's best to attend the confirmation hearing and ensure the attorney secures the writ. This pertains to judicial foreclosures filed by a mortgagee.