Anyone bought a REO with a tenant in it?

Question

I am aware of the Protecting Tenants at Foreclosure Act of 2009 but I was wondering if anyone has had any direct experience with buying a foreclosure with a tenant in it?

For instance, I assume to get protected from eviction under this law that the tenant is required to:
a) have a written lease
b) give you a copy of the lease

How do you verify that lease is authentic?
Is an aural lease good enough to prevent eviction?

What is stopping you from forcing them out due to a breach of lease for;
a) not maintaining the yard
b) being 1 day past the day the rent is considered late
c) any other minor thing that may be in the lease

Thoughts? Opinions? Experiences?

Dion DePaoli · Answer

If the tenant can not produce a copy of the lease then the agreement is treated like a month to month and the 90 day rule from the Tenant Act applies.  This is only applicable to a tenant not borrower.

I have had squatters attempt to pretend they are leased tenants in which we ask for proof of payment to the original borrower landlord.  If they were unable to show that proof in most of the cases we were able to proceed with eviction proceedings showing that in court.  (You still have to evict squatters legally if they are present prior to receiving the sheriff deed.)  I believe our eviction attorney's also presented a copy of the mortgage when it stated property was to be used for primary residence as further support to the case.

Lenders have agents assigned to properties once the FCL is complete and sale finished if the property reverts.  Typically we sent agents out to knock on doors to offer DIL to borrowers or to get a firm idea of who the occupant is.  The agent would ask for a copy of the lease and turn it in to our mortgage servicer who then sent us a copy.  If a tenant is in place they have two choices pay or get out.  The agent was armed with a letter from our mortgage servicer stating the change in ownership and their rights.

In the event a lease could not be presented we asked for same proof of payment to establish rent amount if that was disputed.  When those rents fell under reasonable market rents it was typically due to a non-arm's length lease and we were able to get a judge to approve our rental amount request and order payment from the tenant on a month to month lease presented to the court.  If the tenant failed to make payment once ordered eviction was started.

I have had some real wacky circumstances in our NPN's gone REO.  For the most part we showed we attempted to work within the scope of the Act and breach was on the tenant side.  For the most part we typically prevailed.

Donna Smolinski · Answer

:)  You probably have alot more info than your competition, so it might work out to be a good one for you.  Good luck.  Let me know if you get it.

Robert Steele · Answer

Thanks Dion DePaoli

Very informative.

Dion DePaoli · Answer

As one other note to the existing lease.  If one is in place, get a copy and read it.  Landlords have rights too.  See what is spelled out and I agree most of the time if a tenant was present that didn't want to work with us, usually through the lease we found something to pick on.  That said, we still didn't start eviction until the 90 day minimum had passed unless it was for non-payment.

Ann Bellamy · Answer

Donna Smolinski, agreed.  But I have knowledge of the original owners, the interior condition a year ago, and the original listing agent from a year ago (not the current one)

And it's a good deal if they accept my bid.  So my risk is significant but mitigated to some degree.

Walking across the street is a bigger risk.  :-)

Donna Smolinski · Answer

Yikes Ann!  That's an entirely different situation than mine, with alot of unknowns.  Personally, I wouldn't proceed unless I got some answers from the listing agt or... it would have to be a REALLY GOOD BUY!   If list price isn't at deep discount, it may not be worth it.

Ann Bellamy · Answer

Donna SmolinskiThe "offer" is a bid on the gohoming.com website, and I have to accept their contract or not bid on the property.  End of story.  The listing agent is totally non-responsive.  So there are no contingencies, and likely to be no lease documents, since the people who you are connecting with to close on the property are in India and have a local closing attorney.

I posted another thread on BP about this, just looking to get anymore feedback from others about dealing with tenants, piggybacking on Robert Steele's thread since I will be dealing with that same issue.

Mark H. · Answer

The situation you've posed is a little *too* convenient for me.  Two-year leases are rare here, and a *three* year lease for a sfr would be just weird.

The law seems very vague on mechanics, and I'd suspect in the case of vagaries, you're looking to the applicable state law.  In my state, no lease over a year is valid unless it's in writing.

So in the case of a tenant claiming a multi-year lease, but refusing to provide a copy, I'd file for eviction, the burden of proving the existence of a multi-year lease would fall on the tenant, so they get to put-up-or-shut-up, and you get to see the lease in court.

Then you go after the "arm's length" provisions, the *exclusion* for leases executed *after* the notice of foreclosure sale, and defining "market rate" rent.  The law is pretty clear about who is allowed to live in the house...

If the lease really is at or near "market rate", I don't know why you would evict, just let them pay you and stay - and enforce any penalties in the lease for leaving early...

Donna Smolinski · Answer

That's not always the case.  If it's truly an arm's length tenant, they are happy to furnish a copy of the existing lease to the foreclosing lender (as what happened in my case with FHLMC).  If they say it was an oral lease, or they can't find the lease, then the REO lender might have drawn a new month to month agreement, rather than choosing to evict them.   But in most cases, the tenant will have the lease, unless they are actually the previous owners, claiming to be a tenant.  You need to be sure the occupants are NOT the previous owners, because that's most likely going to be a hostile occupant.

In regards to not being able to see interior because of tenants in place:  This isn't uncommon if it's a REO with tenant in place.  You will need to write the offer with a contingency for interior inspection and approval of existing rental agreement or lease.   After your offer is accepted, the listing agt or PM should be able to get you inside.  With a little luck, you might even get a copy of the rental agreement before writing the offer (but don't count on it).  In my case, we didn't get anything until after price/terms were accepted.

Donna Smolinski · Answer

[b]

a)  Not a good reason for eviction, but you can charge the tenant for the costs to maintain the lawn "IF" the lease doesn't require the LL to maintain the lawn.
b) Being 1 day late isn't going to hold up very well in court.  If they pay their rent, even a week late, that won't be fast enough to process eviction.  And once the rent is paid, you won't be able to proceed with eviction.
c) You need to get a copy of the lease to see if there are any other breach.

With all that said, if there is a bonafide "arms length" lease in place, you will have to honor the lease, unless they breach some terms.   I only purchased one property with a tenant in place.  They were very sloppy housekeepers, didn't do much to maintain the landscape, but they were good people who paid their rent.  This was a Freddie Mac REO and the tenant was in place when they foreclosed.  FHLMC had the property mgmt company draw a new month-to-month rental agreement when their in place lease expired.  By the time we purchased and closed, they already had 5 months into the new rental agreement, so we didn't have to give the standard 90 day notice.  We gave them a 45 day notice instead of 30.  The month to month agreement only required 30 day notice.  They appreciated the extra 2 weeks and they are moving out this Thurs.  You need to remember, that tenant's are victims and should be handled with care.  If they are decent tenants, work with them.  In the long run, you will be better off.

One thing to be cautious of:  Sometimes the foreclosed owners say they are a tenant and they draw up a phoney lease with a relative's name (different last name than their's).  This happened to us once.  The relative was residing in the property with the foreclosed owner.  They tried to tell me they were all innocent tenants, not the owners, but we knew better.   It took some investigative work, but we were able to PROVE the owners and extended family were residing there.  We gave them CFK to get em out in 3 weeks instead of dealing with Eviction.  They wanted 90 days.... no way!

Hope this gives you a little insight.  Sorry it's so lengthy.

Anyone bought a REO with a tenant in it?

Most Popular Reply