Seller lied about rent collected

Multi-Family and Apartment Investing
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Seller lied about rent collected

Carlos Enriquez
Santa Rosa, CA · Member since 2015 · 191 posts · 75 votes

Outlined for brevity.

  1. Recently bought a duplex.  My first multi family investment transaction.
  2. Realtor used Form 21 Residential Real Estate Purchase and Sale Agreement.
  3. No clauses for requesting the pertinent financials (leases, rents, expenses...).
  4. I asked about using Form 20 Multi-family Real Estate Purchase and Sale Agreement.
  5. It has section 17 y clause stating all records to be produced within 10 days.
  6. Realtor annoyed and said I was questioning his professionalism and form is correct.
  7. I went ahead under duress (never again!).
  8. First month rent due as new owner...now one tenant can't pay.  The other is paying $1750.
  9. He said that he's been paying $1750 while the lease says he's paying $2100, so he can't afford it and wants out of lease.  He won't pay August rent.
  10. No security deposit, no other monies required from him in previous lease.
  11. Found out he is a close personal friend of seller.  Lease showed higher rent possibly so that I could visualize a positive cash flow.  With the below market rent, it is not.
  12. Realtor incompetent, seller fraudulent, tenant loser, new owner screwed!

My PM, who's been fantastic, has started the eviction procedure.  We are trying to get the tenant out so we can mitigate this and get market rent in September.

But that realtor and that seller!!!  What can be done, if anything, about those guys?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Brett Alphin  get real sue happy folks.. @Carlos Enriquez complain to broker .. 0ther wise suck it up and move on.. cost of attorney for these minor nusiances deals will cost you more than you can gain

I just have to laugh at all these folks that think getting an attorney is going to solve your problem when in fact it will put you deeper in the hole

you get an attorney when there is real money involved and the seller has MONEY or insurances otherwise you will get another education in what not to do

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  • Brett Alphin
    Real Estate Agent · Los Angeles, CA · Member since 2015 · 53 posts · 62 votes
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    You can most likely sue them the realtor for fraud. They knowingly falsified/ misrepresented the property. I'd contact a real estate attorney. Meanwhile, it would probably be best to just get the negligent tenant out peacefully, and get it re-rented ASAP. Then sue him for breach of contract, and the realtor for fraud. You can also go after the realtor's Real Estate License by filing a complaint with the Real Estate Board. Good Luck!
    8Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Brett Alphin  get real sue happy folks.. @Carlos Enriquez complain to broker .. 0ther wise suck it up and move on.. cost of attorney for these minor nusiances deals will cost you more than you can gain

    I just have to laugh at all these folks that think getting an attorney is going to solve your problem when in fact it will put you deeper in the hole

    you get an attorney when there is real money involved and the seller has MONEY or insurances otherwise you will get another education in what not to do

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  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
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    Carlos,

    If it were me, I would have your agent's broker contact the listing agent's broker about the incident. The listing agent must have E&O insurance that you can go after. I would file a complaint with the Bureau of Real Estate Department so they can investigate and revoke his license.

    Will see how far that goes before I hire an attorney to write a letter to the listing agent, his broker and the seller for fraud and threaten to sue them. It will cost several hundreds to $1k, or even $2,500 retainer fee, but I bet you can extract a lot more money from three of them for fraud. That's just me. 

    Yeah, this is the first time I'm not 100% agree with @Jay Hinrichs.  :0)

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Account Closed  fine minds do not always think alike.. but we still love each other !!!!

    one could make a case against the E and O insurance for sure.. but I am not in the get an attorney camp for minor deal infractions and for me this is minor.. but for others it could be the end of the world..  LOL...

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  • Christopher Telles
    Investor · Irvine, CA · Member since 2015 · 373 posts · 205 votes
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    I'm with @Jay Hinrichs hiring attorneys and filing lawsuits will only deliver psychological gratification while setting you back thousands of $$.

    The most cost effective method to put people on notice, in the event you need to later recover damages e.g. from a negative cash flowing property, selling expenses, etc. Write a letter of complaint to the agents managing broker listing all of your presumed issues that caused you actual damages. Give them the opportunity to make you whole while including a phrase you reserve the right to hire counsel to protect your interests. Then see how they respond.

    They may or may not offer to mitigate your damages through some form of payment offer. 

    Depending on your actual damages you may want to at some point speak with an attorney to see what your prospects might be to get the brokerages error and omissions insurance to pay those damages. Never been sued, never had to sue anyone, never had to use my very friggen expensive E&O policy before (thank you up there) so not sure if you'd need to file suit first to gain a judgement before pursuing E&O.

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  • Joe Bertolino
    Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
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    E&O covers and error or omission. Material Misrepresentation is not an error. I think the claim would be denied.
    1Reply
  • Account Closed
    Rental Property Investor · Austin, TX · Member since 2015 · 74 posts · 22 votes
    11y

    So in the event that the seller exaggerated rents to make it look better than it is, and the agent did actually know and cover up material facts to make the sale - I say go after both of them.

    I know from a pure, 100% business decision POV: it doesn't make sense per what others have said. Odds are you'll pay a bunch to a lawyer, get no where near enough in judgement/return (if you can even collect it), and only get personal gratification of "being right".

    My take on it is that like bullies - folks who lie, cheat and scam, will continue to do so until they're punitively punished. It'll cost you - but, it'll give you the satisfaction of having showed them that they can't just do that without consequence.

    That's my $0.02 :) Everyone's different - you have to go with what your personal beliefs (and financial situation!) dictates/allows.

    I like @Christopher Telles idea about writing to the broker (maybe even have a lawyer draft the letter; might be worth a few hundred bucks to give it that professional oomph whilst making sure you don't say anything that could expose YOU to liability of any kind? Interested to see what others think). Feels like you will still get the gratification of taking the cover up party to task for what they did, get some punishment levied, and hopefully avoid the expense of a full blown lawsuit.

    1Reply
  • Brett Alphin
    Real Estate Agent · Los Angeles, CA · Member since 2015 · 53 posts · 62 votes
    11y
    I would try to peacefully get the negligent tenant out ASAP so you can mitigate the damages and get it re-rented. Meanwhile I would file a complaint against the misrepresenting broker with the Real Estate Board, or just threaten to do so. This may convince him to make it right. Good luck!
    0Reply
  • Carlos Enriquez
    OP
    Santa Rosa, CA · Member since 2015 · 191 posts · 75 votes
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    Thank you all for the replies.  I'll think about all this and post here after all is said and done.

    Next time I will insist on using the proper contract even if the realtor doesn't agree.

    What was it about "multi-family" that he did not understand? Geez.  Makes him look like he was in cahoots with the selling party!

    0Reply
  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
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    @Carlos Enriquez

    While a duplex is not really a multi-family/multi-unit property (it considered to be a conjoined wall residential properties).

    Regardless, this situation is precisely why one should collect estoppel certificates from all tenants and suppliers when purchasing a rental property.   The purpose of an estoppel is to corroborate the information supplied by the vendor with the tenants & suppliers themselves and identify any errors, omissions or misrepresentation on behalf of the vendor.

    5Reply
  • Derek Lacy
    Insurance Agent · Maitland, FL · Member since 2015 · 397 posts · 244 votes
    11y

    E&O may cover this, but in the mean time expect high legal bills. No e&o policy just rolls over and pays. They will force you to spend about 80-120 billable hours in depositions, mediations and other legal negotiations before offering a settlement (so about $20-30k).

    They may have coverage there regardless of the above posts, because I think you'll find that no one involved will admit they were defrauding you. They'll say, well s**t happens. 

    Jay is right, your best to pick up and move forward unless this is bigger money than I'm imagining. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Roy N.  I like the estoppel affidavits ,, not seen that done but makes sense.

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  • Annie Bliss
    Residential Real Estate Agent · Stockton, CA · Member since 2015 · 36 posts · 11 votes
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    Your story sets my teth on edge. Shame on both, the listing agent and your, seling agent. What ever hapened to giving service to a customer? Obviously, that person does not want your repeat or referral business, in the future. There are several other avenues, besides the attorney, that can be folowed. Definitely contact the broker. If your agent is the broker, move up the chain. Contact the Board that agent belongs to. There should be a committe in place that wil deal with such complaints from the public. CalBRE, the state gov agency, wil also take on the matter. There could be sanctions levied against the agent's license. None of these avenues should cost money, but I hope would give you the satisfaction of puling up the reins on such an unprofesional, and damaging, action.

    1Reply
  • George P.
    Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
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    did you interview the tenants before buying it?

    0Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
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    Your story didn't go into extreme detail, so I'm not sure exactly how you were represented. I hope there were two agents involved in this transaction. If there were (one buy side and one sell side) I would write a letter to both, explaining what happened. Make that letter excruciatingly detailed. Copy each agent's employing broker AND the real estate commission in your state. 

    In my state of Colorado, the real estate commission takes complaints very seriously. This action will serve two purposes, you get to tell your story, explain why you are so very unhappy, and it doesn't cost you anything but time and a few stamps. I would make sure the letter you send to the employing broker shows a CC to the real estate commission.

    I agree with @Jay Hinrichs, that this would most likely be money thrown away on attorneys. Evict the tenant. Move on. But I sure feel for you. This stinks.

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  • Bill S.Pro Member
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    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
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    @Carlos Enriquez I seriously doubt you can evict the tenant and collect Sept rent. You should ask your PM for a written schedule as well as a detailed explanation as to where the process can drag out. In some cases, if the tenant appeals your eviction, and proves that he was in fact only paying $1700 per month you might be required to honor the remainder of the lease at that price. I would not be surprised to see more posts about how this drags out. Right now you should kiss Sept rent goodbye and hope you get something for Oct. Around here people still looking to rent in Sept (it's Aug 13th) are the bottom of the barrel. Next weekend or the one after are the best times to find your tenants wanting a place to start Oct 1. You might get lucky and find someone that is a straggler. I hope your PM knows what they are doing and aren't just snowing you. 

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    Originally posted by @Jay Hinrichs:

    @Account Closed  fine minds do not always think alike.. but we still love each other !!!!

    one could make a case against the E and O insurance for sure.. but I am not in the get an attorney camp for minor deal infractions and for me this is minor.. but for others it could be the end of the world..  LOL...

    I hope the OP takes this message to heart.  Going after the seller and agents will not get the desired results:  maximum rent collection.  It sounds like the OP signed away a lot of opportunities during the due diligence and contract period. Nobody forced the OP to close on a property where the documentation was skimpy or non existent.

     Where are the estoppel letters?  Where is the documentation of actual rent paid (deposits, receipts).  Pretty hard to prove fraud when the lease says one amount but no documentation was provided to support this amount. 

    Have the PM stay on the evictions.  Modify your expectations though.  New tenants paying market rents are not likely to be in place for September.  

    2Reply
  • Maggie Tasseron
    Investor · Palm Desert, CA · Member since 2015 · 215 posts · 64 votes
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    Originally posted by @Jay Hinrichs:

    @Account Closed  fine minds do not always think alike.. but we still love each other !!!!

    one could make a case against the E and O insurance for sure.. but I am not in the get an attorney camp for minor deal infractions and for me this is minor.. but for others it could be the end of the world..  LOL...

     I'm also not in favor of hiring an attorney right off the bat, however I wouldn't call this a minor infraction. Mainly, the discrepancy of $350/month is not all that minor, and the fact that this buyer was misled about important factors is just wrong. I work with one realtor on all my deals, and he would cringe if he saw what this realtor did. I hope Carlos gets justice without having to put out a bunch of money for a lawyer, as he deserves it.

    1Reply
  • Michael Leffelholz
    Lender · Westfield, NJ · Member since 2010 · 85 posts · 23 votes
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    @Roy N. I also like the tenant estoppel idea. I get them when I am financing a commercial real estate transaction. Never thought of it in connection with multifamily.When my partner and I bought our first two family my attorney didn't ask for it. Now different attorney closing on three family did request it in contract. Also requested Letter of attornment from each tenant. Live and learn.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
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    I'm guessing the OP went directly to the listing agent, who represents the seller's interests, first. A buyer's agent would have started with the appropriate purchase contract, and should have included tenant estoppels as part of the contract. Also, we don't know that the listing agent was aware of the tenant paying less than the written lease. E&O is for errors and omissions, not fraud/misrepresentation, if it existed.

    2Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    Originally posted by @Wayne Brooks:

    I'm guessing the OP went directly to the listing agent, who represents the seller's interests, first. A buyer's agent would have started with the appropriate purchase contract, and should have included tenant estoppels as part of the contract. Also, we don't know that the listing agent was aware of the tenant paying less than the written lease. E&O is for errors and omissions, not fraud/misrepresentation, if it existed.

    Definitely sounds like there was no buyer's agent.  Claims of fraud are so overstated with no evidence.  The tenant's word about what his rent is after the close of escrow is worth nothing.  Going into contract without representation and then complaining about what was and wasn't provided or signed is pointless.  If there was no buyer's agent, the seller has to sign dual listing paperwork that he understands and agrees with the risk this poses.  This type of thread is always hard for me.  Buyer isn't happy, but at the same time did nothing to protect himself.  Nobody deserves to be lied to or ripped off.  But nobody with any contract sense closes on a property without the proper due diligence and documentation.  There is a place for such risk taking.  I almost always close without proof of rents or deposits or leases.  But I know what the risks are and buy for a price that takes this into account. 

    1Reply
  • Carlos Enriquez
    OP
    Santa Rosa, CA · Member since 2015 · 191 posts · 75 votes
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    Sorry about the confusion.  When I stated "realtor" in my original post, I meant my agent representing me, the buyer.  I should have said "my" realtor.

    This is why it's so frustrating for me.  I was referred to him by a reputable source.  He didn't represent me well at all.

    The seller had his own listing agent.

    Interesting to read how some comments are harsh only on presumption.

    0Reply
  • Carlos Enriquez
    OP
    Santa Rosa, CA · Member since 2015 · 191 posts · 75 votes
    11y

    My PM has advised me that he has several potential tenants wanting to rent the unit, but he can't tell them when it will be available due to the tenant's clueless agenda.

    I'm hoping to just get this guy out and cut my losses.

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Carlos Enriquez:

    Sorry about the confusion.  When I stated "realtor" in my original post, I meant my agent representing me, the buyer.  I should have said "my" realtor.

    This is why it's so frustrating for me.  I was referred to him by a reputable source.  He didn't represent me well at all.

    The seller had his own listing agent.

    Interesting to read how some comments are harsh only on presumption.

    You had a buyer's agent that didn't help you procure rent documentation???  Does this guy own his own agency or does he have a supervising broker?  If the latter, call the supervising broker right now.  My "harsh" comments still stand.  It's your job to make sure you don't sign away or ignore necessary due diligence.  It's the agent's job to request those things on your behalf.  

    1Reply
  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    11y
    Originally posted by @Carlos Enriquez:

    My PM has advised me that he has several potential tenants wanting to rent the unit, but he can't tell them when it will be available due to the tenant's clueless agenda.

    I'm hoping to just get this guy out and cut my losses.

     Carlos:

    That's the best bet.  Though I might make the time to write a letter to your agent's broker or, if he is the broker, to the real estate board for the region/state, outlining how your interests were not adequately represented.

    0Reply
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