Seller lied about rent collected

OP

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

11y

He does have a supervising broker, a big name company. I did call after escrow closed when I found out that he didn't do a final walk through on my behalf (I live out of state). We met in person when I first made my offer, but he slacked after I left.

Look, K. marie, I know you are only trying to help, but I already know that I'm responsible for all that. Like I said, this was my first multi-family deal, and I trusted my so called agent to represent me intelligently. Like I also said before, if you read it at all, it will never happen again. I know what to look for now.

I would appreciate it, if you would like to post in my thread, to not point fingers to the obvious, my inadequacy as a first time buyer. I don't want to get into a back and forth pissing contest with you. I'm trying to get helpful suggestions and ideas, and at the same time wanting this thread to help future first timers. Thanks.

2 Reply

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Michael Franklin:

This is a prime example of why I was adamant to get estoppels for the deal I was working on a few weeks ago. It's becoming clear that when there is resistance to obtaining these documents, including the financial verification, it's probably better to walk away.

Thanks again to @Roy N. , among others, for the support on that issue.

-Mike

I think it depends on what kind of deal you are buying. I would never automatically walk from a seller that can't/won't provide rental documentation, regardless of the contract terms. If you're already in escrow and funded or ready to fund, you may have a motivated seller. That's a time for deal making. Tenant deposits, leases, pro-rated rents, estoppel letters, vacancy......they're all negotiable. The less of these the seller can/will provide, the bigger the discount to account for potential risk. In a hot market with lots of cash buyers, negotiating a discount may be moot. The seller will cancel. But I'd never just walk. Discount opportunities do not appear every day.

OP

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

11y

You're right, it was too good a deal to walk away from. I'm taking my lumps because of that now, but it will work out in the long run. Not much of a deal maker at this point in my career, but I can learn how. I'm sure many experienced folks here have had a bad situation at least once in their careers. Thanks.

Roy N.Pro Member

Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes

11y

Originally posted by @Account Closed:

I think it depends on what kind of deal you are buying. I would never automatically walk from a seller that can't/won't provide rental documentation, regardless of the contract terms. If you're already in escrow and funded or ready to fund, you may have a motivated seller. That's a time for deal making. Tenant deposits, leases, pro-rated rents, estoppel letters, vacancy......they're all negotiable. The less of these the seller can/will provide, the bigger the discount to account for potential risk. In a hot market with lots of cash buyers, negotiating a discount may be moot. The seller will cancel. But I'd never just walk. Discount opportunities do not appear every day.

I too would first try to extract a pound of flesh in exchange for the Vendor having the "privilege" of not providing financial information or not complying with the terms of the contract they signed.

The price for being dodgy can be steep ;-)

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Carlos Enriquez:

You're right, it was too good a deal to walk away from. I'm taking my lumps because of that now, but it will work out in the long run. Not much of a deal maker at this point in my career, but I can learn how. I'm sure many experienced folks here have had a bad situation at least once in their careers. Thanks.

I'm no stranger to deals gone bad or deals that didn't show a profit. However, I don't post threads that say things like seller lied, agent incompetent, tenant loser and buyer screwed. I'm never screwed regardless of the circumstances. It's a perspective thing.

I am curious how you know the seller lied about the rents? Did the tenant show you or the PM proof of rent paid for less the lease amount? If so, for how many months? I would never take a tenant's word on rent after closing if he didn't sign an estoppel and didn't show proof actual rents paid.

Vincent Crane

Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes

11y

Offer the tenant you'll pay for a moving truck if he moves out in the next 2 weeks, and get him out and get new tenants in, or you need an eviction asap but that won't happen as quickly as you getting them out on their own. And for the next tenants, SCREEN very well. There's tons of resources on BP about screening tenants. It's likely not worth suing the realtor, lawyers cost a lot of money.

Roy N.Pro Member

Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes

11y

Originally posted by @Michael Leffelholz:

@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.

Michael,

We always request the right to collect estoppels whenever there are incumbent tenants or supplier agreements - regardless of the size or nature of the property. When dealing with residential properties (1-4 units) you will frequently bump into real estate agents who typically sell pretty houses and do not understand estoppels ... I just tell them to view it as continuing education.

Locally we do not use a Letter of Attornment as there is a standard form the Vendor has to legally file with the Office of the Rentalsman {read: regulator} and send to all tenants ... we usually provide this form to the Vendor's agent as many do not realise they are required to remit it. Naturally we make proof of the filing and serving of this notice a condition of sale.

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Roy N.:

Originally posted by @Account Closed:

I think it depends on what kind of deal you are buying. I would never automatically walk from a seller that can't/won't provide rental documentation, regardless of the contract terms. If you're already in escrow and funded or ready to fund, you may have a motivated seller. That's a time for deal making. Tenant deposits, leases, pro-rated rents, estoppel letters, vacancy......they're all negotiable. The less of these the seller can/will provide, the bigger the discount to account for potential risk. In a hot market with lots of cash buyers, negotiating a discount may be moot. The seller will cancel. But I'd never just walk. Discount opportunities do not appear every day.

I too would first try to extract a pound of flesh in exchange for the Vendor having the "privilege" of not providing financial information or not complying with the terms of the contract they signed.

The price for being dodgy can be steep ;-)

I realize BP is many newbies and even experienced buyers buying off the MLS. Not many are trying to be deal makers. IMO, buying off the MLS isn't a great place to learn deal making. There is no replacement for working directly with sellers and buyers. Regardless I am continually surprised by the number of posts from buyers walking away from deals on some sort of principal that seller is not playing by the rules. Who cares? Offer the price and terms that work for you. Escrow is a great place to make a deal.

Michael Seeker

Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes

11y

@Carlos Enriquez - I've found a great 2 step program for this sort of problem

Step 1: estimate how much money this mistake has/will actually cost you (I'd guess about $5K or less here, couple thousand for eviction and couple thousand in lost rents).

Step 2: relish in the fact that you learned a valuable lesson (get estoppel, payment history and leases) for only $5K which is a cheap education compared to the $20K programs that gurus are selling and/or many other forms of "education".

Nothing drives a lesson home like a swift kick to the wallet and at the end of the day this should just be a small road bump on a long fruitful journey.

3 Reply

Andre Key

Investor · Austin, TX · Member since 2011 · 155 posts · 23 votes

11y

Im with Jay you may have to to chalk this one up as a learning lesson. Hopefully you have a structural sound property that can support the rents that you desire to get. Your realtor should have been able to give you an idea of the rents that you can receive. Next time use a realtor with strong negotiation skills who want compromise your demands. Trying to take legal action can cost valuable time with little legal recourse. Either way if you do pursue please keep us posted on your progress.

Maggie Tasseron

Investor · Palm Desert, CA · Member since 2015 · 215 posts · 64 votes

11y

Originally posted by @Carlos Enriquez:

He does have a supervising broker, a big name company. I did call after escrow closed when I found out that he didn't do a final walk through on my behalf (I live out of state). We met in person when I first made my offer, but he slacked after I left.

Look, K. marie, I know you are only trying to help, but I already know that I'm responsible for all that. Like I said, this was my first multi-family deal, and I trusted my so called agent to represent me intelligently. Like I also said before, if you read it at all, it will never happen again. I know what to look for now.

I would appreciate it, if you would like to post in my thread, to not point fingers to the obvious, my inadequacy as a first time buyer. I don't want to get into a back and forth pissing contest with you. I'm trying to get helpful suggestions and ideas, and at the same time wanting this thread to help future first timers. Thanks.

Hi Carlos: You and K. Marie are both right, but my support still goes to you, especially since you feel the need to help future newbies avoid the pitfalls that you encountered. Realtors deal with clients who have all different levels of experience -- or lack thereof -- and I believe we have the right to expect them to educate new buyers; besides, slacking off the way your realtor did doesn't stand to gain him anything and can only tarnish his reputation in the end. Best of luck and I appreciate your forthrightness.

2 Reply

Ericka Parrott

Residential Real Estate Agent · Atlanta, GA · Member since 2009 · 381 posts · 134 votes

11y

This is just a lesson learned on how not, to do a transaction. You have to verify everything and speak directly with your seller next time. Ask every questions you can think of. Make sure you see a rent roll, leases, and seller bank statements showing deposits before you move forward with your next buy.

No need to get a lawyer involved but, all agents cover E and O insurance, just saying...

Michael Noto

Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes

11y

When we refi with our portfolio lender they make all current tenants sign estoppel certificates. Good suggestion. Mitigates a lot of risk.

OP

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

11y

I never heard of escrow being a good place to make deals, and I'd like to learn at a later date how to go about it for future deals. I'm planning on buying again (using a different agent!)

Also, being a good point, I admit the tenant hasn't actually shown proof of the lower rent amount he allegedly paid, and that's something to consider before believing his story completely. He's not very forthcoming with information and is avoiding us. Also, during my negotiations, I did try calling the seller and listing agent. The listing agent told me that the seller was a very difficult person to reason with, even for him, and that the seller's wife had just been diagnosed with stage 4 cancer. Perhaps that's why I softened up a little too. My agent was upset at me for going over his head and told me it is inappropriate to talk to the selling parties.

I think that had we used the correct purchase contract in the beginning though, with the clause that requires the seller to produce the records in question, all this drama would have been avoided. I hope this thread helps at least one person in the future avoid surprises after the fact if they feel their representative is resistant being forthcoming with information.

The adage goes, trust, but verify.

OP

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

11y

I actually mentioned an estoppel to a potential PM after researching such things on my own, even before escrow closed. They said the estoppel would have to be done by the selling party prior to closing. I had read it should be done by the buyer, but I wasn't well versed yet about the accuracy of that information. Now I know that it should've be done by the buyer. Could I still do one now, even if escrow closed already?

John Hamilton

Real Estate Transaction Engineer · Jacksonville, FL · Member since 2014 · 271 posts · 74 votes

11y

Your number 1 action is to cut your losses and make that property start working for you (cashflow).

Don't sue, but follow up with letters of the incident to brokers and RE commission. Your agent and the seller's agent both should be investigated for their practices. It sounds more like your agent did it all, or didn't do what he should have. However, the SA may have not disclosed everything, but maybe wasn't asked to. This may take some time an diligence to pursue.

Someone else mentioned this as is the quickest and easiest way to get the troubled tenant out. Pay them to rent a moving truck (2 days should be >$200) or cash for keys (my idea). Payment is due as soon as all furniture is out in the cash case, or reimburse for the moving truck the day they move out. If they don't comply, evict.

The goal is to get maximum income immediately. If you have no record of what they paid, except for the lease, it's on them to show the receipts. Nevertheless, you have the upper hand as the lease is the binding contract. After they are out, you can sue for damages (rent not paid, cleaning fees and damages). This will cost you money. They still may not move out. Then, it's time to call the sheriff once you have won the eviction in court.

Max Reichman

Milpitas, CA · Member since 2015 · 15 posts · 3 votes

11y

My friend had this happen and if it gets to court, it sounded like you cannot collect rent post-eviction as you initiated the eviction. =/

Roy N.Pro Member

Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes

11y

Originally posted by @Carlos Enriquez:

I actually mentioned an estoppel to a potential PM after researching such things on my own, even before escrow closed. They said the estoppel would have to be done by the selling party prior to closing. I had read it should be done by the buyer, but I wasn't well versed yet about the accuracy of that information. Now I know that it should've be done by the buyer. Could I still do one now, even if escrow closed already?

The PM was incorrect. As I have recently mentioned in another thread. The purpose of an estoppel is to corroborate the information provided by the Vendor - hence you do not want the Vendor overseeing the compilation of the estoppel or their verification and signing by the tenant. The Vendor needs to consent to the collection of estoppels and inform his tenants that an agent of the purchaser will be calling upon them to have the estoppels verified.

We normally take the information provided to us by the Vendor during diligence and use it to draught an estoppel for each tenant and supplier. We then meet with the tenant / supplier and review the estoppel - making any adjustments they indicate. The tenant/supplier then signs the estoppel (it is witnessed).

Once collected, we provide copies of the estoppels to the Vendor and bring to her/his attention and variances from the information they provided.

That said, you could draught estoppels now and review them with *your* tenants. You've lost the opportunity to leverage/negotiate with the Vendor, but it will still give you a version of the facts as attested by the tenant.

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J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

11y

Originally posted by @Carlos Enriquez:

The adage goes, trust, but verify.

Whoever wrote that adage was not a real estate investor. If he were, the adage would have simply been, "Verify."

2 Reply

OP

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

11y

It seems that the PM probably meant to say that the vendor (seller) had to consent before we could do an estoppel, not that they were responsible for it. I'm not sure if I heard it wrong, if he worded it incorrectly, or if he really didn't know.

But perhaps he isn't aware of the correct or legal steps to take in certain circumstances. I like to give people chances...everyone makes mistakes at times.

But then again, my tenant in this case was late on the 5th. PM couldn't locate him on the 6th, but located tenant's adult daughter, who also lives there, on the 7th (Friday) and handed her the 3 day notice, which he also mailed. 3 business days later (the following Wed.), PM talks to his attorney to begin eviction on Thursday and attorney tells him that since the daughter is not on the lease, he has to start the 3 day process over again. I didn't know what to say when he told me, except that I appreciated his honesty and that he could redeem himself if he gets those tenants out before the end of the month. But now, counting 2 weekends and both 3 day time frames, I've lost 10 in this process.

I'll consider a post-close estoppel at least for the experience, if anything,

Ben AndrewsPro Member

New to Real Estate · Escondido, CA (San Diego) · Member since 2015 · 112 posts · 20 votes

11y

Originally posted by @Roy N.:

@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.

Great advice, thanks for the input Roy! You certainly can learn a lot as a bystander in these discussions.

Ben AndrewsPro Member

New to Real Estate · Escondido, CA (San Diego) · Member since 2015 · 112 posts · 20 votes

11y

Originally posted by @J Scott:

Originally posted by @Carlos Enriquez:

The adage goes, trust, but verify.

Whoever wrote that adage was not a real estate investor. If he were, the adage would have simply been, "Verify."

Even as someone new to REI, I can very much appreciate this sentiment! Thanks J.

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Carlos Enriquez:

I never heard of escrow being a good place to make deals, and I'd like to learn at a later date how to go about it for future deals. I'm planning on buying again (using a different agent!)

Also, being a good point, I admit the tenant hasn't actually shown proof of the lower rent amount he allegedly paid, and that's something to consider before believing his story completely. He's not very forthcoming with information and is avoiding us. Also, during my negotiations, I did try calling the seller and listing agent. The listing agent told me that the seller was a very difficult person to reason with, even for him, and that the seller's wife had just been diagnosed with stage 4 cancer. Perhaps that's why I softened up a little too. My agent was upset at me for going over his head and told me it is inappropriate to talk to the selling parties.

I think that had we used the correct purchase contract in the beginning though, with the clause that requires the seller to produce the records in question, all this drama would have been avoided. I hope this thread helps at least one person in the future avoid surprises after the fact if they feel their representative is resistant being forthcoming with information.

The adage goes, trust, but verify.

To clarify, you never go into escrow with the intent of changing the price and terms. You sign the purchase agreement with a price and terms on which you can and will perform. However, if the other party wants to change the terms, you decide what it's worth to you. You can walk or you can counter. Basic negotiating. As I mentioned above I see a lot of newbies here walking away from escrows near the end with no counter, often based on principle or fear of being ripped off. Tenants that don't/won/t move, repairs that don't/can't get made, proof of rents or deposits, etc. That's a negotiating point, not a walking point.

You titled this thread with "Seller lied" but you have no proof of being lied to. Could be the seller, could be the tenant. That kind of thing creates drama and mistrust. You went around your buyer's agent. That kind of thing will get you an irritated agent. And more drama. Unfortunately, it sometimes gets you bad service. Your agent is supposed to go to bat for you regardless of whether or not you are a difficult or annoying customer. However, it sounds like the seller was difficult for the listing agent and you and your agent weren't a good match. Not a great recipe for a smooth closing.

I too hope this thread helps others. Estoppel is such a basic thing when buying occupied property, regardless of what purchase agreement is used. It's stunning that this deal had 2 agents and no rental verification.

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @J Scott:

Originally posted by @Carlos Enriquez:

The adage goes, trust, but verify.

Whoever wrote that adage was not a real estate investor. If he were, the adage would have simply been, "Verify."

Trust is misplaced when the principal parties are so removed from each other. Total strangers with intermediaries. Many sellers or tenants are not dishonest, but they are not trustworthy. They often don't know what they are talking about. They don't know when and if they signed a lease. They don't know or remember that their sibling is still on title, they owe a $20K credit card judgment or that the county files an abstract of judgment for child support whether or not you are behind. They don't understand or remember or read the code violation letter, foreclosure notice or defaulted tax bill. Verify, verify, verify.