Getting a DIL need Tenant Out

14 Replies

Hi BP'rs have a question here that may be a little different.

We have a note on a house in Lansing Michigan.  The owner, a very nice lady, has decided she cannot afford to stay and has offered us a Deed in Lieu (DIL).  Simple so far except that she has rented part of the home to a tenant who is being difficult.  

I have been advised not to take the DIL until she can provide the property in a vacant status.  Problem is she does not have the money to advance to do a Cash for Keys to get the renter out, and our CFK payment is dependent on getting the renter out/tied to the DIL.

As an FYI the renter has no lease and has been month to month for three years.

Are we stuck waiting 30 days for this the notice to take affect or is there another way.  Lawyer says that since we do not have ownership of the property we cannot contact the renter directly and offer him Cash for Keys, that money has to come from the owner who has no money.  Is there a way to convince this guy that the owner is going to give him $450 if he is out by X date when he knows she is broke too?   Of course there is no guarantee that he will actually move out and not become a squatter.

To make matters even more complicated the owner rented the upper floor furnished and we want the house broom swept and clean as part of the agreement.  Not sure what rights the refer has in relation to furniture.  Oh, and one more thing, the owner is behind on, and does not know if she can afford to keep the utilities on.

I would like to get the house so can move forward as an investor but, more then saving a few weeks, I would like to help this lady move forward with her life.

Suggestions/Ideas?

I'd contact the renter and offer the cash for keys.  But that's just me

Legally I can't contact the renter.  Since I don't own the property yet I would be violating the owners contract.

My first choice is to stay within the law.

Originally posted by @Bob Estler:

Legally I can't contact the renter.  Since I don't own the property yet I would be violating the owners contract.

My first choice is to stay within the law.

 Not sure I follow here. You, I, anyone can offer someone money. I can choose right now to offer you $100 to....do anything that I can think of. You can choose to accept it or not. If the tenant accepts then they have to fulfill the obligation to receive the money.

What contract would be violated? If the LL is trying to get the tenant out and you offer the tenant cash to agree to vacate you haven't violated anything, you've facilitated it. Now since you don't have ownership you're right there are things you can't do, like begin eviction proceedings. Cash for keys is not one of them.

I just re-read your post and realized you're the lien holder. I still stand by my assertion that you have no legal prohibition from offering someone money. You the lien holder have legal requirements contacting a borrower, this tenant is not your borrower so those do not apply. And since they are on a MTM agreement there is no contract for them to break with the LL/owner. 

That being said there may be another way to go here. Look in the original note for "assignment of rents" if that is in there maybe you can implement that giving you legal control over the rental of the property. You then decide to terminate the renters tenancy and could evict them if necessary. Then once they were out your LL/seller could give the DIL for their cash for keys agreement with you. This is just an idea, though I'm not sure how well it may work.

Personally I'd go the first route.

let the tenant know you're taking ownership. They can work with you and receive cash for keys if they move out by x date, otherwise you'll have to follow legal procedure and will start eviction the first day you take ownership.

Whether you get the property in broom swept condition is in my opinion a small concern.

One of the reasons the owner is selling is probably because they don't want to handle the eviction, your role as an investor is to take on the challenge and make it easy for the seller. That's the value we investors add for sellers: No hassle sale no matter the situation. 

There's nothing illegal about you speaking with the tenant and letting them know the options. You can also ask the seller to pay you the cash for keys amount out of their closing proceeds. 

@Chris Kennedy   Actually we already own the note.  The incentive for the owner to do a DIL is to avoid FC and get on with their life.  They are very nice but just can't afford to stay in the house any longer and have our sympathy and we want to treat them with the utmost respect.

That said we are at an impasse with taking title to this property, lawyer says don't talk to the renter, and don't take DIL till renter is out but it is posable that they will squat.

What reasons are you being given to not accept the DIL?  I can understand needing the borrower to vacate as part of the deal.  But I've seen lenders accept DILs on occupied investment property.

I'd want to be the  deeded owner asap.  Does the tenant think they have some claim to the property?

I think I found an answer to my question.  Tenants in a deed in lieu situations are covered by the Tenants in Foreclosure Act through the end of 2014.  Apparently there were amendments to the law to address DIL situations, and tenants after DIL are the same as tenants after foreclosure. Which means if you accept a Deed in Lieu the tenants get 90 day notice. 

So perhaps your attorney is trying to save you 90 days by getting the tenant to vacate voluntarily before the Deed in Lieu?  

That being said, I'd still want immediate control of the property, especially if you have a non-paying borrower with utilities about to be shut off. Does the borrower pay utilities for the upstairs tenant.  

Kristine Marie Poe The owner pays all utilities, she is behind on them and has little chance of getting current so she is worried about getting in trouble for shutting the lights off on this person when they just done have eh money.   The renter has told her he will not pay her any more money so she can't use the rent to cover it next month.

I really don't see how I get around this without working directly with the renter, which I have been told not to do.

@Bob E.  I understood that you already own the note, but I still wasn't sure what the problem was with trying to figure it out between the property owner ("seller") and the tenant. Especially didn't understand why the current owner wouldn't just give you title back ASAP if they can't pay and you seem to be on decent terms with them. 

Kristine Marie Poe has a good point, and I think she is right about the 90 days notice. However, still don't see how that would prevent you offering cash for keys as soon as you take title back through DIL. It seems that getting title to the property should be priority right now, tenant issue can be dealt with after that.

So you can't advance some payment to the borrower contingent on the borrower using those funds as "cash for keys" with the tenant?

Seems you already expect that you will be taking a but of a financial hit so why not do the thing that enables your borrower to offer "cash for keys"?

Bob, follow your attorney's advice, tell the little old lady you'll pay costs of eviction but that she has to initiate the process, yes, give notice, then a few buck to go to court, you can appear with her in court or have your attorney take her on as a client and she can stay out of it. Get him out before you accept the DIL. The property belongs to her, she can give you the property by a letter and you can clean out what she doesn't take, otherwise you'll have to keep the property in storage until her rights of claiming the personal property pass, often 30 days. If you take the DIL and a tenant now and they have a valid written lease agreement, you'll end up with a tenant, as mentioned. Here, the process is 30 days notice and it takes a couple weeks to get to court it may take another week or two to have the sheriff to kick them out, so plan on the max and be pleasantly surprised if it takes less time.

Has the thought crossed your mind that the two might be working together? They may be more aware than you think, so follow your attorney's advice. :) 

My first thought was the same as @Steve Babiak  , problem solved. Also I think your attorney is falling into the " find all the problems, not solve the problems" routine.  There is no reason you can't talk to the tenant, and pay them the cash for keys. And if he's not out before the DIL, you won't do it?  Seems silly.

@Bill Gulley  Thanks Bill.  You confirmed my thought to pay for he attorney to handle the eviction for her.  

Originally posted by @Steve Babiak:

So you can't advance some payment to the borrower contingent on the borrower using those funds as "cash for keys" with the tenant?

Seems you already expect that you will be taking a but of a financial hit so why not do the thing that enables your borrower to offer "cash for keys"?

This is a great idea in theory.  However, advancing money to even the most honest people who don't/can't pay their mortgage and utility bills is a recipe for disaster.  Ask me how I know.

The money for legal noticing of the tenant, a possible eviction and/or CFK needs to go through someone who isn't in dire straights.  The current owner/landlord can retain an attorney or eviction service to give notice and/or offer cash for keys.  The OP can deposit the funds with the attorney to be used by the owner/landlord. 

Trouble with this kind of arrangement is that some attorneys will balk as this is a kind of dual representation.  

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