I'm selling a duplex, and it's under contract now. There's a non paying tenant in place. Should I evict the tenant before the transaction is complete? Or let the new owner deal with it? We're supposed to close by January 20th.
Does the buyer know there is a non-paying tenant in place? For how long has the tenant not been paying? The new owner may be able to turn the tenant around or will need to do the eviction. You won't have enough time to evict the tenant before your closing date. Or you could offer the tenant "cash for keys" to encourage them to leave voluntarily. Expect that the buyer may ask for a concession from you to compensate them for the time and money it will cost to get the tenant out. Or this may derail the sale, depending on what you have or haven't disclosed to the buyer. Next time, take action on tenant non-compliance sooner.
Marcia Maynard, Fischer Properties | Podcast Guest on Show #83
If your holding this information from the buyer I do not think that is ethical. Make sure the buyer is aware of the situation. If you need to offer concessions to close the deal I would recommend that. What goes around comes around :>
@Anderson Durham I recently purchased a duplex with a late-paying tenant. At closing, the attorney automatically prorated any rents for that month that would be due to us (the new owner), even though the seller had not received those rents (he was not very happy about that). Not sure if that is a state-specific thing or not.
While we were under contract, anything tenant related was communicated to us and we were given the chance to weigh-in on it. Check your contract. There is most likely wording in there that states that no changes can be made while under contract (usually placing new tenants or renewing leases, but this may also apply).
Did your buyer request any estoppel letter from you and/or tenants? If not, they are playing with fire, and should you not tell them they could get burned. From your standpoint, I'll guess all you have to do is perform per the contract. If your buyer doesn't know about the deadbeat, it may just be your interpretation of ethics.
The last two properties I bought had deadbeat tenants in them. I offered cash for keys at $500 and had no problem getting either out in a 2 week time period. Both were on a M2M lease so I had already served both with termination letters so they saw the writing on the wall. All this being said to illustrate buyers can inherit tenants but I knew what I was getting into.
@Marcia Maynard the buyer isn't aware of the non paying tenant. I'm hoping I won't have to compensate the buyer for lost time for the eviction. Next time I will take better action. Thanks!
@Eddie Werner you're absolutely right about that. I want to be held to the highest standard, ethically and morally. I will notify the buyer. Better an honest deal than no deal. Thanks!
@Mike M. The buyer did not request an estoppel letter. Since you also mentioned cash for keys. I will offer the tenant the incentive. It's still enough time left for him to leave. Thanks!
@Anderson Durham I just purchased a 4-unit building and the sellers informed me of a non-paying tenant. They were an older couple, and I felt they deserve to enjoy their retirement without an additional headache. So I asked if they would place money into escrow, for court fees, and I would deal with the process. They compensated me for my troubles and placed the money in escrow. I am currently going through the eviction process as we speak, a little headache, but I am so glad I was informed prior to obtaining this building.
@Beth L. To my best recollection I don't remember any wording in the contract about changes. I'll read over it tonight. I won't be so happy, if I have to pro rate something I never received. Congrats on your purchase. Thanks for you input.
@Derrick Rowe congrats on your recent purchase. I'm glad the owner was forthcoming. That's real character. I want my buyer to feel like I had everybody's interest at heart, not just my pockets. Good to hear your story. It's a real eye opener
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!