Duplex with no lease agreement. Buy or no?

13 Replies

Hi! Im from Portland Oregon. I've made an offer on a duplex that has tenants living in there, the seller can't/won't provide a copy of the lease agreement. Is this something I should be worried about? My agent says it's not a big deal. It sounds like a big deal to me though. I'm going to need to live in one of these units as I'm using an FHA loan and one of the tenants has to go. If I were to buy it, how would I go about getting rid of a tenant if there's no agreement??

@Sergiu Ionita

 You mention the seller can't or won't...which is it? 

If you don't want the tenants there, you should make that part of your offer to purchase. It shouldn't be your job to manage that process, especially if the seller can't produce lease agreements. 

Most buyers want to vet their own tenants....and it may be an opportunity for you to rehab some of the units and increase rent levels.

If you want to keep the tenants, ask the seller to get signed lease agreements before you purchase.

I wouldn't move forward with the purchase without seeing the lease. It's common courtesy to provide it. I also ask for the seller's Schedule E from the prior tax year to see actual costs incurred. If they don't provide, at minimum, those two documents I won't move forward. The bank is going to want copies of those documents anyways--so you could always use that angle. "The bank needs to see these documents to finalize financing & finish this deal". 

Your real estate agent doesn't have your best interest in mind & I would dump them & find a new one.

Originally posted by @Sergiu Ionita :

Hi! Im from Portland Oregon. I've made an offer on a duplex that has tenants living in there, the seller can't/won't provide a copy of the lease agreement. Is this something I should be worried about? My agent says it's not a big deal. It sounds like a big deal to me though. I'm going to need to live in one of these units as I'm using an FHA loan and one of the tenants has to go. If I were to buy it, how would I go about getting rid of a tenant if there's no agreement??

If the seller refuses to get lease agreements and won't remove the tenants, then you can have the tenants sign estoppel letters - your agent should know how to draft them, but basically the tenants would sign stating that their initial deposit was such & such amount and their payments are such & such, etc.  Then you can proceed to remove them from the property like a normal tenant without them claiming they had different terms than what the seller is claiming.

Lack of a lease could be a good thing .  The tenants could be told to leave with 30 days notice . If there is a lease , you need to see it . 

@Kevin Nichols  

I'm not actually sure, my agent just said it's a long story and pretty much the seller can't provide a lease agreement.

I spoke with my agent and asked if we can put something like that in the agreement and ask the seller to get rid of one of the tenants. He said getting rid of tenants is not that big of a deal and we could take care it. He seemed pretty confident and so as a first time home buyer, I believed him. Now I'm starting to doubt him. We're sort of friends, so I figured I should trust him.

And I have to get rid of at least one of the tenants as I'm doing an FHA loan and that requires me to live in one unit.

@Joshua Iachini

Yes, I just talked to my mortgage broker and he said he needs a lease agreement as well as a copy of a 30 day or 60 day notice sent to him directly from the seller in order to get this financed. At this point I feel like I know more than my agent! I asked him yesterday about putting a clause in our offer asking the seller to get rid of one of the tenants as part of the agreement. He said it's not a big deal to get rid of tenants, so I trusted him as a professional. Looks like I may need to get another agent.

@Michell P.

I've never heard of that, so I will mention it to my agent and see if he knows anything about it. I have a question on that though. With an FHA loan, I need to occupy one of the units 45 days after closing and my mortgage company needs proof that someone is moving out before even giving me the loan. Can I get the estoppel letters filled out and signed before even closing? Maybe I need to talk to my mortgage broker and see if they'll accept that.

I also wouldn't move forward without seeing the leases what are they trying to hide? That's a must for me i state it in my LOI and the contract.

The owner may never have done written leases in the first place. This is probably why he can't produce them. I agree with @Michell P. . Get the estoppel letters from the tenants. Getting them before closing is exactly how they work. Then if you find out these people have long term leases and won't be moving out anytime soon, then you won't be able to purchase on an FHA loan.

I would not trust that agent at all. It is sometimes a really big deal to get tenants out after you purchase. Bad tenants are frequently the reason someone is selling a place. They are not getting rent, or other issues, and would rather just get out of the landlord business.

Originally posted by @Sergiu Ionita :

@Michell Prunty

I've never heard of that, so I will mention it to my agent and see if he knows anything about it. I have a question on that though. With an FHA loan, I need to occupy one of the units 45 days after closing and my mortgage company needs proof that someone is moving out before even giving me the loan. Can I get the estoppel letters filled out and signed before even closing? Maybe I need to talk to my mortgage broker and see if they'll accept that.

Sergiu, 

Estoppels aren't common in Oregon b/c most everyone uses leases, but think of estoppels as part of your due diligence. It's a letter that is delivered to the tenant, who is given a short amount of time to sign. If they don't sign, then they've accepted the letter and terms within as true and you can move forward. You shouldn't move out of your due diligence period without either leases or estoppels, and if the seller refuses to give you either, then you should seriously consider if this property is right for you. I'd definitely ask your mortgage broker if estoppels will work with FHA, I've only had to use them once with a conventional loan and that was b/c the sellers "forgot" what they did with the security deposits.

If there are no leases then you can give 30 day notice for the tenant to vacate, but if the tenant disputes that they had a lease, then problems might arise, which is what the estoppel prevents.  

There's really no reason why you can't pick out a unit and put it in your offer that the seller will give notice for that tenant to vacate, say, within 3 days of the end of your due diligence period. That way the seller is protected in case you walk during inspections, and you're protected for the FHA.

But I also give sellers the side-eye whenever they make it a point that they won't assist in tenant removal (especially when I don't bring it up).  Who knows what can happen if a tenant doesn't want to move?  I don't really want to find out.  

Originally posted by @Sergiu Ionita:

@Kevin Nichols  

I'm not actually sure, my agent just said it's a long story and pretty much the seller can't provide a lease agreement.

I spoke with my agent and asked if we can put something like that in the agreement and ask the seller to get rid of one of the tenants. He said getting rid of tenants is not that big of a deal and we could take care it. He seemed pretty confident and so as a first time home buyer, I believed him. Now I'm starting to doubt him. We're sort of friends, so I figured I should trust him.

And I have to get rid of at least one of the tenants as I'm doing an FHA loan and that requires me to live in one unit.

This is unfortunate - if it's a long story then he knows it and should share with you.  He shouldn't be dismissing your concerns - and I'd let him know you don't appreciate it.  Sometimes agents forget that for a new buyer its a nerve racking purchase, and if you let them know how they're coming across, then they'll happily adjust their behavior - they just need to be aware of it.  If you're comfortable confronting him, your relationship as a client / agent may improve.  He wants your business after all.

@Michell P.

Hey, thanks for all the info. I just received an email from my agent with an addendum. Seller takes care of 60 day eviction notice, and he talked to the seller's agent and they're going to have the property management company write up a lease agreement. I was a little paranoid. I thought he didn't know what he was doing, but he was doing all of this without telling me what's going on. It looks like he's taking care of it without telling me exactly what he's doing. Thanks again for your help tho. :)

Originally posted by @Sergiu Ionita :

@Michell Prunty

Hey, thanks for all the info. I just received an email from my agent with an addendum. Seller takes care of 60 day eviction notice, and he talked to the seller's agent and they're going to have the property management company write up a lease agreement. I was a little paranoid. I thought he didn't know what he was doing, but he was doing all of this without telling me what's going on. It looks like he's taking care of it without telling me exactly what he's doing. Thanks again for your help tho. :)

No problem - someone's gotta be paranoid on your behalf, might as well be you :) 

Good luck with the property!

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