Section 8 Rent Payment went to old landlord -any hope?

24 Replies

I recently purchased a home with a Section 8 contract in place. The purchase contract noted that the Section 8 contract transfers to new owner upon title transfer. Title transferred on the 22nd of the month but the next Section 8 payment from the local housing authority was deposited into the previous owner’s bank account. I have contacted my real estate agent, the seller’s agent, the previous landlord and the local housing authority with persistence and have informed them that this needs to be corrected but I have made absolutely no headway. No return calls from my realtor (first and last time we will use him!), no response from sellers agent, no response from seller. I did receive a phone call from a top executive at the housing agency through my persistent contact and it ended in him informing me that they could not do anything and suggested I contact the seller (already did that with no success!). 100% of the rent for the home is paid by Section 8 so I am out an entire month’s rent. The home is in Cleveland and I live in Northern California. Do I suck up the lost rent for that month or is there any hope in pursuing this in any other direction? Glad to be a new member here and to help in any way I can as an investor with property in Northern Ca and Cleveland. Thanks for reading!

That sucks! An easily overlooked mistake. If it gives you any sort of happiness, you may have just saved me $4000 as I am about to close on my first section 8 and I will make sure this doesn't happen lol. Unfortunately I think you're probably out of luck. Have a lawyer friend write up a letter with an official letterhead threatening suit if the funds aren't returned.. might work, if you know their address.

Thanks Chris! I do hope my unfortunate circumstance helps others avoid this on future Section 8 closings. Make sure to follow up on all Section 8 transfer paperwork with a phone call to the housing authority as there may be a backlog in paperwork processing. This is what I believe happened in my experience.

Unfortunately, I already sent a letter months ago to the seller mentioning legal action with no response.

Congrats on your future purchase and best of luck to you!

So the purchase contract mentioned that the Section 8 contract transfers to the new owner, but did you file the appropriate paperwork with the Housing Authority to notify them of the change in owner/payee? If you did and they still paid the previous owner, then you may have some recourse and be able to get the Housing Authority to help correct their mistake. But if you didn’t, well that’d be an oversight on your part. It still wouldn’t make it right for the previous owner to keep the money he unjustly received, but you’re going to have a hard time collecting it from him given that you’re out of state. 

Yes I did submit the paperwork in time but unfortunately was given the run around that they never received it when I spoke to them in the phone after the payment went to previous landlord. I ended up sending the paperwork in 4 times before they “received it” and they kept giving me the runaround that they didn’t have it. Despite knowing this, the housing authority still won’t do anything. Would it be worth contacting HUD with a complaint? Unfortunately it would be my word against the word of the housing authority as I have no official proof that the paperwork was sent on time other than the date I signed next to my signature.

Often times for important paperwork I’ll take it in to the House Authority office in person and they stamp it received with the date. It obviously wouldn’t be feasible for you to have done that given how far away you are. Another option is to call and get an email address for a case worker or someone you can send it to directly so you have a record of exactly when you sent it. 

But at this point, I’d say it wouldn’t hurt to make a complaint. However, don’t hold your breath that they’ll correct it given how inept it sounds like they are. 

Hope it works out for you though. 

Out the name of the seller that stole your money and behaved unprofessionally. More people should expose bad behavior.

You should contact the highest-level person at HUD that you can, and as succinctly as possible state the facts of the situation.

Thanks Kyle. I’ll attempt the complaint but won’t hold my breath. Maybe others have had problems with this housing authority and logging the complaint would help any future cases as it would show a pattern.

It’s my first section 8 property and my lesson has been learned. Hope it helps others avoid the same problem!

Thanks Terry. I agree - more than the $ I am bothered by the actions of the seller and the agency. I plan to contact HUD as high up as I can. Hopefully that gets the ball rolling in the right direction.

You may be ok.

I “heard” that, this is what I heard before, I didn’t verify it, not sure if this is truth or not.

I was told that, section 8 turn around time is usually at least 2 to 3 months for the new landlords. It is common that the first 2 to 3 months rent will still go to the old landlords, but the old landlords should not withdraw the money from “the account” because HUD will take the 2 to 3 months rent back from “the account” after all the paperwork are settled. If the old landlords account don’t have enough money for the HUD to take it back. It is a fraud, and the old landlords would got penalized.

HUD will pay all rent back to the new landlords 2 to 3 months later after all the paperwork are settled. New landlords won’t get his first rent check until 2 to 3 months later.

All of the above information, I heard it from a section 8 landlords. Again, I’m not sure it this is truth or not. However, either way, it would be a good idea for you to double check with the HUD that you have all the paperwork fill out correctly to receive your rent check.

Good luck

@Kay Aula

Account Closed

Mary is correct. I have Section 8 tenants in Las Vegas. It takes 2-3 months for the paperwork to process. Also, in your paper work, you should have provided them copy of HUD 1 closing statement and deed of trust, showing transfer of ownership.

It will be easy to determine if previous owner received your rents. If previous owner has other Section 8 tenants, then those can be with held and given to you. Also, I think it is possible for Section 8 to reverse payment to previous owner, and transfer to you.

Terry

Originally posted by @Kay Aula :
I recently purchased a home with a Section 8 contract in place. The purchase contract noted that the Section 8 contract transfers to new owner upon title transfer. Title transferred on the 22nd of the month but the next Section 8 payment from the local housing authority was deposited into the previous owner’s bank account. I have contacted my real estate agent, the seller’s agent, the previous landlord and the local housing authority with persistence and have informed them that this needs to be corrected but I have made absolutely no headway. No return calls from my realtor (first and last time we will use him!), no response from sellers agent, no response from seller. I did receive a phone call from a top executive at the housing agency through my persistent contact and it ended in him informing me that they could not do anything and suggested I contact the seller (already did that with no success!). 100% of the rent for the home is paid by Section 8 so I am out an entire month’s rent. The home is in Cleveland and I live in Northern California. Do I suck up the lost rent for that month or is there any hope in pursuing this in any other direction?

Glad to be a new member here and to help in any way I can as an investor with property in Northern Ca and Cleveland. Thanks for reading!

Ouch that's a bummer. Generally speaking I advise investors against going the section 8 route because of things like this. Any investors think section 8 is the perfect solution. You can buy low end properties but never have to worry because rent is 100% guranteed. Nope, believe me this won't be the last time you end up on the wrong side of something due to section 8. 

We run a $50M+ portfolio in Cleveland & do not place,any new section 8 tenants due to these types of issues. If you think this is bad wait to you get the not of getting,a new property tenated through the section 8 inspection & approval process or better yet the annual inspections that can result in section 8 stopping your rent payments of the tenants break things in the house or don't let the inspectors inside.

As for a solution your probably just going to have to eat this one if the seller doesn't return the money. We are probably talking $500-$600 here. Nothing you could do that would cost less in time & effort to get it back. Consider it the cost of doing business.

To back things up a bit, you have a tenant in an apartment you own. You have not received payment for the month. Since that is the case, I would recommend eviction. Currently you are running around getting nowhere because it is your lost money. Once the tenant gets an eviction notice it becomes a problem they begin to deal with. Once they call section 8, they make it their own problem and go find where the money is and fix it. So I suppose my answer is, make it someone else's problem and go grab a rootbeer float while you wait.

The seller is not responding to you....ok.... I bet the minute he gets official words from the government his tune changes a bit, especially if he has other properties he may be putting in jeopardy. 

Good Luck!

Let's review who has and who has not acted inappropriately:

1.  Your broker.  Appears to have done nothing wrong. Not great customer service to not return your call, but even if they did return your call, there is nothing they can do for you.  They are simply not involved;

2.  Seller's broker.  Almost the same situation as your broker.  They should be returning your call to tell you they have informed the seller, but they also have nothing to do with the Section 8 payment;

3.  The seller.  Clearly at fault if he knows he is not entitled to the payment and kept it anyway;

4.  The Housing Authority.  Sounds like the real villian in the story, to be honest.  If you filed the paperwork on time and they claim they did not receive it, then they are the ones who have put you in this situation.  And so I would really strongly recommend that you focus your efforts there rather than on the brokers.  The brokers have no responsibility here, the Housing Authority does; 

5.  The tenant.  The tenant has done absolutely, positively nothing wrong.  I find the advice above to threaten an entirely innocent renter with eviction, in the winter, to be completely morally bankrupt.  The moderator giving the advice may be correct that threatening eviction will get someone's attention.  But it may not be the attention you want.  And again, this tenant has done nothing wrong.  It is simply wrong to intentionally hurt an innocent third party because of your dispute with the Housing Authority.

I would highly recommend serving the tenant with a notice to cure or quit. When rent is not received a landlord begins the eviction process. You have been spinning your wheels due to the fact that you have ignored the proper process for collecting rent owed. Follow the proper procedure.

S8 is irrelevant. Serve the notice and let the tenant solve their problem. You can not operate a business based on allowing tenants to live for free.

Originally posted by @Thomas S. :

I would highly recommend serving the tenant with a notice to cure or quit. When rent is not received a landlord begins the eviction process. You have been spinning your wheels due to the fact that you have ignored the proper process for collecting rent owed. Follow the proper procedure.

S8 is irrelevant. Serve the notice and let the tenant solve their problem. You can not operate a business based on allowing tenants to live for free.

Cleveland Housing Court is going to side with the tenant on this one. Landlord stands no chance at winning this eviction.

I agree with James on this and the question becomes how much of your time are you willing to invest to get back $500, $600 or whatever. It sounds like you have already been very persistent but unfortunately without success so it may be time to move on. If it was thousands, perhaps but otherwise move on unless you enjoy tilting at windmills ;).

Lesson for next time is to include in the purchase agreement instructions to the title company that they should hold back X months of rent from the purchase proceeds to cover possible misdirection of funds and only release funds once Direct Deposit from HUD into your bank account have been verified.

Oren

@Kay Aula

Hi Kay,

I agree with the recommendations that the S-8 authority will take their sweet time processing paperwork, here in Toledo our authority is LMHA (Lucas Metro Housing Authority). I use a pretty comprehensive series of person relationships to be able to call for attention to issues like this.

Still I wouldn't be surprised to hear you're ultimately told that the paperwork is lost a few times, then found and entered, and STILL be told you won't be officially added till that 30-60 day range has passed. I am quite confident however that as long as you sent the proper paperwork in (and can prove it, I typically use email which I can prove was sent to the appropriate individual and their supervisor, OR directly deliver to the office which where they will photocopy and date stamp as received) that you are owed the money and will be paid.

The only issue could possibly be that the S-8 authority doesn't recognize that the paperwork was submitted to them (properly/on time/at all) and they claim they weren't aware there was a new owner...hence the authority would have paid the old owner and not feel they would be accountable to yank the money back and direct it to you.

Of note- the agency is typically very good about making amends to payments that may be mis-directed while they were processing.


Hope this helps, keep us posted! 

@Richard C.

I am sorry you feel that evicting a non paying tenant is morally bankrupt. But I have seen nothing in any of these responses to suggest this problem is fixed and that the next rent will be where it is supposed to be. If it was over a total of a few hundred dollars I may act different, however in this case it looks like the housing authority is not responding and has decided to take the course of "Sorry we don't know you, best of luck to you, there is nothing we can do to help you today or in the future". 

The tenant is responsible for the rent period. Taking the "Not their fault" route is irrelevant, they are the one who have a case worker who can solve these problems, not you the landlord. If a tenant is "downsized" at work through no fault of their own, who is responsible for finding money for rent? They are. They are the ones who are required to ensure rent is paid. I do not care where they get the money as long as it is a legal source of income. S8 is a legal form of income for housing. When they go into the office with an eviction notice for failure to pay, someone will react (because it is their responsibility). 

How many months do you suggest the OP allow someone to live rent free while the old owner receives payment (or no one receives payment)? When a case worker calls the landlord they have steps to take and a process to follow. When a landlord calls the Housing office they have a voicemail system they can bounce around in forever. If you do not react in a timely manner then you set a precedent. Which means as you let this go on and on, the answer becomes "Well you let them send the check to Fred Smith for 4 months without doing anything, it is the way it is now"

I understand we may have a difference of opinion on how to handle it, however I am working from a place of in the best interest of the poster. Offering free rent until someone decides to take pity and answer a call in my opinion is not a solution that helps the OP.

Best of luck in your investing.

Originally posted by @Mike Cumbie :

@Richard C.

I am sorry you feel that evicting a non paying tenant is morally bankrupt. But I have seen nothing in any of these responses to suggest this problem is fixed and that the next rent will be where it is supposed to be. If it was over a total of a few hundred dollars I may act different, however in this case it looks like the housing authority is not responding and has decided to take the course of "Sorry we don't know you, best of luck to you, there is nothing we can do to help you today or in the future". 

The tenant is responsible for the rent period. Taking the "Not their fault" route is irrelevant, they are the one who have a case worker who can solve these problems, not you the landlord. If a tenant is "downsized" at work through no fault of their own, who is responsible for finding money for rent? They are. They are the ones who are required to ensure rent is paid. I do not care where they get the money as long as it is a legal source of income. S8 is a legal form of income for housing. When they go into the office with an eviction notice for failure to pay, someone will react (because it is their responsibility). 

How many months do you suggest the OP allow someone to live rent free while the old owner receives payment (or no one receives payment)? When a case worker calls the landlord they have steps to take and a process to follow. When a landlord calls the Housing office they have a voicemail system they can bounce around in forever. If you do not react in a timely manner then you set a precedent. Which means as you let this go on and on, the answer becomes "Well you let them send the check to Fred Smith for 4 months without doing anything, it is the way it is now"

I understand we may have a difference of opinion on how to handle it, however I am working from a place of in the best interest of the poster. Offering free rent until someone decides to take pity and answer a call in my opinion is not a solution that helps the OP.

Best of luck in your investing.

 That is not correct.  The OP stated that she has now completed the paperwork to receive future payments (granted, after 4 tries.)  This issue is SOLELY the one misdirected payment.

I stand by my characterization of your advice.

Another good reason to not partner with the government.

When tenants are not responsible for their own rent landlords have no recourse.

@Kay Aula Joining in this already pretty long thread -- in my experience in St. Louis, when this happens the local HA will correct the payments, withdraw them from the incorrect account, and pay you the total once they have your account information and all of that.

There are two HA's here, the City and County's. The County's is FAR easier to work with, in our experience, and the City can seem byzantine and like throwing paper at a wall. The key is just having the proper Change of Ownership forms for the respective HA. You may already have those, but you'll need to be sure they're sent to the correct person in the department. That may be the caseworker for the tenant or a contact person who processes things for the organization. If calling gets you nowhere, the only other option is to go visit to fill out and submit the forms.

I'm assuming some people on here haven't worked with this program before -- I'd be very surprised if you didn't get the payments due. Our experience with HA and HUD-funded housing programs is that they're slow but exacting and follow contracts through. We have a unit that's currently rented out to a HUD program that sub-lets to their clients, and they even paid rent while the unit was vacant because a client moved out while they found a replacement client to occupy the unit.

Keep your records in order and be sure you're submitting the paperwork to the right people, and this should get straightened out. That's not as good as not having the issue, but you only have to go through this once to learn what to do.

Thank you all for your suggestions and input. I purchased the house in early summer and outside of the first payment that went to the previous landlord, I have received all subsequent Section 8 payments so all change of ownership paperwork is in order. As I mentioned before, the loss of $ is easier to deal with but what irks me the most is the behavior and lack of principles from the previous landlord but mostly the Housing Authority. The loss amounts to approx $1k and I am OK sucking it up as the cost of doing business but when it is the cost of doing business because an organization won't correct their mistake, it becomes harder to place in the bucket of "cost of doing business". I've faced many costs of doing business in my 9 years as a landlord (you name it, I've seen it), but this one has just rubbed me the wrong way to just let slide.

I reached out to top officials at HUD this morning and coincidentally, I received an email from a director at the Housing Authority that they are looking into the matter. I'll keep you posted!

Sounds like you going to fly this one down as "cost of doing business/learning experience"

Stay on the housing authority, there is absolutely no way you should right this off as a cost of doing business. Threated to pull your property out of the welfare system and see if that helps.

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