Tenant debt and about to sell property

33 Replies

Hi everyone, so selling a quad in Louisiana and set to close on Jan 4th, however, I have 3 tenants that have been behind and despite months of asking my manager to process evictions if they did not catch up, I now have over $2K in tenant balances (with $595 & $575 rents by the way), which will likely be around $3K with Dec rents and by the time I sell.  1 of the tenants has a lease with current manager that started around Aug...other 2 had leases with previous managers and are now effectively on month-to-month and being managed by current manager who "will not file eviction in order to avoid losing sale".  Any ideas on possible/feasible recourse against tenants either before or after the sale?  Thank you, Payman

Pay or leave.  Not sure you can get anything from them without filing.

First...fire your PM, but that should be obvious.

Second, learn how to file foreclosures and then, maybe file them?

Originally posted by @Angela Smith :

Pay or leave.  Not sure you can get anything from them without filing.

 Tenant debt doesn't disappear if property is sold right?  I mean other than transferring debt to new owner because he is basically going to start with a clean slate (AND get tenant deposits from me!).  So I'm wondering if it is possible for I, current owner, or a management company to transfer leases to new owner with stipulation that tenants still owe previous owner or management company the unpaid rents.

Originally posted by @Joe Villeneuve :

First...fire your PM, but that should be obvious.

Second, learn how to file foreclosures and then, maybe file them?

Oh Joe...if you knew what I went through with PMs in this area.  Had I been with my NC crew, I would have kept both buildings and enjoyed fantastic returns.  Now just want out of LA and already lost $3500 in unpaid rents with the first sale, which of course I was made aware of AFTER the sale (yes, same PM) so trying very hard to avoid a repeat while I still have 3 weeks.

Originally posted by @Payman A. :
Originally posted by @Joe Villeneuve:

First...fire your PM, but that should be obvious.

Second, learn how to file foreclosures and then, maybe file them?

Oh Joe...if you knew what I went through with PMs in this area.  Had I been with my NC crew, I would have kept both buildings and enjoyed fantastic returns.  Now just want out of LA and already lost $3500 in unpaid rents with the first sale, which of course I was made aware of AFTER the sale (yes, same PM) so trying very hard to avoid a repeat while I still have 3 weeks.

 I've gone through bad PM's too.  Doesn't change my answer.  Fire the PM, and take over.  If you're getting out of LA, you won't need the PM once you sell anyway.

Originally posted by @Joe Villeneuve :
Originally posted by @Payman A.:
Originally posted by @Joe Villeneuve:

First...fire your PM, but that should be obvious.

Second, learn how to file foreclosures and then, maybe file them?

Oh Joe...if you knew what I went through with PMs in this area.  Had I been with my NC crew, I would have kept both buildings and enjoyed fantastic returns.  Now just want out of LA and already lost $3500 in unpaid rents with the first sale, which of course I was made aware of AFTER the sale (yes, same PM) so trying very hard to avoid a repeat while I still have 3 weeks.

 I've gone through bad PM's too.  Doesn't change my answer.  Fire the PM, and take over.  If you're getting out of LA, you won't need the PM once you sell anyway.

 Totally agree but forgot to mention that PM is also selling agent.

Originally posted by @Payman A. :
Originally posted by @Joe Villeneuve:
Originally posted by @Payman A.:
Originally posted by @Joe Villeneuve:

First...fire your PM, but that should be obvious.

Second, learn how to file foreclosures and then, maybe file them?

Oh Joe...if you knew what I went through with PMs in this area.  Had I been with my NC crew, I would have kept both buildings and enjoyed fantastic returns.  Now just want out of LA and already lost $3500 in unpaid rents with the first sale, which of course I was made aware of AFTER the sale (yes, same PM) so trying very hard to avoid a repeat while I still have 3 weeks.

 I've gone through bad PM's too.  Doesn't change my answer.  Fire the PM, and take over.  If you're getting out of LA, you won't need the PM once you sell anyway.

 Totally agree but forgot to mention that PM is also selling agent.

 Under contract?  How long?

No contract, I originally inherited this PM when I bought first Bldg and they were seller's agent and existing PM.  All was great for one full year so bought 2nd sister Bldg from same seller.  Soon after, all went downhill so I went to PM #2, then PM #3...one worse than the last so finally decided to sell thru first PM who does know the area and quads well and was the one who encouraged me to sell while prices had appreciated (we stayed in touch).  So original PM only took over management as part of listing the properties and helping with a LOT of repairs, courtesy of PM #3.  Theoretically, I could transfer management to someone else in the next few days while we proceed with the sale.  Of course, no one would accept that unless I was paying for their time to clean things up.

Only contract with this PM is the listing contract through 12/31/18

@Payman A. what part of Louisiana is this in? If I can help, let me know. I would see if there is a way to fire the listing agent due to failure to act in your best interest. I am a local investor and REIA owner with many connections throughout the state. I know we have our fair share of issues here but this doesn't have to happen to you. If I can help, I would be happy to.

Additionally I would add that if there is a way to add the back rent as a part of the selling price, then possibly could get it that way to continue with the sale. The new owner should have footing to collect past due rent but I would have to revisit that topic with my counsel to confirm. 

This post has been removed.

Hi Courtney and thanks for the posts.  This is north of Baton Rouge by Zachary and this far into the process, not looking to derail the sale by either firing the listing agent or adding back rent to the sales price.  Of course, totally different story if for some reason sale does not happen.  Only consolation here is that I am selling with enough profit to at least cover all these losses, which is definitely better than wiping out because you tried a new long distance market.  However, I still don't want to be giving away free rent (AND transfer security deposits) specially since I've been instructing PM to get rid of tenants that are adding to their debt every month.

@Payman A. I would love to know who your three property managers were so we can all avoid them.  I just exited a horrible, but very clarifying experience with a local PM after a year of major losses and property damage.  If I can help you in any way, including helping you get evictions filed please reach out.

BR investors are well aware of our area-wide shortage of quality property managers locally, and a couple local investors have stepped up to seize the opportunity to fill this void.  One you may want to consider if ever looking for a better PM is my friend @Amy Verges   She knows what's up.

Originally posted by @Brandon Johnson :

@Payman A. I would love to know who your three property managers were so we can all avoid them.  I just exited a horrible, but very clarifying experience with a local PM after a year of major losses and property damage.  If I can help you in any way, including helping you get evictions filed please reach out.

BR investors are well aware of our area-wide shortage of quality property managers locally, and a couple local investors have stepped up to seize the opportunity to fill this void.  One you may want to consider if ever looking for a better PM is my friend @Amy Verges   She knows what's up.

 just sent you a message

Wow, @Payman A. , I’m so sorry to hear you’ve had such a bad experience in Louisiana. As others have already said, there’s really no excuse for this, especially since we’re such a landlord friendly state (I can file an eviction, attend the hearing, and have the tenant out all in about 2 weeks). To answer your original question, if it were my property, I would cut my losses & evict the current tenants now and keep the deposits. If you have the right help, you could probably even have them rented to new tenants before the sale.

Despite being a great real estate market, for some reason we haven’t had great options for residential property management in the Baton Rouge area. That’s what pushed me to get into it. Feel free to PM me if you have any questions or if there’s anything I can do to help. I actually would enjoy talking to you about the NC market since it sounds like you have some experience there. My husband and I went to Raleigh this year and I like what I’ve read so far about the NC market. Good luck!!

@Payman A. You should give buyer a clean slate or reduce the price for them to go through eviction. If you want to make in this business then besides being ethical, key thing is to learn to be decisive. File for eviction by 5th, PM suppose to manage property and tenant while you manage the PM. Sorry for strong words but I would not like to inherit deadbeat tenants and I will not pass on to buyer.
@Payman A. If PM is listing agent and is not doing their job as manager and evicting, I’d ask for a credit from their listing commission “if they don’t want to lose the sale.” Just my two cents.
Originally posted by @Amy Verges :

Wow, @Payman A. , I’m so sorry to hear you’ve had such a bad experience in Louisiana. As others have already said, there’s really no excuse for this, especially since we’re such a landlord friendly state (I can file an eviction, attend the hearing, and have the tenant out all in about 2 weeks). To answer your original question, if it were my property, I would cut my losses & evict the current tenants now and keep the deposits. If you have the right help, you could probably even have them rented to new tenants before the sale.

Despite being a great real estate market, for some reason we haven’t had great options for residential property management in the Baton Rouge area. That’s what pushed me to get into it. Feel free to PM me if you have any questions or if there’s anything I can do to help. I actually would enjoy talking to you about the NC market since it sounds like you have some experience there. My husband and I went to Raleigh this year and I like what I’ve read so far about the NC market. Good luck!!

Hi Amy and thank you for your kind post.  Funny you mention LA being a landlord friendly state as it is one of my necessary criteria if I'm considering a new market.  In fact, PM#3 was evicting tenants left and right...problem was he wasn't finding "qualified" applicants to replace them with.  Current agent/PM, however, has discouraged me and flat out refused to evict because of reasons like "court won't allow eviction when tenant is trying to pay", which I KNOW to not be true (and "trying to pay", at least for one tenant, means partial/diminishing payments month after month and an increasing balance) or of course the risk of losing the sale.   Again, this is the first PM manager I walk away from and would not have come back to if it wasn't for their office listing the properties, which was all supposed to take about 4 months...now going 10 (they were helpful in coordinating repairs).  Evicting is what I had been trying to do starting 4 months ago but now so close to closing, keeping deposits doesn't justify the actual risk of losing the sale (and to start addressing the next post, that is not to say that buyer is not aware...supposedly the worry is his lender...more on that with my reply to the next post) and the few hundred dollars that have been showing up on my statements for the last several months.  Again, if sale does not happen things are going to change and change FAST.

Thanks again for your thoughts and offer to help.  As I mentioned in my private message to Brandon, I will definitely reach out if I end up holding on to the building.  Meantime, please feel free to message me as well regarding NC.  I really do like the market, specially in/around Charlotte and happy to say that I've got a PM and separate agent that have made it all easier.

   

Originally posted by @Al Pat :
@Payman A. You should give buyer a clean slate or reduce the price for them to go through eviction. If you want to make in this business then besides being ethical, key thing is to learn to be decisive. File for eviction by 5th, PM suppose to manage property and tenant while you manage the PM. Sorry for strong words but I would not like to inherit deadbeat tenants and I will not pass on to buyer.

Hi Al and I can definitely appreciate your sentiment here.  To clarify (I had the same concern), risk of losing the sale is apparently not related to buyer's knowledge, but lender finding out about vacancy and or insufficient income.  According to my agent, buyer already has property in the neighborhood, is aware of my rent roll and will in fact be moving into one of the units (they know e/o from previous transactions and buyer is also the agent).  To help make sure, I want to require buyer to either add the tenant balances to purchase price (which will not happen) or sign an agreement waiving his right to those balances and acknowledging that unpaid balances will still be owed to previous owner/manager.  The problem will then be how do I as the old owner go after amounts that according to the leases are owed to the old management?  

Originally posted by @Jean Haisch :
@Payman A. If PM is listing agent and is not doing their job as manager and evicting, I’d ask for a credit from their listing commission “if they don’t want to lose the sale.” Just my two cents.

Thanks Jean.  Unfortunately, PM/agent is taking the exact opposite approach and saying that doing anything at this point will cause us to lose the sale and that would be my fault.  Also, the unpaid balance is not far from her listing commission so it would more than burn this bridge and very late in the game.

The likelihood of you seeing any money after selling the property from these tenants is zero to none. Sure you can take them to court but once you sale you can’t evict them. Small claims court is waste of time given it sounds like tenants are judgement proof. They can’t afford rent thus means they can’t afford to have a savings account.

Count your blessing that you have a buyer who is not worried and will buy given troubled tenants in place. Take the hit and move onto next deal. 

I hate to loose money but you need to decide you prefer back rent paid or sale of the property. 

Best of Luck

It sounds like your current agent/PM is so focused on the sale that they are telling you to not do all kinds of things you should be doing, because it would negatively impact their commission.  GET RID OF THIS AGENT/PM...before it's too late.  Every reason you are giving as a counter to doing this, are nothing more than rationalizations...and costing you more money.  Before you know it, at the rate you're going, you will be so far in the hole when you eventually sell (if you have anything left to sell), you will have to pay your buyer at closing.

If this was Poker, you'd be the one playing with a terrible hand, but insisting on throwing chip after chip into the pot, with the rationalization that the more chips you have in that pot, the more you have to lose, so you have to stay in that hand so you don't lose it. That's backwards thinking. You can always get your money back, in Poker and in REI, as long as you stay in the game...not the hand. When you lose a hand, you haven't lost any money yet. It's just in a different pile on the table...which, you can get back in a future hand, as long as you are still in the game...or in the case of REI, in the next deal. Once you run out of chips (money), you're out of the game. Now, the money is lost.

Get rid of this hand.  Get rid of that REA/PM.

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