Just closed - &quot;tenant&quot; didn&#x27;t move out in Chicago. Need Advice

OP

Investor · Chicago · Member since 2020 · 66 posts · 55 votes

5y

I did the final walkthrough of the property the day before close. They were in the process of moving out so I assumed (first mistake) that it would be empty by closing the following day. This, of course, is something I wont do again. I appreciate the feedback, you are 100% right that I should have waited until the unit was confirmed empty. Trying to work this out between the tenant right now and offer cash for keys so I hope we can come to a compromise without going the eviction route

OP

Investor · Chicago · Member since 2020 · 66 posts · 55 votes

5y

@Tim Herman

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

5y

Originally posted by @Michael Johnson:

I did the final walkthrough of the property the day before close. They were in the process of moving out so I assumed (first mistake) that it would be empty by closing the following day. This, of course, is something I wont do again. I appreciate the feedback, you are 100% right that I should have waited until the unit was confirmed empty. Trying to work this out between the tenant right now and offer cash for keys so I hope we can come to a compromise without going the eviction route

Always do a final walk through directly before closing. I drive from the walk through directly to closing, then directly back to the property to change locks. Never "assume" anything will be completed. Tell them will you do a second walk through after complete and delay closing until the issue is dealt with.

It was the sellers responsibility per their agreement to deliver the unit vacant. They were either aware the tenant was not leaving (possibly even told them to pretend they were moving) or knew they didn't leave, in which case they should have notified you. I would send a request immediately to seller requesting compensation for at least two months worth of rent, based on them not making sure the unit was vacant. Offer the option to the previous owner to pay the tenant to leave. Either way, the seller is responsible. I have gone after sellers multiple times for concealing problems. Investors are mistaken when they believe nothing can be done after close. Arbitration is fairly easy and the seller is likely to give you something. Make it clear if they don't resolve this now, it will only get more expensive if the tenant squats for months.

8 Reply

OP

Investor · Chicago · Member since 2020 · 66 posts · 55 votes

5y

@Joe Splitrock Thanks for the feedback! Since we went through with the purchase already, won't that be difficult to get the seller to compensate me for the cash for keys option or to cover lost rent?

Brian Nelligan

Member since 2018 · 3 posts · 2 votes

5y

@Michael Johnson I would encourage you to try the cash for keys route and would not under any circumstances cut off the water or power to the property. The CRLTO is incredibly tenant (and tenant attorney) friendly and would recommend getting acquainted with that asap. The CDC moratorium was recently overturned by a federal judge, but I don’t believe that will impact the Illinois moratorium. The moratorium could certainly be extended further, but there are exceptions if the tenant poses a threat to the health and safety of other tenants or an immediate and severe risk to property. Hopes this helps and feel free to Pm me with any questions.

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

5y

Originally posted by @Michael Johnson:

@Joe Splitrock Thanks for the feedback! Since we went through with the purchase already, won't that be difficult to get the seller to compensate me for the cash for keys option or to cover lost rent?

It shouldn't be difficult because the problem occurred during their ownership. I had a hot water heater that went bad a week after closing. In talking to the tenant, they told me they had reported it to the landlord before closing. The seller paid for the water heater but didn't have great things to say about the tenant for ratting him out, haha.

That doesn't mean the seller will cooperate, but your purchase contract likely has an arbitration clause, so they are required to negotiation in good faith. Ultimately you can take them to small claims court. Most people will just offer to cover half or some amount to make it go away. It is worth a try. I have always gotten something when I pursued it.

2 Reply

John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

5y

@Michael Johnson I would immediately call your agent and your real estate attorney before you do anything else. See if there is anything the attorney can do especially to pressure the sellers. You are not in a great spot here as the eviction moratorium pretty specifically takes away most of your normal options. As others have said, definitely don't try a self help eviction or anything like that as you will end up costing yourself a ton of money. Even if you try to do cash for keys, do it under your attorney's supervision. If you need a different attorney who specializes in this, let me know and I can introduce you to the guy who advises us.

3 Reply

Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

5y

The eviction moratorium only applies to legal residents. He does not have a verbal or written agreement with you or anyone else, therefore he should be treated like a squatter.

Hire an attorney and start the eviction.

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4 Reply

Jennifer Wilson

Real Estate Agent · Destin, FL · Member since 2016 · 57 posts · 45 votes

5y

I agree with @Nathan Gesner He isn't on the lease, so therefore he isn't a legal tenant, and the moratorium shouldn't apply to him. I am not familiar with the Chicago laws, but since he isn't on the lease, he's a squatter and has no legal right to be there. I would advise you call an attorney, and then possibly even the police. They should be able to force him out, and hopefully without doing any eviction proceedings.

If you go that route, have someone there to remove his belongings for him along with a locksmith to change the locks at the same time. Under NO circumstances should you allow the "tenant" back into the property at any time to get his own stuff, as that could be considered allowing him access. If you wanted to give him a heads up that this will be happening on a certain day, you may avoid a confrontation. However, you also allow him time to destroy the property. Either way, call an attorney first and get their advice on your legal rights as an owner. Good luck!

3 Reply

Jason Albasha

Lender · Chicago · Member since 2018 · 118 posts · 66 votes

5y

@Michael Johnson

Congrats on the closing, I wish it was under better circumstances. Definitely call your agent and attorney. Worst case you'll have to open a lawsuit against the seller to try and recoup some costs yet the deck is stacked against you.

Cash for keys will definitely be the best route. You aren't just losing monthly rent, you're also putting at risk $10-20k in damages the tenant could do. DO NOT GIVE THEM ANYTHING UNTIL THEY ARE COMPLETELY MOVED OUT.

Unfortunately, squatters are treated as non-paying tenants and we don't live in Indiana so the process is drawn out here. Thankfully the weather is getting better and the moratorium should be coming to a close.

Consult with your attorney, yet if he's willing to pay the rent you're requesting, you might be better off taking the rent and letting him stay, at least until the moratorium is up. I see 2 scenarios here, if we assume this will end in an eviction regardless.

If he doesn't pay, he's a squatter who's treated as a non-paying tenant. If he does pay, then you collect until you decide to not renew his month-to-month lease. You may have to evict him in the end yet at least that's on your terms, and you recoup some costs during the moratorium (as in lessen the amount of payments you miss because of the eviction process).

Remember, the moratorium will end, yet who knows how long it'll take to make their way through all the evictions. Might be a year, no one knows.

Lastly, keep in mind that this is temporary. It's a great learning experience and over the next 5 years, 10 years, etc. the financial burden this will present is simply a blimp. You still made a great investment. Good luck!

Natalie Schanne

Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes

5y

@Michael Johnson - Oops. I'm really sorry they've taken advantage of you. I would try to appeal to his sensibilities like I've leased this unit to a single mom who needs to move in with her 2 kids. (Though he probably doesn't care). In PA, I was under contract to buy a house and the occupant was the former owner (had been bank owned for 9+ months) and ejectment (no lease) is much harder than eviction (with lease, not paying / breaking terms). I ended up dropping my contract to buy the 4/2 SFH for $132k in March 2018 (after being under contract since October 2017) and they resold it on auction com for $150k in May and the guy got her out by August 2018 and flipped it for like 255k by January 2019. I called and asked him in June 2018 how he got her out and he said I haven't.

Robert Beardsley

Member since 2020 · 117 posts · 84 votes

5y

if he is willing to pay take the money until things go back to normal. its better to get some money than to get nothing and try to evict at this point in time.

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

5y

Definitely talk to the seller and make him aware of the problem. The contact your realtor as others suggested.

Matt Lyons

Rental Property Investor · Chicago, IL · Member since 2019 · 109 posts · 443 votes

5y

@Michael Johnson

First, sorry to hear about this crap... truly sorry!

I would try the following:

Be nice: talk to tenant and explain he had NO lease and therefore is either a squatter or trespassing. Explain that you need him out. Offer the carrot: move out by X date and if you do I will give $X dollars cash (basically pay him to freaking leave)

Then hit him with the stick:

You have no lease and are trespassing, you are going to call police and shut all power off and so forth, in addition you are taking him to court and so forth

I usually play the “I am trying to be a nice guy and need you out, if you go I will Grive you cash to be gone”. If you won’t leave I have to go down the legal path where we both lose a lot

In the worst case:

Go there when he is not there and break your own door, literally break it so it won’t hang or shut or anything.

Then when he calls and says “I need a new door mine is broke and gone” you say “who are you I have no tenant there”.

See how long he stays with no door!

2 Reply

Crystal SmithPro Member

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Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

5y

Originally posted by @Michael Johnson:

Hi Everyone,

I just closed on a property yesterday . I went to check one of the units and the "tenant" was not moved out. I was told by the seller that there was a verbal month to month lease with the tenant who DID live there. The gentleman who is there now was just brought in by the previous tenant to help subsidize his rent and was never on any sort of lease. When i walked up to the door he posted a sign saying I couldn't change the locks or anything until 6/30 due to the moratorium. He then followed-up by sending me a signed moratorium document via text. When i called him and asked what his plan was he acted like he didnt know he was supposed to be out and said he wants to stay and "would pay". I want him out and since there is no documentation saying he had/has a lease, is he covered under the moratorium? What is the best approach here? Cash for keys? Be civil and try to work an agreement out or do I treat the situation as if he is a squatter and cut the power/gas (this advice was given to me but seems extreme). I'm trying to stay within the legal boundaries and get him out as soon as possible - what are your thoughts? Thanks in advance!

I'd do the following. First- Stop all informal communications with the squatter. No text, no email, no phone calls. 2nd- Read & become familiar with the Chicago Rental Tenant Landlord Ordinance (CRTLO). It covers what you can and cannot do. 3. Contact your attorney & have him prepare the proper notice for the tenant to vacate the property, or prepare it yourself & have the attorney review it. 4th- Deliver the notice. 5th- Follow the process as you may be required to give multiple notices before he's gone.

Regarding cash for keys- If this is something you want to consider then including it in one of the notices is fine but do not give the tenant cash direct. Offer to make his deposit and/or Move-In fee on his next place- i.e. the cash goes to a 3rd party, not directly to him.

Regarding cutting off the utilities- If the utilities are in your name it's tempting to cut them off but I think it's a bad idea. Yes, you want him out but you also need to protect your asset. Cutting off the utilities may get him out but he may destroy the place on his way out.

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OP

Investor · Chicago · Member since 2020 · 66 posts · 55 votes

5y

@Crystal Smith Really appreciate the step by step walkthrough of how to approach this thing. He said he is moving out by the 15th so if he is not out by then I will be following the blueprint you laid out in your message. Thank you!

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

5y

Originally posted by @Michael Johnson:

@Crystal Smith Really appreciate the step by step walkthrough of how to approach this thing. He said he is moving out by the 15th so if he is not out by then I will be following the blueprint you laid out in your message. Thank you!

I appreciate the update.

Word of warning: by accepting his verbal notice of intent to move out, you have essentially legitimized his position as a tenant. If he changes his mind and tries to stay, you'll have a bigger problem on your hands.

When you find an illegal squatter/occupant, you should not accept any money from them or talk to them as if they were a renter. Call the police and report them as a squatter immediately. Start the formal eviction immediately. I know it sounds painful and possibly expensive, but treating them like a renter can be far more expensive if they decide to dig in and stay.

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OP

Investor · Chicago · Member since 2020 · 66 posts · 55 votes

5y

@Nathan Gesner Thanks for checking back in. It seems like there are two camps on how to approach this. After a lot of different conversations I ended up feeling like the higher probability of him leaving, in this particular instance, was through talking to him and trying to work it out between us two. I'll find out shortly if I made the right decision. If not, i'll have to start the eviction process and likely take a very unfortunate loss right after closing on this property.