Seller Did Not Disclose Tenant Has NOT been Paying

Member since 2024 · 1 post · 2 votes

Hello all,

I am in need of some advice. I am an out of state investor that closed on a duplex in Cleveland on March 24. I was notified by the PM that one tenant has back rent in approx. $3000 only this week, I was never told about this during escrow. My agent said he didn't know and the seller never disclosed this. The PM said the tenant promised to start paying mid March but hasn't and is supposed to file for eviction April 5.

I guess I need some advice on several things. Is there anything I can do about the seller not disclosing the tenant not paying. Should my agent have known? I am also not currently happy with the PM because they have been hard to get a hold of. I want to switch to another but should I have them file the eviction or see first if the tenant has started paying. Thanks for any advice,

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Quote from @Adrian J Castro:

Hello all,

At the end of the day all of this falls on you unfortunately, but when buying property you always get an estoppel. Did you get one in this instance? Did you not ask the property manager about the status of the property? Did you visit the property?

An estoppel is essential document to get as it will show you what the tenant has been paying, how much is in deposit etc.

As mentioned, this falls on you unfortunately.

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Adrian J Castro:

Hello all,

I am in need of some advice. I am an out of state investor that closed on a duplex in Cleveland on March 24. I was notified by the PM that one tenant has back rent in approx. $3000 only this week, I was never told about this during escrow. My agent said he didn't know and the seller never disclosed this. The PM said the tenant promised to start paying mid March but hasn't and is supposed to file for eviction April 5.
I guess I need some advice on several things. Is there anything I can do about the seller not disclosing the tenant not paying. Should my agent have known? I am also not currently happy with the PM because they have been hard to get a hold of. I want to switch to another but should I have them file the eviction or see first if the tenant has started paying. Thanks for any advice,

At the end of the day all of this falls on you unfortunately, but when buying property you always get an estoppel. Did you get one in this instance? Did you not ask the property manager about the status of the property? Did you visit the property?
An estoppel is essential document to get as it will show you what the tenant has been paying, how much is in deposit etc.
As mentioned, this falls on you unfortunately.
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Latisha Millard
Member since 2018 · 11 posts · 5 votes
1y
I have the attorney ask the seller to provide proof and a statement that everyone is up to date. If the seller cannot provide this or refuses I would rather leave the deal and take a small loss opposed to having to evict someone right after purchase.
1 Reply
Gladimir Lobo
Real Estate Broker · Cleveland, OH · Member since 2023 · 219 posts · 84 votes
1y
Wow, there's a lot to unpack here. There are quite a few questions I'd need to ask you, and probably some things not addressed in this post. Recently, an investor came to us where the tenant hadn't paid rent for several months—way more than your case—and the property manager was nowhere to be found, not responding or paying the money owed.

We stepped in, took control of the situation, and managed to keep the tenant without eviction. There are many ways to deal with a non-paying tenant; eviction is one option, but there are other alternatives to consider on a case-by-case basis. Back to the story—now the tenant is still there and paying a higher rent, so things turned out well for the investor.
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Jimmy LieuBusiness Member
Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
1y
Quote from @Adrian J Castro:

Hello all,

I am in need of some advice. I am an out of state investor that closed on a duplex in Cleveland on March 24. I was notified by the PM that one tenant has back rent in approx. $3000 only this week, I was never told about this during escrow. My agent said he didn't know and the seller never disclosed this. The PM said the tenant promised to start paying mid March but hasn't and is supposed to file for eviction April 5.
I guess I need some advice on several things. Is there anything I can do about the seller not disclosing the tenant not paying. Should my agent have known? I am also not currently happy with the PM because they have been hard to get a hold of. I want to switch to another but should I have them file the eviction or see first if the tenant has started paying. Thanks for any advice,

The reality is your realtor did a bad job of doing due diligence and should've verified that the tenant was current with rents and paying on time. Your realtor should have informed you. This is a case of a bad realtor not doing their due diligence and you're paying the price for their mistake or ignorance unfortunately. Yes, it's your responsibility as a buyer to have known to do this but it was more of the realtor's responsibility to make you aware of this IF you had a realtor who had your best interest at heart.
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Jeremy TaggartBusiness Member
Real Estate Agent · Pittsburgh, PA · Member since 2014 · 850 posts · 646 votes
1y
@Adrian J Castro
IF this was something that would make or break the deal for you then you should ask for proof of rent payments during the due diligence period to show the tenants are paid up on rents. Property management companies can easily pull up tenant ledgers and even mom and pop landlords should have some sort of rent collection they could show.
This can be a tricky one on the 2-4 unit properties though since it's usually not standard process (at least in my market) on the due diligence with them kind of being lumped in the residential space. If you are bidding on a property that has a ton of interest and has other bids the seller might tell you to pound sand if you are asking for proof of rent payments. So it could cost you the deal if it's a really good property that would be great in the long term.
If you are buying say your first property and don't have a ton of funds set aside to deal with an eviction and getting the apartment re rented then you may want to err on the side of caution and verify that prior to close even if it might cost you getting some of the best deals. Otherwise kind of just have to chalk it up as a risk that you might have to deal with buying tenant occupied properties if you do want to get the best deals that come up since you likely won't be the only person interested in it.
If the PM isn't even responding to you may want to find another for going forward at least. As far as getting the tenant out you can try cash for keys and see if they will just leave without having to go through the eviction process. I can't imagine if this is a new property manager that wasn't managing the property before that they would want to deal with this eviction since it wasn't a tenant they placed, so that could be why they aren't very responsive.
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Michael Brattelli
Real Estate Broker · Medford, NJ · Member since 2018 · 236 posts · 177 votes
1y
@Adrian J Castro Like @Chris Seveney said, you and your agent should’ve been doing your due diligence. If you don’t know about due diligence or an estoppel you shouldn’t be buying this type of asset and especially not out of state. Unfortunately now the problem is yours. At the end of the day it’s a lesson and we all have those, learn from it and keep moving forward. Speak with an attorney to see what your state’s options are but you’re most likely looking at an eviction or cash for keys. Best of luck going forward.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
1y
Can you ask PM to offer…

1) waive all past due rent (owed to seller anyway) to move out or

2) all past due rent if they pay April's rent now

3) start eviction and you’ll end up where you would prefer to buy. Empty with you doing the screening for new tenant.

Luckily your mistake only cost you a late paying tenant so far. All past due funds were owed to seller. So you you lost almost nothing.
1 Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
1y
Let me guess, your agent was an, "investor friendly" agent?

Agents are only "friendly" to getting paid, as you've learned the hard way.

Was the agent legally representing you or the seller?

If the seller, you are screwed because the agent could NOT legally share that the tenant was behind unless YOU asked for the rent ledgers.

If you sign some type of buyer-agency agreement with the agent, then you may have a claim against their broker.

You'll need to contact an experienced real estate attorney, licensed in Ohio. Maybe @James Wise can assist you with a referral.
In any case, why didn't YOU require the leases, rent ledgers, tenant rental applications, etc. in your purchase offer?
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- James Wise
  Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
  1y
  Quote from @Drew Sygit:
  
  Let me guess, your agent was an, "investor friendly" agent?
  
  Agents are only "friendly" to getting paid, as you've learned the hard way.
  
  Was the agent legally representing you or the seller?
  
  If the seller, you are screwed because the agent could NOT legally share that the tenant was behind unless YOU asked for the rent ledgers.
  
  If you sign some type of buyer-agency agreement with the agent, then you may have a claim against their broker.
  
  You'll need to contact an experienced real estate attorney, licensed in Ohio. Maybe @James Wise can assist you with a referral.
  In any case, why didn't YOU require the leases, rent ledgers, tenant rental applications, etc. in your purchase offer?
  
  If you didn't ask and verify of course the seller did not disclose. I'd say read through your contract to see if there is anything in there regarding this, but more than likely you are SOL on this one. Consider it a learning experience and a mistake you won't likely make twice.
  1 Reply
Adam BartomeoBusiness Member
Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
1y
The seller does not have to disclose that the tenant isn't paying. Now, if they were asked to provide documentation, tenant ledger, and they changed what the ledger said, then you have a case. My guess is that you and your agent didn't know to ask for this.
So, you want your PM to do the dirty work and then ditch them? Very unethical...
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
1y
Forget about the prior stuff, agent, seller, etc. it's history. Read the lease and find out the late payment terms. Talk to the PM and find out why eviction has not be filed yet. A promise to pay is not sufficient reason. Talk to your potential PMs, seek their advice, assess whether you prefer the existing or new PM, and make a judgment call. A new PM may not want to start off having to evict a resident and may require compensation. One way or another, I recommend filing eviction asap. This should be a manageable situation. Good luck.
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Jill F.
Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
1y
I have a tenant now that was way behind when I purchased (I did know) but I took the following actions:
Made it clear that I had to get paid every month on time,
'Discounted' her rent to the actual market rent in that area ($50) for on on time payment,
Fixed her broken front door.
Forgave the rent owed to the prev slumlord
She's paid me on time every month for two years now.
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