All Forum Posts by: Matthew Morrow

@Matthew Morrow

I have seen similar situations when the previous owner/seller loads the property with unqualified occupants. During the due diligence process, did the buyer walk the property, unit by unit? Usually, you can speak to some of the tenants during a walk-through. Also, did they run the current tenants through state databases looking for previous evictions? These are a couple of things we do during our lease audit process.

This is a prime example of why investors need reserve funds. If they have the funds to evict and re-rent to good tenants, they have solved the problem. Without reserves, they might be unable to evict tenants or prepare the units once they are vacant.

Hey Matthew! that is horrible. What have you've done to tighten up your due diligence process to make sure that does not happen again? I would love to learn from this if you are willing to share. Also, can you sue the previous broker and seller for failure to disclose or at least report it to the local board?

Were the tenants brand new during the due diligence period?  Did the seller not provide honest financials?  Generally, both of these situations don't just happen overnight.  Since many have been evicted or arrested, be grateful you get to get new tenants and stabilize the property.  Use it as an opportunity to add value to the property. 

 OP said: It’s frustrating, especially because our due diligence came back clean, leases were solid, and the property had just been fully renovated. Unfortunately, the previous owner (who was also a licensed agent) didn’t accurately represent the tenant situation.

These statements contradict themselves. Maybe get it straight b4 paying an attorney a retainer to sue and or choose an attorney who can and will go after EVERY possible avenue to make your client legally/$ whole. IMO Most of the time, people lose lawsuits or settle for much less due to laziness and lack of rock-solid knowledge about the illicit/illegal acts the opposing side committed.  

For instance, how did the due diligence "come back as clean" and the "leases were solid" if the rent was not paid up to date and paid REGULARLY?  Im not an attorney or anything close to it but it seems a simple P&L statement that is broken down monthly could reveal the tenants not paying their rent on time enough to warrant eviction. If even 1 tenant was not paying on time, it would report a loss. Then a "surge" when the tenant paid up months later bc usually a tenant has to not only fall behind but MONTHS of rent have to go largely unpaid to warrant eviction.

If the P&Ls were "doctored" by the seller, that seems like pretty big cause. Also, was there a background check on the tenants possibly having criminal backgrounds and or background check to determine if the tenants had ever been evicted in the past? Seems like that would reveal the tenant(s) that have since been arrested (and presumably jailed/prison long enough to "lose" the lease/apt). 

You prob will start off in arbitration and if that does not yield a good result, go to court. I hope you help your client with this bc in a way, you helped them get into this mess. Not only is it the right thing to do to help them get their legal ducks in a row about knowing SPECIFICALLY what the seller did wrong, ie did not disclose and can prove it was done for the sole purpose of deception to make the sale "smoother" but it can help you look good and have you learn how to avoid in the future (as you say "tighten up your due diligence")

It sucks when agents "help" 1st time or largely inexperienced buyers long enough to make the sale and get their commission but then peace out on the client when something like this happens.It It seems like you are attempting to do the right thing which is admirable bc at the end of the day, the court system is the closest thing to a "business police" that ppl can get. 

This is why in addition to apathy that bad players get away with as much as they do as frequently as they do. It is not easy to sue. It takes time and work. In any deal/investment that goes south like this, your/buyer's side is responsible bc "buyer beware" is as old as time. It sucks to admit that there wasn't tight oversite on the deal to ferret this out b4 the sale happened and its subsequent consequences and it sucks for your client that they have made, for at least the time being, an investment that is not going to be in the black in the immediate future. 

I hope you and the buyer are successful in going after the seller. As H. Lazerow said if you act promptly, the seller will have a greater likelihood of having some of the "windfall $" to pay your client when a judgment or decision in your camp's favor is rendered. Usually, acting promptly has little downside. 

I help PM firm scale and help streamline their procedures. I make sure the accounting side of AppFolio is headed to the right direction in terms of SOP. I also do like fraction CFO work so I can oversee/manage the controller and the accounting dept. 

You don't know how many times I've seen PM companies not entering receipts correctly. Move outs can mess up the accounting big time. There is a section in AppFolio called Financial Diagnostic that a lot of people even look at. This is a big piece to make sure accounts are tied out. It isn't 100% correct but majority of it tells you what you need to fix.

I was from NYC and moved to PA like 6 years ago. 

Sounds awesome. If you ever need help with consulting or reviewing the financials, I can stop by!

Congrats - Buildium will work but AppFolio would be a better choice. The transitions will be a pain though if you were to set everything up in Buildium and decide to switch over to AppFolio later on.

I didn't know you were in Allentown lol

If you know how to use AppFolio already, you should just wait until you hit the 50 units and go with them. Learning a whole new platform isn't fun. I am still using them both. 

Disclaimer: I am not a PM, I consult and handle the books for clients that uses them.

I HIGHLY recommend partnering with an established PMC. There are a lot of companies nationwide looking to expand and have local operators. They can guide you through the tough issues and help you avoid mistakes. There are so many poorly run PMC's because they don't take this advice.

I don't think Propertyware is an option. They were bought out by Buildium a few years ago. Although they are separate platforms, Propertyware recently forced smaller PM companies to move to Buildium so that only larger companies are on Propertyware. 

Regardless, Buildium is the better option and they will remain a great option even if you have 300 doors.