Today I had a new experience in my real estate investing… it came down to just hours before closing that I discovered some underlying issues with a property I won at auction 2 weeks ago. Here’s the story…
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
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I attended my first property auction on October 29th, 2013 – I was excited and nervous. The seller auctioning off the properties was a familiar one and I had purchased two properties from them already through the MLS. So I couldn’t wait to see what kind of deal I could get since they had been sitting on around 200 properties for a year without being able to sell them on the MLS.
There were three properties I had interest in. I only won one of them, but it was also the least expensive property. It was advertised as a 2 bed, 1 bath property that had a non-paying tenant/squatter and no lease. I thought no biggie, I’ll offer cash for keys and hopefully get him out without anymore damage to the property. I signed the papers with the understanding I will be receiving a covenant deed and marketable title, taxes, water, and any other outstanding fees paid.
I was able to contact the tenant by leaving a card on the door as well as talking to one of the neighbors. I set it up for the city to fix the water meter to get a final read before closing after discovering the meter wasn’t functioning. I set the stage to work out a deal with the tenant/squatter after closing.
I verified all the normal things you should when buying a property such as true ownership, property history, taxes, and so forth. The seller was paying the taxes, back water, ordinance tickets/violations and all that other jazz that goes with a normal property purchase.
I was also able to walk the property 2 days prior to the scheduled closing since the tenant let me into the property. I took my uncle to help prevent any issues that may arise from being alone. The tenant was nice and talkative and the property was in much better shape than what the pictures showed and what the listing had stated. I started getting excited because this property needed maybe $5000 into it and I was only paying $4400 to purchase it! Not to mention that it was really a 3 bedroom, not a 2 bedroom. Can you say CHA CHING????!!!!
So during the walk-through, I found out that the tenant DID have a lease and I found out what really happened the past year with the company who owned it. I was willing to overlook this until I received and reviewed my closing package the morning of closing. (ok, I received it 3 days prior but got lazy about reading it) In any case, what I found was three more discrepancies from the original deal.
This closing package stated that:
- I will be responsible for the property maintenance fees to the city,
- I will only receive a quit claim deed but will be getting title insurance,
- and that the tenant was a squatter with no lease which was what was portrayed at the auction as well.
This was all contradictory to what the original deal was at auction and in regards to the lease at hand which I personally read myself when I met the tenant. Plus, now I was only going to receive a quit claim deed and I was being charged for the weed cutting.
To make matters worse, I spoke with the tenant this morning and instead of his initial request to be evicted so he can get state aid, he was now demanding cash. He insisted I need to help him find a new place to live. After I told him I would not pay him his requested $2500, we continued talking about his rights as a tenant.
In the end, his final request was $13o0 and move-out on January 1st 2014. This was not acceptable to me, especially after the conversation we just had because I no longer trusted this tenant’s word. Not to mention I had already put into motion for the seller to resolve the issues and one of my stipulations that the auction house recommended was to have the seller forfeit any backrent they were legally allowed to collect. This way the tenant wouldn’t have to worry about a lawsuit.
But this didn’t matter to the tenant. He now started rambling on that someone has to help him move financially or he will just take his lease to the court and let them know that he and his kids were being wrongfully evicted. His kids did not live with him full time but I’m thinking he would make it look that way for the court.
So now I was starting to see the light! This was a professional renter and he knew how to play the game… a game I wanted nothing to do with. I am too inexperienced in this matter and don’t have the financial means to deal with this kind of thing right now.
In the end, I contacted the auction company as well as the title company again. Since the seller’s conveyed incorrect information to the auction company and was documented that way, the owner of the auction company agreed that the seller withheld information not only from me but to them and legally I can withdraw from the contract. So I did just that and they sent me a release form so I can get my EMD back.
The moral of this story is that no matter how much researching you do (and trust me… I do some seriously extensive research!) there is always something that can rear it’s ugly head when purchasing Real Estate. Always do your due diligence – check, check, and recheck. My gut actually gave me a feeling about a week prior to closing and I started making calls at that point but everything seemed to pan out at that time.
So do your due diligence! If you are not capable then hire someone who is. Read the fine print. Learn to tell the difference between your ‘gut feeling’ and just being scared to move forward though or you may never get your first deal if you are new and get that feeling every time you look at a property.
Photo Credit: Victor1558