Under contract on REO property, I found squatters moving in.

[Mijeong B.]

Hi. We are in a very difficult situation and hope someone can help.

My husband and I have just started investing in real estate in St Petersburg and this is our first flip project.  Currently we are under contract expecting a closing some time this week .  Yesterday my husband was driving by the house and found that a woman (with two kids) were moving furniture into the house. Of course, my husband was puzzled and asked what's going on. The woman said that she rented the house from somebody named Juan Garcia (which sounds like a random name) and paid $1,250 to him and claimed that her husband had the lease agreement.  But her husband was not there on the property. At first, my husband thought that they were victims of some sort of rental scams. 

When my husband informed the listing agent of the situation, the agent went to the house and changed the lock while those people were out of the property (There was no utility service connected as of yesterday). The woman called my husband last night and complained that she was locked out of the house while her personal belongings were in the house. My husband told her that there was nothing he could do, as he was not the owner of the property. We though that it was the seller (the bank and the listing agent)'s responsibility to handle the issue. 

Surprisingly, however, the listing agent informed our agent today that he would not deal with the situation, so our  agent and we should take care of the squatters. The listing agent's argument is that because the status of occupancy on the contract is "occupied" (the property had had tenants but they apparently moved out about 2 months ago), they are not responsible for the squatter problem. We think it is so ridiculous that the bank and its agent put all this burden on us, even though we do not own the house. 

We are considering walking away, but the problem is our earnest money deposit. It seems clear that the bank will refuse to return our money back based on the fact the contract has the "occupied" status. The squatters are not occupying the house now, but their belongings are still in the house.   What's the best move for us? Can we get the earnest money deposit back if the bank does not vacate the squatters' belongings? 

[Nicole A.]

They show no proof of a lease or a payment. No one knows who Juan Garcia is.

Get to know the local rental laws. If this is a good deal other than the people there, consider still closing. Or perhaps renegotiate a little money off for your trouble.

Either way, the very day that you close, go and do whatever the first step is in eviction for your area. Do it no matter what promises the people there give you. If they claim they'll move out, file it anyway!! You can always cancel the eviction if needed.

In addition to filing eviction, you could offer them--in writing--say $300 or whatever to move out by X date. The date needs to be there and you shouldn't give them long. No more than a week, tops. The agreement should also state that they will have all their items removed before any payment is received. Give them payment in the form of a money order or certified check. Not cash. Better to prove you made the payment. If they don't move out by that date, they get no money and you continue on with your eviction.