What Should I do? (In Escrow)

Question

Hi All – Need some advice right now. I am currently in escrow (and have been since last year) on a duplex in Los Angeles, CA. I will be using an FHA loan however both units are occupied. During the early negotiations, the Owner stated that the tenant is willing to move and will move in November of 2020. The tenant kept pushing the November 2020 date back and now here we are, March 2021. The Owner even offered the tenant a couple thousand dollars to leave. A few months later and now the tenant is being non-responsive.

Is the only option to wait for the moratorium to end in June and evict? Or are there other options that I can recommend to the Owner / Agent?

Lee Ripma · Answer

@Shawn Pacaoan

Great work not closing and taking on the tenant! I would wait on the owner to deliver vacant and if they can’t move on to another deal. This is the value of buying SFH instead of 2-4 units in LA. I would not recommend closing on any property with under market tenant-occupied property as an individual/novice landlord.

Nabil Suleiman · Answer

@Shawn Pacaoan

If you are in escrow at last years prices with a duplex in a good area of LA, and you don have to take on the responsibility of a tenant.. sounds like patience is your game here. No harm in shopping around for other options while you are at it.

Cara Lonsdale · Answer

This all needs to fall on the Seller.  If the contract required the Seller to deliver vacant, then do not close until that is granted.  As mentioned by others, FHA has requirements for you to occupy within 60 days, so if you close with a Tenant Holdover, you will be setting yourself up for problems with your Lender.

Keep in mind, the moratorium is exclusive to non-payment of rent.  It does not preclude the Seller from evicting based on other issues like non-renewal, non-compliance, health and safety risk, and so forth.  Additionally, the courts have deemed the moratorium unlawful, so you will see these restrictions lifting soon.  My guess is that it won't be an option to be extended past the current term.  At that point, it will just be the time it takes to get before a judge, who probably has a busy docket.

Ultimately, it will be what your state allows.  California is probably one of the more Tenant friendly states (leaning toward the ridiculous, in my opinion), so it will be an uphill battle that will most likely come down to the amount of $$$$$$ that is offered to the deadbeat Tenant to move out.  What a sad and infuriating result that is!

Good news is....you most likely already have equity in the property since it has been over 7 months since you put it under contract, and you haven't had to make 1 payment yet. :)

Michael Bennett · Answer

As an FHA buyer you are required to move into the property within 60 days. If the current owner cannot remove the tenant you should not proceed with the deal and your earnest money should be returned to you. If the owner still thinks they can remove the tenant it is fine to stay in escrow as long as your earnest money is safe, but I would be looking at other options. If you end up going under contract on a different property you'll need to terminate the other deal.

Shawn Pacaoan · Answer

Yes, my agent has been telling me to stay patient and not back out of the deal. He noted it will eventually pay off when we close on this duplex. Hoping for a good amount of equity when we close!

Shawn Pacaoan · Answer

Yes I do trust the seller. They are not an agent/seller. The sellers agent is actually my agent as well. He is representing both parties.

The seller has had these tenants for awhile and does not want issues with them. He won't act until the eviction moratorium is lifted and then he will serve an eviction notice.

Very unfortunate, I've been waiting for a year to get into this house.

Rick Trivedi · Answer

@Shawn Pacaoan - Do you trust the seller? If they are an agent/seller - they have access to legal hotline as a realtor and would have been able to handle this sooner. Do you have buyer side agent representing you in the transaction?

What Should I do? (In Escrow)

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