Won an auction - what's next?

Question

Hi Everybody,

I acted as a broker in a Public Administrator Auction which my client won.  This is the first time they have won and auction and the first one I have been a part of - at least winning one.  I am helping to the closing and beyond.   Basically need to know the next steps and have a couple of questions.

This property comes with a free and clear title.  There will be a mortgage on the property.  Contract signing is in a week - closing about 3-4 weeks after that.  Do they need an attorney for the closing if the contract is a standard one used by the Public Administrator?  Do they need to get title insurance even if it is assigned with a free and clear title?

How do we go about finding what the actual rents/lease terms/contact info are of the current tenants?

I'm sure I'll have more questions as we go along but I think this is a good starting point.

Thanks,

Tal

Michael Quarles · Answer

Jon.  Didn't the President sign a couple years ago a law which kept a "Valid" lease in place even after foreclosure?

Brent McQuarrie · Answer

Congratulations on winning the auction.

You should go to the Public Administrator and get all of their rules.  Each jurisdiction has their own set and you need to know all of them.

Yes, you should get title insurance even if the property is being sold by a Public Administrator, a bank that has foreclosed, etc.  Your buyers needs to have insurance against any unforeseen situations.

[SOLICITATION REMOVED]

Good luck,

Brent

Tal Eisenberg · Answer

Joel,

Thank you.  We went to go visit him today and he said he started legal proceedings against his tenant and I advised my client to do exactly the same thing, which he will be doing tomorrow.  Thanks again.

-Tal

Joel Owens · Answer

Tal every state has different landlord tenant laws.I believe some areas of New York are rent control so you would really need to check into landlord tenant laws for your local area.

"Can they cut off electricity/heat/water to his apartment?"

That is a self help eviction and is prohibited.Your clients could face paying fines and penalties and in some cases jail time for doing such things.

If you have the written agreement that the tenant signed stating they would vacate you simply show that in the court proceedings to the judge or mediator.

"On March 15th the owner went over and offered April 1st as a move out date. The super suggested he needed until April 20th."

This was a huge mistake.Your client should have immediately filed for eviction and given notice.This is a common tactic by tenants to gain more time.They will say they will have the rest of the money in  a week for rent or they will move by a certain date etc.

They rarely have the money and rarely move by the promised date.
So by filing eviction at first contact you have the process in motion to get them out.If they move by that promised date great but if they try to make up some junk the marshalls will be coming out soon to throw the junk out.

Your clients just need to file so the tenant knows the count down has begun.

No legal advice

Tal Eisenberg · Answer

So my clients closed on the building at the end of February.  We have seen all the apartments and they are in beautiful shape.  The apartments are all rent stabilized save for one.  That apartment is the super's.

The super has been living there rent free for the last 18 years.  He told the buyer I know it's your time, when you need me to leave just give me some notice.  He has his own property a few blocks away with his own tenants and needs to get them out so he can move in. On March 15th the owner went over and offered April 1st as a move out date.  The super suggested he needed until April 20th.  The owner agreed and they signed that he will be out.   One of the other tenants wants to move into the apartment, which will destabilize her apartment giving them 2 free market apartments.  April 20th has come and gone and the super is still there.   He says his tenant has not found a new spot so he cannot move.  He is still collecting rent, while my client is not collecting a dime.

They decided to give him a few more days (I told them not to).  May 1st they went over and told him he has to start paying rent.  He basically told them that he hi trying to evict his tenant but he will not pay them rent.

What would you guys do?  He has no lease, I pretty much consider him a squatter.  Can they cut off electricity/heat/water to his apartment?  Once he is out can they sue him for back rents?   I am going over tonight and basically telling him if he is not out by Wednesday he is getting taken to court.  Any other suggestions?

T

Joel Owens · Answer

So in the bid then if I couldn't see the inside I would include the worse case scenario per unit for rehab and rent loss for eviction.

I have seen former owners tell tenants all kinds of things with rent.I have also seen buildings look great from the outside but the actual units are thrashed on the inside.

With the worst case scenario what does the purchase price look like then?? If still good most likely will be okay but no guarantees.

In Georgia we don't have the boilers  or I haven't seen one yet.

Who pays utilities??

If the landlord pays and rents don't outpace rising utility cost your returns will diminish after expenses.If you meter it all out so that the tenant pays you will have to bear that cost.

good luck

Tal Eisenberg · Answer

We did go see the property numerous times.  The exterior of the building was in excellent shape.  The interior we got to see the basement which was in excellent shape (along with the boilers) and we saw the common areas which was clean and also in excellent shape.  The only thing we did not get to see are the apartments themselves. I was able to make a rough estimate of rent roll based on property taxes paid - in NYC the city shows online what number property taxes are based on income of the building.

Size of the building is 8100 sq ft - 8 apartments. Most buildings in the area are about 2000 Sq Ft with 3 apartments. Rents for 2BRs 1 Bathrooms in those buildings typically run $1400-$1500.

Joel Owens · Answer

Tal,

So your buyers did a blind bid on the property??

Meaning they did not visit it,look at the age and repairs needed,and see the tenant base and rent rolls??

As far as you have said all they did was a title search.I hope they did not overpay for this property.

You cannot pay on POTENTIAL or on what cannot be 100% verified.If you have tenants that have been no paying to half paying it could take months before getting them out and then you have to recondition and lease up.This is why if you can't verify something to be true you bid blind based on the worst case scenario.

What is the size of this building??What are other rents in the area for similar product??

Jon Holdman · Answer

Yes, that's the "Protecting Tenants At Foreclosure" Act.  Been a bit since I actually looked at it, but IIRC it says if there is a lease that's singed before foreclosure starts (notice of default or lis pendens filed, I assume), the lease is valid for 90 days after the foreclosure sale or for the remainder or its term, whichever is less.  Doesn't apply if the lease was signed after the foreclosure starts.  Doesn't appear to apply in this case at all, since this was not a foreclosure auction.

Jon Holdman · Answer

I'd say a landlord/tenant lawyer is going to be pretty essential.  Leases generally run with the property, and would still be fully in effect after a non-foreclosure transfer.  This sounds like probate, and I could certainly see leases surviving that intact.  I could also see the tenants knowing the law better than your buyer.  Lawyer time.