Property manager keeping fees and not willing to work

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Property manager keeping fees and not willing to work

Mathew A.
Real Estate Investor · Jacksonville, FL · Member since 2010 · 60 posts · 16 votes

I've got myself in a bind, and any guidance would be helpful.

Here's the situation:

I bought a duplex, fixed up one unit, and hired a property manager to manage it.  The church across the street wanted to buy it, and after a few months of negotiation, we eventually agreed on price and terms. The new owner said they would continue with the management, however I didn't have the new owner sign an addendum stating this.  The first mortgage payment was paid to me from the property manager (the new owner must have told the property manager to pay me in lieu of making the mortgage payment himself).  In the second month, it was brought to my attention (being CC'ed on a string of emails) that the new owner did not want to use the property manager anymore. The property manager said to the new owner that I would be liable for the remaining eight months of management fees. The new owner said ok.  After all this, I called the new owner, and the new owner said that he didn't fully understand that there was a contract in place, and that they would backtrack and use the manager for the remaining eight months. I called the property manager and told him this. He said the new owner wasn't acting in good faith and he does not want to manage for the new owner. The manager said that the new owner "repudiated" and that the manager can keep the eight months of fees and not have to manage the property. I'm on the hook for the eight months of fees. The second month's rental proceeds had all eight months of fees deducted, and the remainder ($70) was sent to me in lieu of the mortgage payment ($500).

Can the property manager keep all the fees without managing if the new owner "repudiated" and then backtracked? 

Isn't the new owner still liable for the full mortgage payment? (i.e. The property manager took rents payable to the new owner. The new owner is in default for not paying the mortgage to me.)

Although there wasn't an explicit document, is it implied that the new owner is assuming the management agreement?

I really shouldn't be involved.  I'm just the lender expecting the mortgage payment.

Please offer advice. I know you may not be a lawyer, but you still may be able to help me. Thank you.

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Andrew Meyer
Investor · Bloomington, IN · Member since 2015 · 195 posts · 36 votes
10y

You sold 1/2 of the duplex to the church and did seller financing correct? If you sold the property, why are you still even dealing with the property management company besides just getting mortgage payments? At least that is my take.

What does the property manager's contract say? To me, if you sold it WITH management, that contract now becomes the ownership of the new owner and you shouldn't be any part of it. If he doesn't want to use them fine, but the owner should have to break the contract and pay the fees.

I would agree with you, the new owner is in default for the mortgage payment. I don't really think the PM company had the right to deduct their 'fee' from the MORTGAGE payment, but I would have to look at their contract. IMO that PM company is a bunch of crooks if they want 8 months free for what looks to be a misunderstanding.

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  • Andrew Meyer
    Investor · Bloomington, IN · Member since 2015 · 195 posts · 36 votes
    10y

    You sold 1/2 of the duplex to the church and did seller financing correct? If you sold the property, why are you still even dealing with the property management company besides just getting mortgage payments? At least that is my take.

    What does the property manager's contract say? To me, if you sold it WITH management, that contract now becomes the ownership of the new owner and you shouldn't be any part of it. If he doesn't want to use them fine, but the owner should have to break the contract and pay the fees.

    I would agree with you, the new owner is in default for the mortgage payment. I don't really think the PM company had the right to deduct their 'fee' from the MORTGAGE payment, but I would have to look at their contract. IMO that PM company is a bunch of crooks if they want 8 months free for what looks to be a misunderstanding.

    2Reply
  • Mathew A.
    OP
    Real Estate Investor · Jacksonville, FL · Member since 2010 · 60 posts · 16 votes
    10y

    To clarify, I sold the duplex in its entirety with seller financing.  I don't think the contract says, "new owner assumes management agreement."  Isn't that assumed with the sale- like a tenant lease, landscaping contract, pool service, etc.?  Wouldn't they just carry over to the new owner? I will look at the property manager contract, but they usually just include a sale clause for collecting a commission and don't say anything about a new owner having to assume the management agreement.

    I agree with everything you said.  The new owner is liable to pay the mortgage payment to me.  If I don't get the full payment, the new owner is in default.  Also, the property manager is in the wrong by taking the fees.  It will be up to the new owner to recoup that money. Right?

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  • Stephen Haynes
    Rocklin, CA · Member since 2015 · 207 posts · 66 votes
    10y

    As a property manager myself it sounds like they are crooks. I would give them negative reviews on all review sites. and demand the property manager return the money due to me you sold the property and all contracts went with the property so the new owner is liable to the PM not you. go after the new owner for the remaining amount owed to you. good luck.

    1Reply
  • Stephen Haynes
    Rocklin, CA · Member since 2015 · 207 posts · 66 votes
    10y

    Oh and will you mention the PM by name so others on BP can steer clear of them.

    1Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    There are various forms of PM:

    • one which only handles the day to day operations of the rentals.
    • another with the add-on of physical maintenance.
    • and the all inclusive which pays mortgage, taxes and insurance.

    Typically the latter two are for extra fees and an addendum for each.

    Now it the PM has contracted to pay mortgage, taxes and insurance and then fails to perform,  that's a Fiduciary Failure and direct breach of contract.  SERVICE NOTICE immediately.

    1Reply
  • Mathew A.
    OP
    Real Estate Investor · Jacksonville, FL · Member since 2010 · 60 posts · 16 votes
    10y

    The PM is just a typical management company that handles day to day operations (does not pay mortgage, taxes, or insurance). The property manager is Match Made Realty in Jacksonville, FL.

    Thank you for the replies, so far.

    2Reply
  • Craig Smythe
    Jacksonville, FL · Member since 2014 · 15 posts · 1 vote
    10y

    Thanks for mentioning the name of the company so we can stay clear of them..Great value of the BP community.

    0Reply
  • Mathew A.
    OP
    Real Estate Investor · Jacksonville, FL · Member since 2010 · 60 posts · 16 votes
    10y

    Are we in agreement that the existing management agreement transfers to the new owner?  Or, is the existing management agreement void after the sale?

    Or, is the previous owner (me) still liable to pay management fees despite not owning the property?

    0Reply
  • Andrew Meyer
    Investor · Bloomington, IN · Member since 2015 · 195 posts · 36 votes
    10y

    I see no way that as the seller that you would be liable in this case, unless you did something illegal when you owned the property.

    Think of it like this...If they owed the mortgage to a national bank, do you think they would not pay THEM? The PM are trying to abuse your seller financing.

    1Reply
  • Mathew A.
    OP
    Real Estate Investor · Jacksonville, FL · Member since 2010 · 60 posts · 16 votes
    10y

    Exactly.  Everything on my end was done on the up and up, so there is no way I should be liable to pay the property manager.  The new owner will have to pay me the mortgage, and the new owner may have to take legal action to get back the fees from the property manager.

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