Tenants with no security deposit

[Wesley W.]

Hello All,

I'm seeking the collective wisdom of the BP community to try and get some insight on a situation involving a pending RE transaction.  Here's the scenario...

We are currently under contract to buy a few rowhomes that have current tenants without a security deposit.  As part of the attorney approval process, one of the things I asked for was a certified rent roll and estoppel agreements for each tenant.  This is how I discovered that 3 of the tenants do not have security deposits with the current owner.  Their tenancies are also month-to-month verbal leases.

So, I asked my RE broker to convey to the seller that this was unacceptable, so either the tenants would have to be evicted or security desposits collected.  My rationale was that I as the buyer would assume all the risk for these units after closing.  So if a tenant vacated and trashed the unit (or had to be evicted, or stopped paying rent, etc.), I would have no recourse for that financial hit except a small claims court judgement (which probably isn't worth the paper it's written on).

My question is - what would you do?  Is this an unrealistic expectation of me on the seller?  Would you assume the risk to buy the buildings?  (There are 8 total units.)  Anyone have any other creative solutions?  (Maybe the seller puts some money in escrow until the tenants pay their security or vacate...)

I'm anxious to hear some feedback.  I know RE investing comes with risk, but is this the kind of risk I should accept at the risk of cancelling the contract (and incurring legal fees for work done already)?

Thanks in advance!