1st occupied foreclosure - short-term lease to prev homeowner?

Question

Bought my first occupied foreclosure last week (regularly buy at auction, but typically unoccupied homes). Posted Notice to Vacate as soon as I bought it. Met with previous homeowners, who under Texas law are now "Tenants at Sufferance" yesterday.

I told them I'd be willing to do cash for keys, or set them up on a 1-year lease at 10% below market rate (which would be around $1000). They want to stay in their home of 20+ years, but they can't even come close to affording that. They were struggling with mortgage payments about $500. (When I refi this cash purchase, my monthly outlay will be around $750.)

I don't want to be evicting someone right at Christmas. My thought is to offer them a one-month lease at $500, then even offer them $200 toward moving expenses if they move out on time. That gets them through the holidays and gives them time to find a solution. (Although I'm not sure what that is. She's disabled, and it appears Section 8  has a long waiting list here.)

Any downside here, other than lost cash flow? I know if they refuse to leave in a month, I'll be resetting the whole Notice to Vacate/Eviction Proceeding process, but is there anything else I'm missing?

Robert Lalum · Answer

I feel your pain in this situation, and if you can afford to let them slide till their out just start the eviction. there are many programs for them to get housing out there. You may be able to find someone to get with them that feels their pain as we do to get them on their way.  that's why we pay taxes. but i've just started to do research on RE so you may need to just take me with a grain of salt.

Leigh C · Answer

When I start talking like this my mother would tell me to "kick the table" and get mad.    It's typically less painful in the long run.      This is your first, in time the school of hard knocks will teach you.

Brandon Stevens · Answer

I personally would want to let them stay as well but it never seems to work out that easy.... What you don't want to do is let them stay for a month then it takes another month or longer to get them out and you lose that money as well.

Probably the smart thing to do would be to start the eviction process now or whenever the timeline will hit where you need them to be out (15 days, 30 days, 60 days) If they are able to get out in that time frame, you can always stop the process, if not you have the law on your side. None of us want to be "that guy" we'd love to help everyone, but wouldn't want to accept any money and be under any type of binding agreement, let her keep her $ she clearly needs and start the process where she has to be out after the first of the year....best case, she does it, worst case, the law does it. You can still be nice, you can still incentive her to get out by a certain date, but have your backup plan in place.

Michael Hayworth · Answer

Guys, thanks for the input. I was trying to keep the original post short, but just to clarify a couple of things,

1. I do understand that they don't meet my normal tenant qualifications. However, they're already in the house, and they've taken good care of it. I'm in the 40% tax bracket, so I try to keep stuff over a year.  I usually do a light renovation to rent it, then upgrade countertops, fixtures & such when I sell it a year or two later.  If I could keep them in there, I could skip the light reno step.

2. If they didn't pay their rent, I would have to evict them. That's no different than now.

3. I'm pretty well-off, so if I want to give an older disabled lady a break on a month's rent before she has to leave the home she's lived in for 21 years, it's not really creating any danger that my kids will go without food or college tuition or tickets to Star Wars or anything.

I'm really just trying to be cautious and see if there is any legal ramification I'm not considering that makes it a bad idea to give them a 1-month lease.

Matt Motil · Answer

Think about what you just said for a second...

You want to offer a year long lease to someone who obviously has a history of not paying their bills. @Leigh C has offered some nice suggestions. The key is to get these people out of your house as quickly as you can without them getting pissed off and destroying the place.

I get the whole, it's Christmas thing, and for that reason I'd give them to the end of the year, or 30-days from when you took ownership, but you can't afford to have them stay at a discounted rate. Your outlay, like you said is 750, and that doesn't include any reserves for maintenance or capital expenditures or management (even if you manage yourself you should hold this back). The investment doesn't hold water when you factor in all the potential expenses.

Leigh C · Answer

When we inherit bad tenants or owners that don't feel the need to move out after a foreclosure we offer them to pay a normal month's rent and let them know they get the entire payment back if they leave the house in broom swept condition with everything that you photographed today in regards to fixtures/appliances etc in 30 days or less.    If they need more time we sometimes offer the same deal the 2nd month (keeping the first month's payment).

If they are "good" tenants with an actual lease and can show they have been paying market value we typically let them live out their lease as they normally would have.    It's however rare we find these types of occupants.

@Michael Hayworth i wouldn't establish a lease at less than market value.    I also wouldn't mix too many emotions in this.    If you feel like giving charity write her a check or donate money to a charity that will help fix her problems.