Best way to evict a non-paying inherited tenant?

Question

I am looking at purchasing a multi-family residential property that currently has a tenant in it that I have come to find out is not the ideal tenant.  It is a REO property and a source has told me they are not paying the bank the rent that is due.  I currently do not know how their lease reads, but shouldn't I be able to give them 60 days notice to vacate?  Do I have to provide a reason?  If so, can I just say I want to remodel the building and need it vacant to do so?  Or, do I have to hand them an application like I would any other tenant, and once I see they do not meet the qualifications, get rid of them at that point?  My ultimate goal would be to remove them ASAP.  Any ideas?  Thanks.

Michael Rossi · Answer

If no-one has a copy of the lease (very likely with a REO), then that's a problem.  I would insist on all tenants and the bank signing an estoppel letter stating that there is no written lease and verifying the current rent and terms.

Alternatively, you could have the bank sign a new lease with the tenants and evict all of the tenants that won't sign before closing.  The problem here is that banks are almost universally lazy and incompetent and probably won't do that.

The bottom line is that it's VERY DANGEROUS to buy a building with tenants without KNOWING the lease status.  As I said, if you buy the property and then the tenant "finds" their lease granting them a lifetime lease at $1 per month - YOU'RE SCREWED!  You MUST establish the facts regarding the leases before you buy.

Good Luck,

Mike

Will Barnard · Answer

I think that is a viable option when you have a lease you are not willing to keep. Rather than lose the deal, offer cash for keys. (or perhaps pay for the moving truck for keys, etc.)

Joe Sauers · Answer

Thanks for all the replies.  I do have an attorney that I will consult with, but the knowledge and experience on this board is so immense that I thought it would be a good question to ask.

One final question.  Let's say the tenant's lease is not very good in the eyes of the landlord.  Would anyone consider a "cash for keys'' offer to the tenant, and if they agree, incorporate that into the estoppel letter?  That dollar amount would be factored into the offer of course.

Will Barnard · Answer

I think MikeOH and Harrison are off their rocker!
Take what you can get from inherited tenants I say. Don't do any due diligence or get estoppel letters. It takes too much time and no one every has them anyway. Just close your eyes, buy and pray. :idea:

Of course I am just kidding boys and couldn't agree more.

NEVER buy a property with a tenant(s) in place without looking over the current signed lease agreement or as Harrison pointed out, get an estoppel letter. The other way is to use Mike's suggestion and ask for new leases or better yet, kick them out prior to buying and start fresh with your criteria of tenants.

Michael Rossi · Answer

Absolutely.  I end up evicting at least half of the tenants I inherit (and intimidate many others into leaving).  The majority of inherited tenants are worthless - especially if you're buying the property at a huge discount from a distressed landlord.  Distressed landlords almost always end up taking anyone that has rent money and they don't bother screening them.  In addition, in many instances, these landlords haven't gotten any security deposits - which means you have absolutely no leverage over the inherited tenants.  Of course, that's something else you should check - to see if the tenants have given a security deposit.  If they have, your contract should say that you're getting the security deposits at closing.

Mike

Diane Menke · Answer

I'm with Mike and Harrison. You are buying a business and the business makes money on its customers. The customers are the tenants who pay rent.

You need to know what the contractual obligations are on both sides BEFORE you even price the property. I would want to see proof of payments etc.

Don't you have an attorney doing this cover for you?

FYI an attorneys job is made more difficult when you start negotiations before you bring them in. You may cause certain agreements or understandings to take place without meaning to for example.

In many states the proceedings for removing a tenant through eviction can take many months and cost a lot. Get them out before you close.

Good luck
Diane Menke

Harrison Painter · Answer

I know what MikeOh Says about the "lifetime lease for $1" might sound ridiculous to some people, but you would not believe the things we see out in the field! 
            
            This is something that could absolutely happen.
            
            In some states, a verbal lease could be legal as well. At minimum, a tenant could slow down your intended purposes for the property by claiming a verbal lease. 
            
            Many times you are dealing with bitter tenants when properties are sold, and most real estate agents/new investors just are not aware of the things you should do before you offer and/or close on an investment property.
            
            I would also like to hear about this statistic from MikeOh's experience, but I would say that about 50%+ of the existing tenants that we have inherited over the years end up getting evicted.
            
            So take this thread to heart when buying a property with existing tenants. These tools we have talked about will offer you a layer of protection from these potential problems.

Joe Sauers · Answer

Thank you Mike and Harrison.  I have heard the term estoppel before but never knew much about it, so I will read up on it.  What if the bank tells me they don't have a copy of the lease, and / or  what if the current tenant tells me they can't find their copy of the lease?

Harrison Painter · Answer

The Estoppel Certificates are something that many agents/investors tend to overlook. In my experience, 90% of the agents I have worked with do not even know what they are!!!  :roll:

Take Mike's advice, always look at the leases, and always demand an Estopple Certificate as conditions to the deal.

It also makes for a nice contingency in an offer!

Simply state that you must have a specified amount of time to review the leases, and the leases must meet your approval. (Notice that there is no definition as to what your approval actually is).

Good Luck!

Harrison Painter · Answer

Just in case people do not know what the Estoppel is:

â€œAn acknowledgment certificate that generally contains very pertinent information found within the lease along with the status of the tenant and landlordâ€™s rights and obligations under the lease.â€

Best way to evict a non-paying inherited tenant?

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