Tenant in REO

[Ed L.]

I just submitted a offer on a nice duplex that is in a great location near my office. The site may also have commercial value in the next 10-15 years.

The duplex consist of 2br. 2ba units that are about 1100 sq/ft. each. Built in 1993.

The units should bring 700 monthly each.

It is REO and just came on the market today for 57,000. Cash flow should be pretty decent. Building is in great shape and doesn't need anything in the immediate future based on my walk through.

My biggest concern is there is already a tenant in one of the units. Under normal conditions that would be fine, but with REO it's kinda odd.

The tenant seems to be keeping things very tidy on the outside, but I wasn't able to inspect the inside on the first visit.

The listing agent just doesn't have any info on the tenant other than they are currently paying 650 per month. Not sure to whom?? If they are current??? Who has the deposit?? Is there a current Lease??

Do I need to request a copy of the lease from the bank????

Do I have to honor a lease by the previous owner who defaulted?

Am I liable for the security deposit that the tenant gave to the previous owner??

I'm kinda nervous after reading the professional tenant horror stories...

[Scott Hubbard]

Originally posted by Ed Lee:

My biggest concern is there is already a tenant in one of the units. Under normal conditions that would be fine, but with REO it's kinda odd.

The tenant seems to be keeping things very tidy on the outside, but I wasn't able to inspect the inside on the first visit.

The listing agent just doesn't have any info on the tenant other than they are currently paying 650 per month.

Originally posted by Ed Lee:

Not sure to whom?? If they are current??? Who has the deposit??

The tenant is probably not paying rent, this is what i would assume the case to be since the house has been foreclosed upon. You should assume that you will either have to evict the tenant and project the costs to do so in your analysis. On the other hand, you may be able to keep the tenant provided they sign a new lease.

Also, the lender may very well be in the middle of the eviction process as is usually the case.

Originally posted by Ed Lee:

Is there a current Lease??

Lease is unenforceable now that the former owner has been foreclosed upon, so there will likely be no lease.

Originally posted by Ed Lee:

Do I need to request a copy of the lease from the bank????

no, there is probably no lease available.

Originally posted by Ed Lee:

Am I liable for the security deposit that the tenant gave to the previous owner??

Check the laws for your state, but you will likely not be liable for the security deposit. However, you may very well budget a little incentive for the tenant to leave or to stay. When I am forced to evict a tenant, I will instead offer to pay them to leave as long as the property in good order and clean. This saves me from having to pay someone to clean, for major repairs, and for eviction services which all cost alot. Think of it as cash for keys.

Originally posted by Ed Lee:

I'm kinda nervous after reading the professional tenant horror stories...

If your in the business long enough, you will have horror stories.... The trick is to put yourself in the best possible position and it all starts with education. BP is a great source for this.

Good Luck!