Inherited Tenant with no Security deposit

[Jake Noreau]

So I am closing on a multi-family at the beginning of June and the place comes with an inherited tenant. Here are the facts:

- Elmhurst neighborhood of Providence, Rhode Island.... I will be house hacking and it is sort of a "BRRRR - key" investment. Needs some work.

- MLS originally listed $1200 MTM w/lease

- At time of P&S, listing said $1200 MTM no lease

- There is no security deposit

- The unit was already pretty beat up, but some damage is evidently from the tenant (ie: their kid beat up the baseboard pretty badly crashing into it on his tricycle MANY times all around the living room)

- Per contingencies, I received a statement from the current owner stating he receives $1275/month and includes internet & water

- Also he is verifying this income per another contingency he agreed to

I am opening this to discussion because I'd like to hear some opinions of my game plan for handling the unit:

- I'd like to have an introduction with the tenant and see about getting them on a short-term lease (ending right before school starts up, just in case)

- I don't want to increase rent, if anything I'd lower it and no longer include internet (maybe)

- I'd like to acquire a security deposit, but not sure how to go about this without tainting the relationship with the tenant, and considering the pandemic, don't want to ask for MORE money right now

- Can I even hold the tenant responsible for any damage that was evidently caused by them if I'm inheriting the property in it's current condition (after the damage was done)?

Thank you and I'm excited to here any constructive thoughts the BP community may have!

[Anthony Thompson]

@Jake Noreau it's a tough situation. Most of my tenant problems have been with inherited tenants because the previous landlord didn't do proper screening. For that reason, I usually ask for the unit to be empty (especially if there's any sign they may not be the best tenants), or price an eviction into my offer.

I wouldn't lower the rent at all, but I think your chances of getting a security deposit in this situation are probably extremely close to zero.

It's too late now for you on this deal, but I'm a big fan of the RIAR "Confirmation of Rental Terms" document which has both the owner (seller) and tenant sign, and states the amount of the rent and security deposit, whether there's a lease, etc.

Without that, or some kind of estoppel certificate from the owner at least, you run the risk that the owner tells you there was no security deposit so you don't get credited at closing, then later when the tenant moves out they say where's my security deposit that I gave to the previous owner?

I would only ever put them on a month-to-month rental agreement (one month at a time, not until September). I think yes, you should try to get them to sign a month-to-month lease, just so you can have all of your terms in there including, importantly, that in the event of a successful eviction they will need to pay your attorney fees.

I think you have no hope of getting a security deposit, and I would actually put in that lease that there is zero security deposit just so you avoid the situation above where they move out and ask for one back. (Again, getting something about the security deposit from the seller and tenant before closing would be much better.)

As far as damages to the unit, you should absolutely go through the unit with the tenant when you meet with them to sign the month-to-month rental agreement, and document what you see. That way if there are further damages after your purchase you at least have that on file.

However you will have an extremely difficult time proving damages that occurred to the unit prior to your taking ownership. Your only chance of this is if the seller has documentation of the condition of the unit when the tenant moved in. You should ask for this but unfortunately it's rare to get it because a lot of owners don't do a good job of documenting it or keeping good records.

And again, with (allegedly) no security deposit, it's not clear what the purpose of determining damages would be - it's not like you can deduct it against their security deposit. You could go after them for a judgment but for most tenants that's not worth the paper it's printed on because they have no assets, often work under the table, and if they make too little money they are judgment proof anyway.

There's also an argument to be made that you bought the property with the current condition of that unit priced into your offer, so there's no reason you should get a second bite at the apple and also go after the tenant for causing the unit to be in poor condition. You had the chance to inspect the building and the unit and incorporate it into your purchase price.

As far as a difference between the initial MLS listing saying there was a lease, and subsequently finding out there's no lease, the MLS listing means very little and at the bottom of every printout or web page you'll see language to the effect of "information deemed accurate but is not guaranteed and buyers are advised to due their own due diligence" etc.

Basically it means that while the agent should not deliberately lie, they can't be held responsible for inaccurate information there and you were advised that it could be incorrect and told to investigate further. This comes up frequently with extra/illegal units where, for example, a property might be listed as a 3-unit but you might find out (if you do due diligence and check # of legal units with the zoning/building department) that it's only 2 legal units.