How to offer tenants chance to buy?

Question

Hi. I'm am working on putting a wholesaling deal together. After his aunt passed away, the seller inherited 2 properties (single-family townhomes) with tenants in them. He has a lease for one and not the other but both tenants say they were previously on a month-to-month lease. He wants to sell them and let the new owner deal with removing tenants. I read he has to offer the tenants a chance to buy. Does anyone know how  I advise before I go under contract for his properties?

Tom Gimer · Answer

@Naillah Valor Search for the property address on the SDAT Real Property site to determine City or County. Dundalk is County but it is just outside the City, so you'll want to confirm that.

In the City the tenants will have a right of first refusal (subject to several major exceptions, which you might explore if the statute does apply).

@Nathan G. Yes, both Baltimore City and Washington, DC have crazy laws in place. They've pretty much legalized extortion in DC.

Ruth Lyons · Answer

Account Closed Hi Stephen. It's not at all offensive. I always offer it as a courtesy. And sometimes it's a great solution. In fact, I have one tenant now who is saving to purchase the townhouse where she lives in and I'm putting part of her monthly rent aside so that she will have $5000 in downpayment in 30 months.

However the majority of the time, the tenant won't qualify for a mortgage so the right of first refusal is moot. I don't think we need more regulation. Jeez, we already have to jump through so many hoops of government interference with good business practices. The answer to most issues is NOT more government and laws, based on my experience. When government gets involved, things slow down and cost more.

Jeffrey Donis · Answer

@Naillah Valor I'd proceed with caution. It seems like if they aren't paying, you might have to evict. If that's the case, then that could take an indefinite amount of time. I'm guessing evictions are difficult to do in that market, so you'd want to avoid them if possible.

I'd ask the tenants if they'll do a "cash for keys" exchange? This is when you pay them to willingly vacate the property.

Joe Norman · Answer

Quick correction - this isn't a Maryland Law, its a Baltimore City regulation and only applies within city limits (i.e., it does NOT apply in Baltimore County).

Ruth Lyons · Answer

You should check with a title attorney to be sure as laws are always subject to change, however, I believe this first right of refusal only applies to Baltimore City, not the County: Under Code §6-1, before title to any single-family residential rental property is voluntarily transferred, the tenant of that property shall have the opportunity to purchase the property on terms considered reasonable in the residential real estate market.

I would advise him to give the tenants notice, move them out, take care of deferred maintenance, paint/carpet and sell the properties vacant. I work with a lot of investors and it's my experience that most investors do not want to inherit tenants when they purchase a property in Baltimore county. The property doesn't show well with tenants and it's way more risky to buy with tenants in place (A LOT can go wrong before, during and after the process). I worked with one investor trying to sell 2 properties tenanted a few years ago. Both tenants were unhappy about the potential sale and sabotaged every showing.

Dan Maciejewski · Answer

This should be a law nationwide. If you’re going to sell, the people actually living there should have the right to buy their home. I don’t understand why that idea is so offensive to people.

@Tom GimerBecause when you give them the "right" to do so, including a time frame within which the settlement date can be considerably delayed, tenants who actually have zero intention of purchasing can take advantage of the situation and squeeze the seller out of a portion of their sales proceeds through a negotiated waiver or assignment of their "rights". Blatant violation of the Constitution, imo.

Also, they DO have the right to buy, just like everyone else.  The law makes it so it can't be an open (free) market sale, which would most likely net the most money.  "Commercially reasonable terms" is a weasel-worded way of saying that someone else gets to determine a "fair-market" value, which sound a lot like the opposite of free market capitalism. . .

Ramon Jenkins · Answer

Make sure to provide yourself enough time for this potential deal

1. determine if varied : tenant(s) purchasing properties unknown issue

2. resell contract to an investor    ( owners occupied probably would need all cash )

3. Wholesaling time could become your enemy

4. From my past experiences suggest not marketing properties until under contract

I'm agent , fyi ( disclosure )

Good luck on this potential deal

Ramon Jenkins · Answer

I agree with Scott M

Please confirm that is a law in Maryland : tenants ___ how much timeframe to offer possibility of purchasing

Prequalify official letter  : ? timeframe to show proof of funding

Suggest locking these properties under contracts as soon as possible

Scott M. · Answer

What state are the properties in?  Never heard of a law that says you are required to offer the homes to a tenant but maybe in a few states that is the way it works?

Ruth Lyons · Answer

@Joe Norman Correct. This is a Baltimore city law and I believe it also applies in Montgomery County Maryland.

How to offer tenants chance to buy?

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