Commercial/Multi Real estate – Seller holding deposit – Help!

[Robyn Henderson]

During the summer, I signed a contract to purchase a 100% occupied 6 unit multifamily in Monmouth County, NJ. My inspection took place in July and I worked with the seller to address structural issues raised during the inspection. The seller spent ~$25k to make repairs and offered an additional ~$25k as a credit.

When I went under contract, all units were tenant occupied. 1 tenant was on a MTM lease and voluntarily moved out in August and the unit remained vacant. During the late summer, the seller evicted another unit (while under contract and without my explicit permission). I was informed that the tenants were being evicted as the process was already started and did not have a say in the matter. I expressed my concerns of having 2 vacant units multiple times with the seller. The evicted tenants left the unit in very poor condition and not able to be rented without extensive repairs. I arranged multiple contractors to look at the unit and provide estimates for renovation/repair.

Fast forward to October, I was given permission to market but I was unable to find a qualified tenant. My bank informed me that I would not be able to close with the current vacancies. I informed the seller who then quickly produced a lease for a tenant. The prospective tenant withdrew 5 days later in which I informed my bank who issued a mortgage denial. The bank indicated that I did not qualify for the mortgage due to inadequate cash flow and occupancy requirement (85%). It took some time to get the formal denial letter.

In the meantime, the seller scrambled to find a tenant without proper tenant screening and pushed through a candidate with prior eviction history and who I did not approve. She did this to satisfy my lender’s occupancy requirements. At the same time, the seller’s attorney issued a time of essence letter for closing and claims I am in breach of contract.

The seller claims that I was the reason why the units remained vacant and refuses to return my deposit due to the mortgage contingency.

At the end of October, prior to the tenant withdrawing the lease and in anticipation of the closing, I conducted a final walkthrough of the building where I talked to the tenants for the first time. They informed me about pests, rodents, mold, and safety issues. After the eviction, tenants began experiencing roaches and mice. About the time of the eviction, there was a water leak into a neighboring unit from the apartment where the eviction occurred. The tenant shared pictures and video of the leak. This leak occurred after my home inspection and I was not informed about it until the tenant told me during the final inspection. The tenant said no one fixed the leak for 2 weeks and was concerned about mold. I have written statements from tenants indicating the issues written, dated, and signed by them.

Between the mortgage contingency and the mold, I’m requesting my $10,000 deposit back but the seller is refusing to do so.. In addition to the deposit, I have spent ~$20,000 to acquire the property including inspections, phase 1 environmental, bank fees, attorney fees, etc.

The real estate attorney that I used for this contract is very transaction-based and has provided very limited legal advice the few times that I’ve been able to get a hold of her. I’m seeking alternate counsel.

Besides talking to attorneys, do any of you have any advice? I realize litigation will be expensive. I am open to representing myself in small claims court but that puts a cap on what I can recover. The seller is an LLC.

If you have any attorneys (who litigate) based in Monmouth county, please private message me.