removing old tenant with rent control from duplex deal

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removing old tenant with rent control from duplex deal

Mario F.
Los Angeles, CA · Member since 2016 · 160 posts · 21 votes

Hello, I put an offer down on a duplex in Cypress Park Los Angeles. It's looking like a pretty good deal except for one huge concern that I have regarding a tenant who is occupying one of the units.  She is an older lady, maybe 75 years old who has lived there for 40 years and is paying only 350 dollars a month for rent. The place needs massive renovations but I'm not sure if she will leave after closing.

The agent/seller has asked me to pay an extra 18k to remove her. He has assured me that she will leave and has agreed to move with her daughter. I talked to one of the neighbors who has a relationship with the lady and apparently, the lady hasn't mentioned anything about actually leaving.  In fact, they've been trying to get her out for a while and because she hasn't accepted any offers to leave, they have been unsuccessful in selling the property.  

So here's the deal. We asked if we could keep the 18k in escrow contingent on her vacating the property. If she doesn't leave, I keep the money. The seller gave us a counter offer. He asked if only 10k could be kept in escrow and assured that the lady will leave shortly after closing.  

The question I have for you guys is should I trust the agent?  Should I close on this deal with her still living there? He's had a lot of issues trying to sell this property and now I understand why. Seems like a headache.  Her two sons also live in the unit and it's only 450 square feet!  They are pretty thug -ish too, which might compromise my safety if I need to confront them to leave.

My agent is telling me that the only way to actually get her out of the unit is if I need to move one of my family members in to it. He seems to be pretty confident she will move.  How does that work?  She's an old sick lady and I'm thinking it might be extremely hard to get her to leave considering she's on rent control and paying only $350.  I fear that I will pay the 18k and still risk the chance she won't leave. How would you handle this?

Thanks

mario

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Ciprian L.
Real Estate Agent · Burbank, CA · Member since 2012 · 271 posts · 79 votes
10y

Why is the lady not leaving before the close of escrow? Don't trust anyone. 

Move on and look for another property. 

You don't want to get stuck with this property, especially in a rent control area. 

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  • Zana Blue
    Investor · Saint Augustine, FL · Member since 2015 · 227 posts · 61 votes
    10y

    If you put the $10000 down and get the deal can you make the numbers work with just the one side of the duplex ...I know the IT IS A BUSINESS crowd will speak different but how can you kick old sick grandma out on the street...and if she leaves will the sons go too ? 

    0Reply
  • Mario F.
    OP
    Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
    10y
    Zana Blue Well the numbers wont work if i only get 350 per month for the foreseeable which means i would be forced to bail out of the deal. Its the current owners problem isnt it?
    1Reply
  • Ciprian L.
    Real Estate Agent · Burbank, CA · Member since 2012 · 271 posts · 79 votes
    10y

    Why is the lady not leaving before the close of escrow? Don't trust anyone. 

    Move on and look for another property. 

    You don't want to get stuck with this property, especially in a rent control area. 

    2Reply
  • Mario F.
    OP
    Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
    10y
    Ciprian L. Thanks this is what im going to do if she isnt out before escrow
    0Reply
  • Dale Shin
    Real Estate Agent · Los Angeles, CA · Member since 2014 · 80 posts · 20 votes
    10y

    The extra $18,000 requested seems to be for required relocation fees to be paid to the tenant.  The way I understand it, under LA city rent control notice to vacate can be given to an existing tenant to move out only if the owner (or related family member) intends to occupy the unit.  In that case, the tenant given notice to move out needs to be paid relocation fees depending on a formula of how long they've lived in the unit, how many people, etc.  

    If that is the case, it may be your responsibility to give the tenant notice and the relocation fees would come out of your pocket.  So it seems unnecessary to put $18k in escrow for the seller, what's he going to do with that money?

    Check out the LA housing department's website for specifics.

    1Reply
  • Mario F.
    OP
    Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
    10y
    Dale Shin I thibk you have a good point. The lad has lived there for 40 years and probably requires more than 18k. Her two sons are also living there but im not sure if theyre on the lease or supposed to live there. Its only 450 sq ft! I have a feeling the seller is trying to assure me that he will take care of the issue. But what hes really planning to do is just leave me with the problem because these people wont leave for only 18k. And im sure he knows it. Otherwise, why wouldnt he just vacate the unit before i close? That seems like the most reasonable way to do this.
    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    Write your offer with the Contingency of "all units being vacant at COE".  Moving in personally is not required *IF* the deal makes sense after the relocation fees are paid.

    1Reply
  • Joe Moore
    Rental Property Investor · Los Angeles, CA · Member since 2010 · 804 posts · 230 votes
    10y

    The only real chance of getting out is to find her another place and you prepay her rent for 6 months to a year and cash for keys.  Most likely you will have to go looking at different properties to buy.  

    0Reply
  • Marc M.
    Architect · Santa Monica, CA · Member since 2012 · 73 posts · 24 votes
    10y

    @Mario F., like others have said...I would definitely not close without a contingency that the unit is to be delivered vacant. I am actually on the other side of things as a tenant in a rent-controlled apartment in Santa Monica (though my rent is closer to market-rate than $350!), but there is very little a landlord can do to get someone out of a rent controlled lease if they are paying their rent on time and are not in violation of the rental agreement. Like @Dale Shin mentioned, if you or a family member are planning to occupy one of the units you can get her out. Otherwise you have to compensate her with relocation money....Santa Monica has a chart on their rent control website, and I'd imagine LA does too. For frame of reference, Santa Monica requires $13K for permanent relocation assistance. For a low-income senior, it will certainly be higher. Good luck! And let us know how it turns out...

    -marc

    0Reply
  • Mario F.
    OP
    Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
    10y

    @Marc M.  Hi Marc, thanks for the info.  So you're saying if I move my mom into the other unit and occupy one myself, the vacant can be vacated legally?  Will I still need to pay the relocation?

    0Reply
  • Brandon Battle
    Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
    10y
    Mario Furmanczyk,seriously if you are determined to play with LA's rent control laws and renting in California in general,you need to find a very good real estate attorney who is an expert in rent control laws and California rental laws in general.California is one of the most difficult places to do business and landlords are treated like criminals waiting to be caught by our court system.You need serious protection with good lawyers who will help you stay in compliance and keep you out of financial troubles.Good luck to you.
    0Reply
  • Josh Prince
    Investor · Los Angeles, CA · Member since 2010 · 116 posts · 36 votes
    10y
    Originally posted by @Mario F.:

    Hello, I put an offer down on a duplex in Cypress Park Los Angeles. It's looking like a pretty good deal except for one huge concern that I have regarding a tenant who is occupying one of the units.  She is an older lady, maybe 75 years old who has lived there for 40 years and is paying only 350 dollars a month for rent. The place needs massive renovations but I'm not sure if she will leave after closing.

    The agent/seller has asked me to pay an extra 18k to remove her. He has assured me that she will leave and has agreed to move with her daughter. I talked to one of the neighbors who has a relationship with the lady and apparently, the lady hasn't mentioned anything about actually leaving.  In fact, they've been trying to get her out for a while and because she hasn't accepted any offers to leave, they have been unsuccessful in selling the property.  

    So here's the deal. We asked if we could keep the 18k in escrow contingent on her vacating the property. If she doesn't leave, I keep the money. The seller gave us a counter offer. He asked if only 10k could be kept in escrow and assured that the lady will leave shortly after closing.  

    The question I have for you guys is should I trust the agent?  Should I close on this deal with her still living there? He's had a lot of issues trying to sell this property and now I understand why. Seems like a headache.  Her two sons also live in the unit and it's only 450 square feet!  They are pretty thug -ish too, which might compromise my safety if I need to confront them to leave.

    My agent is telling me that the only way to actually get her out of the unit is if I need to move one of my family members in to it. He seems to be pretty confident she will move.  How does that work?  She's an old sick lady and I'm thinking it might be extremely hard to get her to leave considering she's on rent control and paying only $350.  I fear that I will pay the 18k and still risk the chance she won't leave. How would you handle this?

    Thanks

    mario

    Hi Mario, 

    As others have said, you should be cautious in this deal.  Generally, you can owner-occupy a unit (or have a family member occupy) to evict a tenant under the LA Rent Stabilization Ordinance ("rent control").  

    However, there are some cases where you cannot evict a tenant for owner occupancy. One of those situations is when the tenant is over age 62 or disabled and has lived in the unit for more than 10 years. So, in your case, the 75 year old lady who has lived there for 40 years cannot be forced out by owner occupancy.  

    The tenant may voluntarily agree to leave in exchange for a cash payment or some other benefit, but you cannot make her leave unless you were completely removing the building from the rental market under the Ellis Act (and I am not as familiar with those rules to know whether it would work here).

    So, with all of that said, if the deal depends on this tenant vacating the apartment (which, if she is paying $350/month rent, it probably does), then I would only move forward if the seller will agree to deliver the unit vacant at close of escrow, OR, if you can obtain a signed agreement with the tenant to move out for payment (and for that agreement to be upheld, the tenant should probably be represented by a lawyer).  As I see it, getting this tenant out is worth much more than $18,000, and I would be willing to pay at least double that if I was looking at an otherwise good deal.

    Based on what you wrote, it seems unlikely you will get the seller to agree to deliver the unit vacant, or the tenant to agree to leave prior to close, so this might end up being a pass.  Please let us know how it goes!

    1Reply
  • Mario F.
    OP
    Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
    10y

    I've gotten great advice from you guys. I'm so grateful this forum exists! haha

    0Reply
  • Marc M.
    Architect · Santa Monica, CA · Member since 2012 · 73 posts · 24 votes
    10y

    @Mario F. like @Brandon Battle says you should definitely get a real estate attorney. As much as I too rely on advice from the BP forum, for a matter like this you don't want any surprises! Again, playing from the other side...when I met with a Legal Aid Attorney on rent control matters as a tenant the name that came up as an aggressive (and possibly unethical) landlord attorney was Rosario Perry. Do with that what you will. 

    0Reply
  • Mario F.
    OP
    Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
    10y

    Haha, thanks @Marc M. but since this is my very first property, I'm reluctant to get into this situation given that the lady has lived there for 40 years, is elderly and disabled.  I think my odds are stacked against me on this one. It might be a good deal for someone who has experience and is will to tackle this issue. Or someone who is simply more willing to wait things out with this particular tenant.  I might be way over my head on this!

    mario

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Mario Furmanczyk I am not familiar with rent controls but I read that if you, or a family member occupies the unit, you can kick her out without relocation. Why not YOU occupy the unit? Bring the price down AND keep the 18k in escrow unless the old lady leaves. Give the seller/agent a timeline say 2-3 weeks, then you can use the 18k (I'd even go 25k in escrow, 18k relocation, 7k for attorney) to hire an attorney of your choice chargeable to the seller. Let's see how their confidence level is. Don't believe in words, let them eat it by writing it. I would like to say, if I were you, will you accept it? See, if they are really confident, then they shouldn't be worried about that 8k being stuck there.
    0Reply
  • Shannon Wright
    Escrow Officer · Temecula, Ca. · Member since 2016 · 418 posts · 152 votes
    10y

    As an Escrow Officer, I can tell you that any money "held" in escrow is not likely to be auto-released without a really well written CAR Addendum and Escrow Amendment.

    Nothing for Escrow is passive, it is always active. Passive releases (passive cancellation, etc) are a slippery slope for escrow and you need to be very diligent on that matter.

    @Dale Shin is right on the money about the LA City rent control requirements, and you will also need a separate escrow, not the same escrow as the purchase escrow. The Rent Control escrow will be a "holding" escrow, which is much different.

    Maybe you have the option to raise rent legally and maybe she will leave on her own?

    http://hcidla.lacity.org/system/files_force/documents/Allowable%20Rent%20Increases_English.pdf?download=1S

    It looks like she is considered a "Protected Tenant" from the info on this post. :(

    Protected Tenants

    A landlord cannot recover possession of a rental unit occupied by a Protected Tenant (). A Protected Tenant is a tenant who has continuously resided in a rental unit for at least ten years, and is either: (i) 62 years of age or older OR (ii) disabled as defined in Title 42 United States Code Section 423 or handicapped as defined in Section 50072 of the California Health and Safety Code. A Protected Tenant is also a tenant who is terminally ill as certified by a treating physician licensed to practice in the State of California, regardless of their length of tenancy.

    Application fees submitted will not be refunded, including when it is determined that a tenant is a Protected Tenant.

    (http://hcidla.lacity.org/Landlord-Occupancy-Owners)

    2Reply
  • Mario F.
    OP
    Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
    10y

    The seller is apparently going to attempt to vacate the unit before close.  @Shannon Wright are you saying that if I put my money in escrow contingent on this unit being vacated, I might still lose the money if the attempt to vacate is unsuccessful?  So I'm assuming that you're saying that I should completely pull out of the deal until the unit is vacated?  

    0Reply
  • Shannon Wright
    Escrow Officer · Temecula, Ca. · Member since 2016 · 418 posts · 152 votes
    10y

    @Mario F., I am not advising you as to what to do, but I am telling you that most Escrow Law requirements (depending on who the escrow company is) limit our ability to release ANY funds in escrow without a mutual agreement that is active, not passive. There are very few instances that would allow this to happen, almost none actually.

    Think of it this way, who am I to determine who the funds go to now that I am releasing them? There may have been an agreement 2 months ago about the release, but things change and it is not my job, as the neutral 3rd party, to determine if it is still "agreed" to and the proper course of action. We always need current and active agreements (signature or something in writing from the principal) from both side to change anything.

    Also, the tenant relocation escrow if completely different and separate from the purchase escrow. LA City requires an escrow for every tenant relo including separate escrow instructions and proof of deposit of the required relo funds to proceed. Technically, the seller has to put the money into the holding escrow to evict the tenant because the seller is the owner of record. The only way you would be allowed to do it is after you close escrow. So, why would you putting $18k into the purchase escrow matter to the Seller? They are the ones who need to put the funds into the holding escrow. Are they going to ask you to pre-release it once you deposit it and "claim" they didn't know it had to be separate? Then, when you don't agree to pre-release, they cancel and hold your funds hostage? (This may not happen but I see a lot of bait and switch tactics by savvy, yet sheisty sellers)

    Also, there is a minimum of 60 days notice, but I believe your tenant is considered "protected" and cannot be evicted. From what I have read, you can probably only raise the rent every year, at best. You should really put a call into the City of LA about the ability to evict, they are not hard to get on the phone.

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    @Shannon Wright Very informative post. Just trying to learn, will an irrevocable statement (mixing another language like an Irrevocable Standby Letter of Credit / Irrevocable SBLC) or something similar of an instrument where both parties cannot take back what is in writing UNLESS another instrument is provided before the original is due. PS Instrument could be an agreement, contract, or any written material

    0Reply
  • Shannon Wright
    Escrow Officer · Temecula, Ca. · Member since 2016 · 418 posts · 152 votes
    10y

    No, unfortunately, at the end of the day, everything is revocable if there is no mutual agreement. 

    If something were to change and an agreement was broken or minds we're changed,  the funds would be stuck in escrow until court order,  either initiated by the principals or the escrow company. 

    0Reply
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