My Tenant Horror Story or an Expensive lesson in Real Estate

[Neil Polehn]

A balmy spring breeze flowed through my hair, as I rolled down the vast expanse of New Mexico enjoying the happy buzz remaining from the family reunion I just attended in 2004. I was riding high on the back of a new promotion and the large bonus I just received from Cisco Systems. My hubris was at an all-time high as I had just jumped into real estate by buying some amazing houses in Phoenix earlier in the year. They were cash flow positive and appreciation was breathtaking and no end seemed in sight.

I wanted to keep the momentum going, by getting a few more and what better place then here in New Mexico I decided on a wimp, enchanted by my drive through New Mexico on the way home to California. I stopped at an internet café in Albuquerque and hastily arranged a tour from a local agent picked at random. If it feels right go with it, I decided, very pleased with myself. Since I didn’t have any mentor I was learning on the fly, and frankly astonished at how easy it was to pick houses and make money.

Needless to say, by 2011 I was barely holding on to the two remain houses I had in New Mexico, my agent offering to be my ad hoc property manager, for a fee of course, in return for cashing my check and a few placating calls a year. This was fine with me, because every time I thought about those houses my day was instantly was ruined, as I saw the neighborhood decline with companies leaving, and the hassle of the poor tenants my “property manager” found. He urged strongly that that non-paying tenants, “needed a couple months more because I couldn’t put them out on the street with babies? Was I that kind of person—of course not! Conviently this made his life easier as he didn’t need to deal with an eviction. He was a great tenant advocate.

In the depths of the recession one day my phone rang and my agent/prop manager had a "deal" for me to help me get out of one of the poorly performing homes. It was a wrap around loan with a "wonderful" person who couldn't quite qualify for financing and just needed a chance. "Sure!" I said trustingly seeing the 7% ROI as a good way out of the house, because she would own it and therefor be motivated to keep it up and make payments to me as "the bank". My agent's soothing, confident voice calmed any concerns I felt even when he mention offhand that she was on a fixed disability income but had a couple hundred to spare every month after expenses, including the medication to treated her mental disability.

“This is going to be good for you” he said in his calm, inspiring voice and he was right, for a couple years payments were made and I just cashed the checks. Then it all stopped. I called my agent and he commiserated, “gosh that a tough situation, but unfortunately it’s a bit to far from my office to help, but once I got ownership his brother-in-law needed a project house to rehab if I could just front the cash?”

I immediately realized I need to take ownership of the house on my own, but since she owned it I would have to get the title from her through a formal process at a higher court. Much more complex than a simple tenant eviction, because she owned it. Then once I had title, she became a “tenant” I would need to evict by going through a court trial my attorney informed me. I felt my stomach churn with acid as I heard him say it would take many months and a large retainer for him to take this through all the steps, and then if she fought it the court might rule in her favor. Of course I would need to pay him more to ligate a case.

The wheels ground slowly as the weeks turned to months, the weight of this situation seemed like a gloomy cloud I couldn’t escape no matter what I did. I tried calling her and offering her a couple thousand dollars to help her relocate, but her son who had taken up residence there, rejected it because he had a place to say for free now. I felt angry at her breaking the deal, but kept my cool and reasoned with her to try and make it a “win-win” for both of us to no avail, she was driving this train as far as it would take her.

Finally, I took possession of the house, after much legal expense and energy and stress on top of my stressful corporate job, and now faced the prospect of evicting her as a squatter who had tenant rights. Ugh. My attorney posted notices on her door and I text her still trying to shorten the process and hopefully not face a lot in damages. Needless to say my appetite for real estate was completely sated and I just wanted this to be over, every call I got from my attorney would ruin my day with yet another setback or delay.

Finally, one fine spring day, my attorney called saying he just happened to drive by my place and notice the door was wide open. My ears perked up, “did you happen to go inside” I intoned hopefully.

The silence crackled on the line as my dread built up and the familiar acidic burning sensation in my stomach returned in force. “Yes, and I have some bad news. Unfortunately she trashed the place completely, or maybe it was the local kids who partied in the open house. I don’t know but it looks like hell in there--everything is trashed.”

“Frack,” I croaked realizing it was the worse case I feared but hoped against. Here I was a long distance owner, with no way to even change the locks and protect it from further damage. Feeling overwhelmed I clung to the desperate hope that my agent/property manager, who I had been paying 10% on both houses for many years, would of course help me.

“Gosh, that’s horrible Neil” he crooned softly in his Texas drawl. “ I feel just terrible for you,” he offered with sympathy. I instantly felt better, this expert would take the reins and get this situation under control with his steady, experienced hands. “It’s a shame it’s an hour from my office and I can’t help, but you should get an agent who can run the rehab for you and find the contractors as needed.”

“Well, I though with our relationship you would be that person for me.” I asked the anger building knowing I had paid him for years, and now that I needed him he wasn’t going to help.

“Oh sure, you know I would but there is a conflict of interest as I am her agent as well, so I really can’t get involved in anyway.” He spoke softly as a father to away ward son. I felt completely abandoned and powerless against a mighty problem.

I then started calling agents at random hoping to get someone to help me rehab a 150K house for a slim profile margin after all the work required to manage a construction project. Needless to say, I went through many agents before finding one, willing to take it on with construction contacts. I was after all the “rich” California investor who he could profit on with top dollar construction costs, then take his percentage on the sale.

As an agent my new guy, was invisible and never answered or rarely returned my calls, so I took to calling his contractor directly and working through the issues that came up and the design decisions that needed to be made. Fortunately, he was an agent as well and treated me fairly, and I was able to sell the property in 2015 into a raising market and recoup my costs to break even. Though I earned many lessons from the school of hard knocks! At least now I am confident I can deal with the worst tenant situation as it’s already happened to me.