4 out of 5 new tenants evicted or arrested....

[Matthew Morrow]

Hey everyone,

We’re in a tough spot with a recent client purchase. They bought their first 5-unit property (and their first deal altogether) a few months back, and since then, all but one tenant has either been evicted for non-payment or arrested. It’s frustrating, especially because our due diligence came back clean, leases were solid, and the property had just been fully renovated. Unfortunately, the previous owner (who was also a licensed agent) didn’t accurately represent the tenant situation. We’ve since tightened up our due diligence process.

Has anyone else dealt with an unexpected 80% vacancy in what seemed like a stable property? Frustrating, to say the least!

[Tanya Solomon]

Quote from @Henry Lazerow:

Sue the seller, any payment delinquencies should have been disclosed. Especially if seller just received a windfall from the sale it is definitely worth suing for damages. Can name their brokerage in there also to go after insurance. 

 OP said: It’s frustrating, especially because our due diligence came back clean, leases were solid, and the property had just been fully renovated. Unfortunately, the previous owner (who was also a licensed agent) didn’t accurately represent the tenant situation.

These statements contradict themselves. Maybe get it straight b4 paying an attorney a retainer to sue and or choose an attorney who can and will go after EVERY possible avenue to make your client legally/$ whole. IMO Most of the time, people lose lawsuits or settle for much less due to laziness and lack of rock-solid knowledge about the illicit/illegal acts the opposing side committed.  

For instance, how did the due diligence "come back as clean" and the "leases were solid" if the rent was not paid up to date and paid REGULARLY?  Im not an attorney or anything close to it but it seems a simple P&L statement that is broken down monthly could reveal the tenants not paying their rent on time enough to warrant eviction. If even 1 tenant was not paying on time, it would report a loss. Then a "surge" when the tenant paid up months later bc usually a tenant has to not only fall behind but MONTHS of rent have to go largely unpaid to warrant eviction.

If the P&Ls were "doctored" by the seller, that seems like pretty big cause. Also, was there a background check on the tenants possibly having criminal backgrounds and or background check to determine if the tenants had ever been evicted in the past? Seems like that would reveal the tenant(s) that have since been arrested (and presumably jailed/prison long enough to "lose" the lease/apt). 

You prob will start off in arbitration and if that does not yield a good result, go to court. I hope you help your client with this bc in a way, you helped them get into this mess. Not only is it the right thing to do to help them get their legal ducks in a row about knowing SPECIFICALLY what the seller did wrong, ie did not disclose and can prove it was done for the sole purpose of deception to make the sale "smoother" but it can help you look good and have you learn how to avoid in the future (as you say "tighten up your due diligence")

It sucks when agents "help" 1st time or largely inexperienced buyers long enough to make the sale and get their commission but then peace out on the client when something like this happens.It It seems like you are attempting to do the right thing which is admirable bc at the end of the day, the court system is the closest thing to a "business police" that ppl can get. 

This is why in addition to apathy that bad players get away with as much as they do as frequently as they do. It is not easy to sue. It takes time and work. In any deal/investment that goes south like this, your/buyer's side is responsible bc "buyer beware" is as old as time. It sucks to admit that there wasn't tight oversite on the deal to ferret this out b4 the sale happened and its subsequent consequences and it sucks for your client that they have made, for at least the time being, an investment that is not going to be in the black in the immediate future. 

I hope you and the buyer are successful in going after the seller. As H. Lazerow said if you act promptly, the seller will have a greater likelihood of having some of the "windfall $" to pay your client when a judgment or decision in your camp's favor is rendered. Usually, acting promptly has little downside.