All Forum Posts by: Denise Evans

Do NOT sit by and let him build and then hit him up for a "better price." It is the reasonable rental value without the new improvements, because the tax sale investor did nothing to add value regarding the improvements. Under Alabama law, that is a VERY dangerous play and you could end by losing money.

You also cannot sit back and let him build the house and say "Thanks." Under any scenario, any state, someone who sits on their rights and lets someone get into the weeds to the benefit of the person who sat on their rights, will NOT have those "rights" enforced by the courts.  That is under almost 1,000-year old principals of "equity" followed in English and then American jurisprudence. Think Norman Invasion, 1066. (Which is why "mesne" often has the French pronunciation "main.") Think King Henry II, the great lawgiver of England, who took the throne in 1154. That old.

The developer absolutely has the right to redeem.  You have NO leverage, no matter what he builds or does not build, except for the developer saving some money in legal fees and cutting down on mesne profits damages. And, if it comes out that you stood by and let the clock run on mesne profits just to set up the former owner for large damages, a judge will not give them to you. The judge might also find that "reasonable legal fees" is a number much smaller than what you had to pay your lawyer. Those are also principles of equity. Believe me, things ALWAYS come out, no matter how well litigants think they've hidden them. Again, I speak from experience.

I'm the woman who is the expert. The owner still has redemption rights for a period of three years after the tax deed date. 

If you bought the certificate from the state for the full amount quoted to you, you must contact the state and get the calculations of how they arrived at that number. The reason is, you must continue the interest clock on each year's taxes to up to the present, at whatever the interest rate was at the time of the auction. Pre-2020 it was 12% per year. After that it was 8% per year.  You can't just take what you paid and start charging interest on that figure, because part of what you paid was already accrued interest. You are not allowed to compound interest.

If you bought the certificate from the state on a best price offer, you charge interest on your purchase price, not on the full amount of the taxes that were due, but were not paid by you when you purchased.

After you obtained your tax deed, you are entitled to something called "mesne profits" if you file an ejectment lawsuit against the former owner and they redeem during that lawsuit.  If you talk to a lawyer about the concept, some of them pronounce it "main profits" and some say "mez-knee profits." Either is correct.  I'm telling you this so you don't get confused when talking to different lawyers. 

Mesne profits is a measure of damages for the unauthorized use of real property. It is the reasonable rental value of the property from the date of your deed until the date of redemption.  Because it is raw land, it won't be much money in your situation.

My advice is to contact the developer, show him/her this post, and come to an agreement for a redemption. Redemption is accomplished by paying you money, and you sign a Redemption Quitclaim Deed. That is the same thing as any plain vanilla Quitclaim Deed except it has the word Redemption in the title.  Tell the developer to pay someone to prepare the deed. It seems simple, but it's not a DIY thing because of technical rules that are different depending on circumstances.

Or, you can pay a lawyer to file an ejectment lawsuit, the developer can pay a lawyer to defend the lawsuit and redeem, and the developer will also be responsible for reimbursing your legal fees, plus interest.  At the end of the day, you won't make a pile of money, it will cost the developer more money than if they were just reasonable, and only the lawyers will be happy. 

The solution is to work it out, with the developer paying you more than the redemption price tag, but less than the legal fees it would incur to fight about it.  For your part, it might seem like a free roll of the dice to go to court, but there are surprises and landmines along the way, litigation always takes far longer than anybody expects, and the time and emotional expense of fooling with litigation are energy drains on more productive endeavors. I speak from experience as a former defensive litigation attorney.  Work it out peacefully!

Call me or PM me. It's complicated. Denise

All buyers and sellers of rental real estate should require Tenant Estoppel Letters in their contracts. They help prevent after-sale tenant disputes or surprises about matters that originated with the former owner. "Estoppel" means what is sounds like. The signing parties are "stopped" from saying anything different after they sign the letter.

Each Tenant Estoppel Letter states the attached copy of the tenant lease is accurate and was signed by the tenant, there are no other written or verbal agreements, the tenant has paid rent through a certain date, and there is no prepaid rent other than the current month. It also confirms the amount of security deposit and the lease ending date. Yes, there is an end date in the lease itself, but it might have auto-renewed and the tenant was unaware. Or, it might have an early termination clause. The letter also states the total non-rent items currently owed by the tenant, such as accumulated late fees or repair charges.

Also very important, the tenant states they have no unresolved issues with their current landlord, except as listed in a space provided, and they have no current plans to cancel their lease under the Service Members Civil Relief Act or for any other reason.  Sellers should want a sentence in which the tenant confirms their security deposit will be transferred to the buyer, and the tenant will release the seller from liability for any deposit refund after the sale. If I represent buyers, I like to include my name and contact information along with a sentence that if anything changes after the signing but before the sale, the tenant is obligated to notify me in writing or it waives any of those changes.

Buyers might have other tenant concerns that are specific to a property. Do not overly complicate the letter, or you will scare sellers and tenants.

I want the tenant to sign, of course. I also want the seller to sign, just to add its own confirmation to the tenant's statements. That way, if somebody lies, I want my buyer to be able to sue everybody who lied, not just a probably judgment-proof tenant. If somebody sues the buyer, I want seller and tenant both stuck with the words in the Tenant Estoppel Letter, and not able to testify to anything different.

The exact wording of the Tenant Estoppel Letter should be negotiated between buyer and seller as part of the Purchase Agreement negotiations. Buyers want longer letters that cover more items. Sellers want shorter letters that are less scary and that don't expand the seller's liability. The Agreement should have a clause that buyer can cancel without penalty and with full refund of the security deposit if the signed letters are not returned to it by a certain deadline, or if subsequent tenant notifications materially change the economics of the deal. An example might be a commercial tenant with 50% of the space in a building sends an after-letter notice that it now plans to vacate at the end of its lease term in 6 months. Another might be a residential tenant whose child comes home from college and discovers black mold in her bedroom closet.

Ideally, Tenant Estoppel Letters will be sent to them after the inspection and financing contingencies have been cleared and within the last week before closing. Sellers do not want the letters sent out too early because the contract might be cancelled and tenants stirred up for nothing. For large apartment projects, it is not practical to demand the return of all letters before closing. Some tenants will just refuse to respond at all. Buyers and sellers should consider some amount of closing money be held in escrow after closing to cover potential problems with the non-responding tenants.

Does anybody have any experiences to share with successful use of a Tenant Estoppel Letter, or times they wish they'd know about this tool before entering a Purchase and Sale Agreement?

I recommend Tuscaloosa, AL, especially student rentals. One lease, everybody liable for everything, parents guarantee everything, but rent price by the bedroom.  Good prices for acquisition ($200,000 and less) with great cash on cash returns.  Steady growth and rent increases, so you can calculate increasing values. Very low real estate taxes. University of Alabama just topped 40,000 enrollment and reached its $1.5 billion capital campaign in 3 years instead of 5, so raised it to $1.8 billion.  Landlord friendly laws and courts. You can get an evicted tenant turned out almost immediately.  Wide variety of experienced landlord/tenant law lawyers and accountants here. Excellent property managers who specialize in student housing, but also companies that specialize in Section 8 (if you prefer that) plus generalists.

Other large student populations are Stillman College (HBCU) and Shelton State, which is becoming a huge techno-center of training. Alabama Fire College is here. It's a great place for investors.

Is this ultimately a land play?  How much land is included? If land values are increasing significantly, you can back-end load the seller financing for a percentage of the profit when you sell.

To add to prior comment, how many septic tanks do you have? The last time I represented a mobile home park purchaser, county health department allowed four MHs per septic tank.  It might be fewer, now. It might have been more when yours was built. Any grandfathering will be lost when one of those tanks fails.  Newer septic rules also require enough land for two septic tanks per each one you are required to install.

@Samuel Coronado, @Elan Adler Entire subdivisions of build to rent put more pressure on local landlords because the big institutional investors can afford to buy tenants with low rents and free initial rent period. That is because they are looking at the long term view. Subdivisions of build to sell are favorable to local SFR landlords because more rooftops means more retail and dining, which makes a more desirable rental area. People will rent homes in that area because they cannot yet afford to buy, but hope to buy a newer home in the future and keep the kids in the same school system and around their same friends.

Are the new builds for owner/occupants or build to rent?

Hi Arif, I can't help you, because Alabama law very different from Pennsylvania. But, nice to hear from you. I went to Owen J. Roberts High School. Allentown was one of our football rivals. We lived in the country, across the street from Welkinweir.

For cash-on-cash evaluation of rental properties, it is critical to identify ALL of  your acquisition costs.  Here is a checklist. You might have additional items depending on your market.

1.  Cash portion of purchase price (of course!)

2.  Loan-related fees and expenses

3.  Buyer-paid real estate agent commission (Yes, I recommend buyers have their own buyer's agents. Well worth the money, plus you will have already factored that expense in to your cash-on-cash requirements to justify a purchase decision)

4. Closing costs, including recording fees, transfer taxes and HOA transfer fees, if any

5.  Title insurance, if paid by Buyer

6.  Legal fees, if any

7.  Inspections--house, termite, possibly separate roof and structural

8.  Property manager onboarding fee

9.  Home warranty

10.  Termite protection installation fee

11.  Out-of-pocket capital improvements and repairs anticipated during the first year

12.  Holding costs if renovation will be required (interest, builder's risk insurance, permits, porta-potties, lender draw request and/or inspection fees, etc.)