All Forum Posts by: Jeff Copeland

A large percentage (90%+) of conventional, FHA, and VA loans get sold in the secondary market 6-12 months after origination. This is why Fannie Mae and Freddie Mac exist. It's typical and happens almost every time.

Like @Nathan Grabau said, your servicer simply collects your payments and manages your escrow account for taxes and insurance. It isn't rocket science. Other than updating your payment information and making sure your payments are going to the right place, it's usually not a major change. 

What are they getting wrong?

Sent you a PM with some info to check out.

There are a lot of factors that go into this:

1. Electrical: You need space and capacity in your electrical panel for one new 220V circuit for a dryer, and one new 110V circuit for a washer (some stackable units just require a single 220V outlet). You'll need an evaluation/estimate from an electrician for this. The cost could vary widely depending on the panel (could require a panel/service upgrade) and the distance from the panel to the washer and dryer (wire is expensive, long runs cost more).

2. You'll need hot and cold water on the supply side. This is often relatively easy, especially if the connections are going to be adjacent to the water heater (which is often the case in a utility room). 

3. You'll need drain plumbing for the washing machine. This can range from fairly easy (in wood frame construction with crawlspace access, for example) to very difficult (in slab on grade construction with drain plumbing under the slab, for example).

Obviously, you'll need a plumber to provide estimates for 2 & 3. 

4. You'll need a dryer vent. Again, this can range from easy (cutting a hole in an exterior wall with wood frame construction) to much more difficult (block construction, multi-story or basement applications, for example). 

For property managers, this is part of the Property Management Agreement. The PM acts as an agent of the owner. 

The second piece is what type of licensure is required by your state? Many states require a real estate license to practice property management, and almost all states require a contractor's license to be involved in any type of construction/renovation work. 

Yet another piece of the puzzle is liability, and liability insurance. If you hire the contractor, and the contractor burns down the house or electrocutes someone due to poor workmanship or negligence, what is your liability? And how do you insure against that liability? Most professionals in many fields carry both liability insurance (aka General Liability or GL) and errors and omissions insurance (aka Professional Liability or PL). 

 On what grounds would you keep the tenant's money? You are the one breaking the lease!

The downside risk here is what if someone breaks in to the house and steals their $25,000 heirloom dining set, or the house burns down and they lose everything they own before the lease even starts? Who is liable? (Hint: The landlord is the one getting sued.)

But on the other hand, this is a situation that people tend to overthink. 

A simple one page (or one line) lease addendum, or a pen and ink change initialed by all parties, adjusting the start date of the lease is all you need. Charge them prorated rent, or one dollar, if you want to. 

Everything else (utilities, renter's insurance, liability for their personal property, etc) should already be covered by the lease. Just change the start date. so the lease is in effect as soon as they take possession. 

Disclosure: I am not an attorney and this is not legal advice. You should get some from a licensed attorney in your state if you have any doubts whatsoever. 

Check out this video (I have no affiliation with the law firm, they just have a tone of great info for PMs and Landlords). 

You obviously want to meet with them, establish rapport, see the property, etc. 

But ultimately, the things that really matter are:

1. How much is it worth, minus how much do they owe? (How much equity do they have?)

2. How much will they sell it for (How much of that equity is leftover for you?)

I'm telling you this as a real estate broker/agent myself: You don't need a realtor for this transaction. You need a real estate attorney. Real estate agents provide assistance with marketing, due diligence, and negotiations in exchange for a commission, not legal services. 

You already live there, so I assume you aren't looking to have home inspections done and negotiate with the seller, correct?

You can either go to a reputable local title company (in the absence of a specific local referral, try Fidelity National Title - they are a reputable national firm with several branch offices in LA), or directly to a local real estate attorney (if you go to a title company, they will either have an attorney in house, or on retainer, to provide the necessary docs). 

Explain the terms of the deal, and they will help you prepare and execute the necessary paperwork. 

For a rough outline of the seller financing process, see https://www.biggerpockets.com/... (I say rough outline, because California is a title theory state, so the process will differ slightly, as stated in the post. But the general concept is the same).

Certainly not an ideal situation, but these are normal investor/landlord problems that happen all the time. Problems create opportunities: Hope (and negotiate) for the best, but plan for the worst. 

My first question would be does the tenant have a lease in place? (Hopefully you received and reviewed the leases as part of due diligence). If the lease has time remaining on the term before it expires, and the lease does not have a termination on sale clause, the tenant may actually have a leg to stand on and this becomes a much different situation. In the absence of a terminate on sale clause, the lease normally survives the sale. If the tenant is receiving federal funds such as Section VIII, it gets even more complicated. 

If the tenant does not have a lease (or the original lease has expired and/or she is otherwise month to month), and is not receiving any federal funding, then worst case this becomes a holdover eviction after she receives proper notice. 

I'm in landlord-friendly Florida, where it's relatively easy to evict someone, and even easier if they are a holdover. 

What you need to learn, very quickly, is how long does it take, and how much does it cost, to evict a holdover tenant in Massachusetts? Even though this may be Plan "C", now is the time to look into it and get your ducks in a row and paperwork (lease, notices, etc) lined up. Because the range of possible outcomes here seems to be:

1. The seller and tenant cave, and she vacates prior to closing, maybe with an extension that delays your move in date and renovations. 

2. You walk away from the deal and fight with the seller over your EMD. (BTW, for someone to advise this without knowing the specifics of the deal, or your current housing arrangement/expenses, is shortsighted...we simply don't have enough info to make this call.)

3. You get a concession from the seller to cover the cost of the eviction and lost rent, and work though the eviction yourself after closing with a MA attorney. 

As scary and terrible as Option 3 sounds right now, it's not the end of the world. In the grand scheme of things it's a small blip in the radar. It's likely a few months' worth of hassle, with the upside of:

-Not losing the deal

-Not risking your EMD

-Not risking your financing & rate lock

-Moving in on time

-Starting your renovations on the vacant unit on time

Even if the eviction takes six months, come Spring, you are are house-hacking a renovated duplex as planned. And you won't even remember the tenant's name 10 years from now.

BTW - What is your other alternative? Renting for a few more years? I obviously don't know - but it's a valid question and something to consider in terms of the overall cost (and opportunity cost) of walking away from the deal.