Re: In a bit of trouble, sorry about length - Posted by B.L.Renfrow
Posted by B.L.Renfrow on September 17, 2003 at 22:43:43:
Ed Copp is nothing if not blunt, but he has some very valid points. You have not followed the advice often repeated here about having adequate funds in reserve to cover payments if a tenant stops paying, if you are going to do these types of deals.
Now, given that part of the reason that advice is so often repeated is because of my experiences in the past similar to the one you’re in now, let me give you some advice from one who has stood in your shoes.
The FIRST thing you need to figure out is how to get the payments current right now. Can you borrow money? Have a garage sale? Take a part-time job? Work overtime? Sell some stock? Do you have a security deposit from your tenant you can use for one of the two unpaid payments? If so, use it.
Next, what does your agreement with the seller say? I assume it states what happens in the event of default. How you approach a solution is going to be limited by the terms to which you’re bound by the contract.
It’s going to be tougher for you now that lawyers are involved. In my situation it was a property I’d taken subject-to, then lease optioned to tenant buyers. When the private lender threatened to call the note due because of DOS violation, the T/Bers stopped paying. They felt they had me over a barrel and they were just going to wait it out, then make their own deal with the mortgagee.
I badly wanted to evict them for nonpayment. My attorney strongly advised against it. He felt they would raise all kinds of issues related to equitable interest in the property, and an eviction would turn into an expensive, protracted legal battle which he was not sure we would win.
To this day, I’m not sure whether he was right or wrong, but I eventually followed his advice and ended up deeding the property back to the lienholder – in exchange for general releases from everybody involved.
At this point, Ed is right: you are NOT in control of the situation. Your situation is a bit different from mine, so I think, from the information you’ve presented, that while you are raising the funds to pay the past-due payments, you should simultaneously begin eviction proceedings against your tenants. They are 2 or 3 payments behind, they are going behind your back causing trouble; they deserve no more chances. Get rid of them.
Who knows how a court would view it, but unless you have taken rent from the tenants and failed to pay the note, I doubt you’d have much trouble there. There aren’t too many defenses to a tenant’s nonpayment as far as a judge is concerned.
Are you at risk of being evicted yourself? Again, it goes back to the terms of your agreement with the seller and your state law.
If your relationship with the seller is beyond repair, and if you don’t have the money to cover the payments until you get a new tenant, perhaps you’d be better off to offer to void your lease and give the property back.
Also, you refer to a “tenant”, not a tenant-buyer. If this is the case, how about next time offering a lease option instead of just renting? That way you could get option money from your T/Ber to keep in reserve for future unexpected situations.
Finally, I’m not an attorney and if lawyers are involved and people are threatening to sue, I suggest you get one involved on your behalf pronto.
Do let us know how this turns out.