I checked into this & here in Louisiana, if a lease is not recorded & a property goes to sale, the new owner has the right to evict that tenant (if they chose to) within 30 days. If the lease has been recorded, then the new owner has to abide by the terms of the lease. This applies to all inherited leases whether the term is for 6 mos., 12 mos., or whatever. So if you have the tenant problem described in this post, perhaps you could look into your county’s laws & see if they have anything similar to the way it is here.
I have the opportunity to buy a upscale single family home worth about $126000. I will offer $100000. Have sellers carry $10000 and borrow $90000 at 8.5%,30 yrs, $692.02 payments. I figure total payments for both first and second to be $768.91.
Sellers just rented the home for $1050. Thus I would be inheriting new tenants if I decide to buy.
What steps should I take to make sure that the are good tenant? Should make the purchase contract contingent upon verification of the teants’ lease? How do I handle the transfer of any security deposits?
I do not want to hold this to long. Can I approach the tenants and see if they would be interested in a lease option?
Posted by Eduardo (OR) on April 04, 2000 at 19:02:43:
osirus–
One clarification: Whenever you inherit tenants with a sale, it’s a good idea to get a letter of estoppel from them before closing. This is a letter from the tenants stating their understanding of pertinent things like the amount of rent, when it’s to be paid, how much the security deposit is, what other deposits there may be, and so on. It is amazing how often the new buyer is told one thing by the seller and another thing by the tenant. This gives you a chance to get it straight before you close. --Eduardo
P.S. Nancy is right below.
Posted by Ed Copp (OH) on April 04, 2000 at 12:53:42:
Osirus, If I were the seller of this property I would probably reject your offer. I can refinance my tennant occupied house myself, and keep my spread and keep my equity. What do I need you for?
Now that said let me address your questions. Traditionally the security deposits pass from seller to buyer, at closing. You would have to honor the existing lease. Good tennant, bad tennant; it does not matter he is yours along with the deal (period). The tennants lease is part of the deal so verification of it is a good idea.
You could try to sell this property to the tennants after you made the purchase, but the seller (now) could also try to sell to his tennants. He may have already tried. Now you say this property is worth 126K. How do you know that? If it is worth 126K, then why would the seller sell to you for a measly 100K and loose 26K just because you showed up? You are bringing very little to the table on this proposal. If the seller accepts your offer you can expext to find some hidden problems. This is the only reason he would take your offer. Look at a really bad tennant, or a value that is really not 126K, for a couple of starters. My point in all of this is simply this, do your dilligent research before you do the deal; it will save you a lot of greif and money in the long run…ED
Posted by Nancy Cason on April 04, 2000 at 11:39:14:
The lease goes with the property.
1st. Verify that they have a lease not a month to month tenancy. Month to month only requires a months notice for them to vacate. With a lease you are bound to the terms of the lease, therefore you need to read the lease prior to completing the deal.
Also ask to see the tenants application. A good application will have an employment verification and a credit check attached. This will give you a good idea as to the type of tenant you are getting.
The security deposit transfers at closing. Be sure you cover that in your purchase agreement. Try to verify the amount of security deposit paid, a copy of the check if the landlord has a copy or a receipt. At the point in time that you must return the security deposit you don?t want the tenant to claim that the deposit was larger than the seller told you.
If there is a lease and you want to sell the property quickly you would have to sell to the tenants, or get them to agree to leave the premises early. That could get tricky. You may have to buy them out or hold the property until the lease expires. That is not all bad. If you hold the property until the lease expires, you can report the sale as an installment sale if you hold the note and pay the long term capital gain instead of a short term capital gain. With a good monthly spread you could afford to hold this one a year or two. Depending on the holding cost (insurance, taxes etc)
My first rental came with tenant, they stayed 5 years and took good care of the property. Five years worth of equity build up paid by someone else.
I could be wrong about this, but I seem to remember reading somewhere that if the lease is not recorded at the courthouse then the new owner will not have to honor the lease. Look into this. I’m in Louisiana & I’m pretty sure that’s how it works here. Hope this helps a little.
Vic
A lease (recorded or not) does not terminate with a sale anywhere I’m familiar with…of course I’m not familiar with Lousiana. But if I were you I’d check this out…I doubt if you’re right.
Posted by Chenel Moore on April 04, 2000 at 18:57:23:
Ditto on checking this out. But I had the same problem and found out that I was inheriting bad tenants. But because the tenants were served notice prior to the sale and the lease was not recorded, I am able to evict them within 30 days.
The more I think about it, I think it’s if the lease is longer than 12 months it needs to be recorded (to give “constructive notice”), but if it’s less than 12 mos., then it doesn’t need to be recorded, in which case the lease would have to be honored. Anyway, it’s something like this. In any event, it’s worth finding out. Let us know if you find out anything.
Vic
The more I think about it, I think it’s if the lease is longer than 12 mos. it needs to be recorded (to give “constructive notice”), but if it’s less than 12 mos. it doesn’t need to be recorded, which means the lease would have to be honored. Anyway, it was something like this. Whatever it is though, it’s worth checking into to find out. Let us know if you find out anything.
Vic
Let me see if I can clarify this for you, since you seem to be speculating on it:
When a property is sold a lease does not terminate. The buyer is bound by the terms of an existing, valid lease.
If the owner of a leased property dies the lease does not terminate. The heirs of a deceased landlord are bound by the terms of an existing, valid lease. There are a couple of exceptions. One is that a lease terminates upon the death of an owner of a life estate if he/she is the lessor. Another is that a tenancy at will is terminated at the death of either lessor or lessee.
Frankly, I?m not familiar with Louisiana law?.but it?s highly probably that the above statements are true even in Louisiana. If you doubt any of the above, or you remain confused, check out your local laws?.there?s nothing like knowing.
JPiper,
Hi! Louisiana is a unique state, no question about that. Here in Louisiana we do not have joint tennancy, tennancy in commom, life estates, bargain & sale deeds, grant deeds or any of that kind of stuff that they have in other states. If I remember right from my real estate classes, in Louisiana there are only 2 ways to take title. I can’t remember what they were as everyone seems to use the same one.
As for your point one, I believe that is accurate as long as the lease is for less than 12 mos. Anything longer has to be recorded to be enforceable.
As for point 2, I’m not real sure because we do not have life estates here. We do have tennancy at will though (how you like that?), not sure if death terminates it or not though. It could be same situation as #1 above though.
Next time I have a sale or talk to an attny. I’m going to ask them to get a clarification. What I was trying to do was give the guy who posted the first post something that he could look into. Apparently there is something to this though (I’m sure it varies somewhat by state) as evidenced by Chenel being able to do it.
Remember this is the land of Mardi Gras, crawfish & round the clock parties. Things operate a little loose in this part of the country.
Louisiana, I think is one of the only states that still has forced heirship, so the laws we have here are probably somewhat different than in other places.
I will get clarification though & when I do, I’ll post it, if nothing else it may be of some benefit to people in this state.
So there’s no misunderstanding, Chenel says that she inherited “bad tenants” who had been served notice, presumably for a breach of the lease. She was able to evict under that notice. Clearly a breach of lease can be terminated by an eviction process.
Perhaps the lease contains language that allows a 30 day notice. Assuming this doesn’t violate state law, a lease could be terminated in this manner as well.
But, again, sale of a property in and of itself does not terminate an existing, valid lease.
When Chenel says she served notice to the tennants - what kind of notice is she talking about. The way I read her post was that she served noticed of the sale, not notice that they were violating the lease. Maybe I misread, but that was the interpretation I got out of it. Chenel, what kind of notice did you serve?
Looking forward to your reply.
Vic