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Buying a house with tenants

Posted by littleprincess (My Page) on
Thu, May 10, 12 at 9:54

The home we put an offer on has tenants in it -- evidently they have a month to month contract that says they will get out when the house is sold. (we deliberately did NOT look at any house that said it had tenants with contracts and were surprised to discover this one had tenants when we went to see it. But. It has potential despite that)

Any experience doing inspections, due diligence around tenants still living in a house? The tenants are not selling the house, the owner is.

And one thing our agent is going to ask their agent is to make sure the garage has paths cleared to hot water heater, etc. by the Inspection (which looks like it will be Monday if everything proceeds as planned -- though that's just a guess). That's a REALLY fast time to get them to move that much stuff (their garage is stuffed floor to ceiling. We could barely see it when we were there). But we only have 10 days to get our part done so we can't give them more time either.

I feel bad for the tenants because we've been the renters in the past. But I also feel like we can't be too "understanding" under the real estate deadlines we are under.


Follow-Up Postings:

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RE: Buying a house with tenants

Good luck. Tenants have rights. No matter what their contract says, they can stay for at least 30 days after you close. They also are only required to provide reasonable access for viewings and inspections and don't have to jump through any hoops to make your life easier.

One common way to make the process run smooth is to offer the tenants money for their speedy cooperation and departure. This is especially true if any delays after closing would be inconvenient or costly for you.


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RE: Buying a house with tenants

*raised eyebrows* we don't want to be landlords.
They have the right to stay 30 days after close even in a month to month lease where they are given notice before closing date?

This is significant. We are still in the negotiating phase. If true we will drop our offer entirely. The house is not worth paying the tenants as well. Where would I go to find more information about this? we live in Texas but the only thing I can find is a notice about buying a foreclosed home with tenants.


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RE: Buying a house with tenants

I my own self would put into the contract that the house must be vacant at closing.


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Response to sylviatexas

Does that solve the problem? We've got that in our contract (Tenants must vacate by 5 days before closing)


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RE: Buying a house with tenants

You should tell the owner that 10 days may not be enough time for his tenants to clear out the garage and other areas of the house in order to allow the proper access for your inspector. He should be motiviated to get his tenants to cooperate.

What does the contract say if the tenants do not vacate 5 days (is this business or calendar days?) before the closing? Is there any penalty and who will pay it?


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RE: Buying a house with tenants

My son was in your situation.
The tenants were out by final walk-through, the day before closing.


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RE: Buying a house with tenants

We bought a house with tenants ... the contract specified that the tenants would allow full access with overnight notice for any inspections (inspector could call the day before for access) and that they would be 100% out of the house on or before the walkthrough or they would owe us (the new owners) one full month's rent.

They were very cooperative and they were gone at walk-through day.


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RE: Buying a house with tenants

The purchase and sale of the property is still subject to whatever contract and contractual rights the tenants have.

If they are on a month to month, what are the month to month terms?

30 days notice to vacate is not uncommon at all, sometimes longer (and state & local laws may come into play).

Ii is usually not that much of an issue for investors (we are used to buying subject to an existing rental contract) and having good tenants already in place can be one less thing to hit cash flow on the purchase.

For a house you will occupy it is not the same.

Some of my landlord friends have had all sorts of trouble with tenants on month-to-month leases not wanting to be forced to move.

They have made showing, inspections, and the whole sale process as difficult as they could.

One timed the 24 hour notice rule to the minute.
If you called at 10:00 the day before, do not show up at 9:55.


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RE: Buying a house with tenants

You really, really, really need to find out what the state and local laws are on tenants in a house being sold. The laws do vary from state to state.

I'd also check with a lawyer familiar with tenant issues. It is possible that even if state laws allow the tenant to stay, you can have a legal contract to buy the house that gets them out before you move in.

If they have a month to month contract, there's still time for the current owners, their landlords, to give them notice to leave. It's going to take at least a month for all the paperwork for the sale to go through--if the owners give the notice promptly, the tenants should be gone before the sale is complete. (The owners may not like that, as they may be counting on a certain amount of rent. But you can always include the house being vacant as a condition of the sale. Then the owners get to choose between getting a month's rent and selling the house.)


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RE: Buying a house with tenants

I have never heard that renters can legally stay past the date of a sale... Assuming that they are given the state's legal notice.
Sounds like your agent is thinking on her feet to ask the renters to make certain that the mechanicals of the home are accessable.


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RE: Buying a house with tenants

Definitely see a lawyer, but here is a link discussing some common items under texas law. Your state seems to have some of the weakest tenant protections in the country, so that would play in your favor. Apparently, unless the contract stipulates otherwise, you can terminate a month-to-month lease in line with the payment schedule. eg monthly payments require a month notice, weekly payments only require a week. There don't appear to be any preset minimums. Whatever the current owner's contract states, it can't be less than the state minimums though. eg on a monthly payment, you can't enforce a contract that calls for only 5 day notice.

Also, the privacy laws are very weak too. No notice is necessary for entry by the landlord and tenants must allow access for inspections and prospective buyers.

Here is a link that might be useful: texas renters


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RE: Buying a house with tenants

"It is possible that even if state laws allow the tenant to stay, you can have a legal contract to buy the house that gets them out before you move in."

How is a subsequent sale contract going to void a pre-existing rental contract?

That would be an incredible legal mess.
If the rental contract contained a termination on sale clause it would be one thing, but without such a clause property is sold �subject to� prior encumbrances.

"I have never heard that renters can legally stay past the date of a sale... Assuming that they are given the state's legal notice."

It depends on what is in the rental contract.

Landlords are bound to the terms the same as the tenant.
What damages will the tenant get for the landlord breaking the contract?
Often you cannot even break it without enough cause to actually evict the tenant.

I have sold and purchased multiple properties with tenants.
Outside of foreclosures I have never heard of a sale voiding existing leases.


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Breaking the lease on the tenants

AS far as we can tell, the tenants are NOT in a lease with a specific end date.
1. It was not in the listing at all. Other houses for sale specifically state that the tenants are there until such and such a date (we didn't know the house HAD tenants until our realtor called theirs to set up an appointment)
2. What we have been told is that the tenants know the house is for sale and that when sold they might have to leave depending on what the new owner wants.

3. we wrote into our contract that tenants have to vacate by 5 days before closing. We can adjust our closing date a little. But we would not have considered this property if the tenants were revealed as having been under contract. We rent, have rented for many years. We would not be trying to break another person's contract like that.


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RE: Buying a house with tenants

In Texas, if I'm correct, & since I'm not an attorney I won't swear that I am correct, the legal contract with the earlier date takes precedence, & you can't really afford to take a seller's word that the tenant's lease has expired, or take the seller's word as to what the tenant can do or will do or will have to do.

If you buy a property with a tenant living in it under a lease, you have to abide by the terms of the lease, & even if the original term of the lease has expired, there may have been an automatic renewal clause or a clause that says that, if neither party gives notice, then the lease continues month to month until somebody gives notice-maybe 30 days, maybe 60, maybe...

So you could be buying a pig in a poke;
if the tenant doesn't want to move, you might be in for a battle, maybe a long one, maybe an expensive one.

If my buyer did not want the tenant who is in residence, for whatever reason, I'd stipulate in the purchase contract that that house has to be vacant at closing.

If you don't want to "inherit" a tenant & maybe a lease, make sure that house is vacant before you sign your name & hand over that check.


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RE: Buying a house with tenants

I did consult with an attorney on this very issue & he recommended that the seller get the tenants out before the close. I didn't want to be a landlord either and I was concerned because the tenant appeared to be elderly and perhaps not able physically to move herself out of the property. I certainly didn't want to go through an eviction. Anyway, the deal fell apart and I found another property. Good luck
Susan


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RE: Buying a house with tenants

You did good by requiring tenants be gone 5 days before closing. This gives them time to clean up and for you to do walkthrough.

The landlord should soon be giving them the 30 day notice. Some states, if rent is paid the 1st of the month, then landlord needs to give notice by the 30th if they are to move out 30 days later. In other words, if landlor gave 30 day notice now, the tenants could have until 6/30/12 to move out.. THIS DEPENDS ON YOUR STATE LAW. Other states if they were given 30 day notice today, they would have until 6/12/12 to move out.

It is quite confusing but state law dictactes this stuff. It might be good if you got a copy of the most recent signed lease with these tenants. This would likely have been a annual lease that expired and then automatically turned to month-to-month lease which they are in that period now.

Dont close until they are gone. Most are very good about this so likely you won't have problems.

I don't see a reason to back out.

IF you are still negotiating, you could request they be gone 15 days before closing. This gives cushion if they are late moving out AND gives cushion for current landlord to clean up the place and make any fixes if damage from tenants.


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RE: Buying a house with tenants

Just ask for a copy of the lease before you sign a contract and then you will know exactly what is what. Since each state varies and each lease can be unique, you just need to see the lease first hand.


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RE: Buying a house with tenants

In most states, notice that a tenancy is ending is the same length as the tenancy (but check this).

Here's one way to do it ... if they are month-to-month, the current owner can shift them to a week-to-week contract by giving them a 30-day notice that the terms are changing. Then you only have to give them 1-week notice to clear out after the contract is signed.


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