1-26-18: The tenant is still in the property, should we close
Question of the week: The tenant is still in the property, should we close?
Answer: With real estate values up many investors are selling properties they have been holding onto and renting for several years. As a result we have some issues pop-up on home sale transactions that do not present themselves when sellers are owner-occupants.
Over the weekend I got a call from clients who had just finished their final walk-through on a condo unit they were purchasing for mom and we were scheduled to fund and close on Monday.
The sellers had retained the condo as a rental years ago when they had purchased a new home. As part of the sales contract the seller agreed to have the property vacated by the tenant at least 10 days before closing. The buyers were calling because the tenant, and a fair amount of his possessions, was still in the property.
“What should we do?”
Don’t close.
I let them know that as soon as we concluded the call I would be notifying my office, the escrow officer and agents that because the tenant and his possessions were still in the property that we would not be funding on Monday unless the buyers contacted me to let me know the property was vacant.
Why?
Once you take ownership of the property the tenant becomes your tenant. And your problem. If the tenant decides to stay a while longer, or does not remove his possessions, you as a landlord are very restricted as to actions you may take due to tenant’s rights in the State of California. To remove the tenant you would have to go through the formal eviction process, which includes many filings and trips to court and if necessary engaging the county sheriff’s office to force eviction. Should the tenant fight the eviction and employ many of the legal delays available it can take up to a year to evict the tenant. I will not delve into the possible condition of the property once the tenant does vacate, voluntarily or involuntarily.
My advice to the client was to not proceed with funding the loan and closing the property until they made inspection to show that the tenant was no longer in the property or any of his possessions. Once that was confirmed they needed to change the locks as well as the code on the garage door opener to prevent his being able to re-enter the property.
On Monday morning the client called and said the tenant was out but some possessions were on the other side of a shared garage. Since the garage was shared with another unit, and that unit is vacant, my advice was to not close until those possessions were removed as it could still be construed as possession was with the tenant.
That evening the buyer called and let me know that the seller had removed the possessions, changed the locks and re-coded the garage door opener.
We funded the loan and closed on Tuesday on a vacant property that became full possession of the new owners.
Over the years I have been involved in a few nightmare scenarios involving our clients purchasing properties they intend to occupy with tenants still in residence because they closed with the tenants in possession. In every instance the buyers took the word of the seller, the tenant or the agent(s) that the tenant would be out of the property by closing. In one transaction the tenant left a few days after closing, but not before taking the appliances that were included in the sale. In another the tenant was still in the property one month after close and a pay-off was negotiated whereby the new owner gave the tenant a few thousand dollars to leave, giving him a cashier’s check in the street once the property was verified to be empty; the locksmith was there as well changing the locks while the transaction took place.
These are not the normal experiences of purchasing a home that has been used as a rental, however they do occur. If you are purchasing a home, or property, and you want it vacant at the time of closing, do not close until you verify it is vacant. No excuses, no promises, you want the property vacant when you take possession and once you do change all the locks and codes to enter the property.
If anyone wants an idea of the rights of tenants in California I suggest getting “Pacific Heights” from Netflix or Amazon. A bit extreme but…..
Have a question? Ask me!
Gross Domestic Product data for the 4th quarter of 2017 were released today and the report is positive once you dig into the data. Overall the economy grew at 2.6%, below the expectations of 3% or greater growth, and lower than the 3.2% growth in the 3rd quarter. Diving into the numbers GDP growth was restrained due to net exports which showed a $652 billion deficit (America imported $652 billion more in goods than it exported). This trade deficit pulled back what would have been a very strong GDP reading mostly due to the strongest quarter of consumer spending since 2015, up 3.8% from the prior quarter. With consumer spending being approximately 65-70% of our economy strong spending by consumers drives a strong economy. Another positive in the report was 2.4% increase in prices, also indicating economic strength. Just the headline number has a neutral impact on mortgage rates, digging into the numbers showing the strength of consumer activity is negative on mortgage rates and puts upward pressure on them in the short and long term.
Rates for Friday January 26, 2018: Rates bump up this week, and the conforming rate hits 4% for the first time since the last week of March 2017. With positive economic news we can expect more upward pressure on rates. If you are waiting for rates to dip back down you may have missed the opportunity. Lock your rate when you can!
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 4.00% Up 0.125
30 year high-balance conforming 4.25% Up 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
Throwback night for Leslie and I as we take the girls to the Honda Center for the Totally ‘80’s concert featuring many bands we listened to, well in the ‘80’s. Everyone is excited for the show and last night there was some impromptu warbling of some of the songs we may hear.
You know you are getting old when the songs you listened to after college, well after, are being played on the “Oldies” stations!
Have a great week,
Dennis
