Home Buying in Simi Valley>Question Details

Khalid, Real Estate Pro in 91320

My in-laws are in contract purchase SFR in Simi Valley that is bank owned with existing tenant that states they won't leave for 7 years under

Asked by Khalid, 91320 Fri Apr 8, 2011

lease? They knew the home had a tenant until Jan. 2013 and they are fine with that. But the tenant states that he has a 5 yr renewal option and he will exercise it to stay in the house but we have no documentation of it neither does either of the agents. Now this is where it gets complicated the current tenant is actually the previous owner of the home, he purchased in 2000 sold in 2006 to his "son" and at that time they executed the current 7 year lease. The "son" defaulted on the loan (i don't know when) and the home went into foreclosure and is now bank owned. The tenant claims that the bank tried to evict him but he went to court and won a judgment allowing him to stay for the duration of the lease along with the 5 yr renewal option. And conveniently now he said he has made the decision that he would like purchase back the house which is now listed for $559K. He told my in-laws that even if you buy it you won't get into the house for 7 years. Is this legal, any advice? thanks.

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I agree with Dan!! I just listed a property that my seller had acquired as a foreclosure complete with a tenant. This tenant did not have a lease and has not paid rent. He would not accept my seller's phone calls and would only communicate via email. My seller lost in court. I can see maybe losing if the tenant had a lease and stayed until the lease was up and paid his rent, but he had no lease and did not pay rent. So now it has been six months and my seller took him back to court and finally won. In the meantime, my seller lost six months rent, had taxes to pay and HOA to pay. I would say to you, get out now and find something else to purchase.
Web Reference: http://www.joann4homes.com
1 vote Thank Flag Link Fri Apr 8, 2011
Public Law 111-22 enacted May 22, 2009 sets the ground rules for this very situation.

The fastest a Tenant can be evicted is 90 days for the notice and plan on another 60-90 days for the UD and the Sheriff Lockout and this is only if the Tenant does not contest/answer the UD.

There are a few exceptions to the rule. However if this is an owner occupied purchase and this is not section 8 housing, I find it hard to believe that a court has awarded this tenant a right to hold this property hostage for the next seven years.

Under Federal Law, Title VII - Protecting Tenants At Foreclosure Act, concerning federally related mortgages, the immediate successor in interest to the property can issue a 90 day notice for the tenant to vacate.

The tenant with a valid lease may remain till the end of the term of the lease unless the immediate successor sells the property to purchaser who will occupy the property as a primary residence.

If the tenant does not have a valid lease, they still get a 90 day notice to vacate. If the tenant does not vacate then the UD process needs to be started.

The law is very specific as to what they consider a valid or "bona fide" lease:

Under section B. Bona Fide Lease or Tenancy - for purposes of this section, a lease or tendencies shall be considered bona fide only if
1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant.
2) the lease or tendency was the result of an arms-length transaction; and
3) the lease or tendency requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to federal, state or local subsidy.

There are a few other issues that are problematic with this situation. If there is a hostile tenant on this property, how can the buyer get a physical inspection done and how can an appraiser get access to the property as the appraisal will be a requirement of the loan.

If the tenant is so driven to try and lock up this property in a seven-year lease and try to purchase back the property, I find it hard to believe that they are cooperating with the sale of the property.

Buyers today, purchasing as non-owner occupiers have to qualify for the house they are currently in, whether paying rent or mortgage, and for the home they're going to purchase. Without cooperation from the tenant, the buyer's lender will not proceed lending money on this property without an appraisal.

Sure you can tie up a property in escrow, but that does not mean you can get loan approval.

The foreclosing banks have done a poor job dealing with these tendencies over the last few years. I represent a large bank as a listing agent on their forclosed properties in East Ventura County and the San Fernando Valley. We ran into this situation and to add to it, the city of Los Angeles as a whole other set of rules that go on top of this federal rule.

The tenant refused to show us a lease, the bank was afraid to evict, the property sat for five months, the bank hired an auction company to auction off the property in a live auction. Potential buyers had no ability to inspect the property. The property sold at auction to the highest bidder and it was a winning bidder's responsibility to deal with the tenant and one issue was how could they complete the contract if the tenant would not allow access for an appraisal.

This property will most likely end up in a similar live auction. We auctioned two properties that day and they both sold 15% higher than they should have, but does matter, because when you have 60 people standing around, people break all their own bidding rules and overbid every time.

This post is not intended to be legal advise, please contact an attorney and try to find an attorney that specializes in tenant landlord law in the state of California.

Last, if you have never been a landlord before, starting off with a complex tenant issue in not the best way to go into the rental property business. Better to buy a property you can have possession of at the close of escrow, find a tenant and start without a major issue.

Please keep in mind that California real estate law is specific to California. What is done in other states really does not matter as you will be dealing with California attorneys, California courts and California Law.
Web Reference: http://www.homebuysblog.com
0 votes Thank Flag Link Sat Apr 9, 2011
Sounds like a smokescreen of nonsense to me but have your in-laws check their contract with the Seller. If the proper provisions are in place, then they should be able to 'hold the Seller's feet to the fire' of getting the tenants out. Either way, probably advisable to seek legal counsel.

Best,
Denny Beckham, Real Estate Broker
Info@BeckhamEstateBrokerage.com
(805) 526-8804

Promises Performed.
0 votes Thank Flag Link Sat Apr 9, 2011
Khalid,
Your in-laws have two choices, 1, speak to a lawyer and decide if this house under these terms is what they bargained for or 2, move on and find a house without all the complications.
Based solely on what you have described, I personally would not want to be involved with this mess. The buying, selling and renting among this family sounds like a scheme to avoid foreclosure and or paying for the house.
If they are not keeping their word under a signed mortgage contract, what hope do your in-laws have or expecting them to pay their rent, take care of the property or even leave when the lease is up?
Life is too short to buy a battle; my encouragement would be to find a nice home without all the complications.
0 votes Thank Flag Link Fri Apr 8, 2011
The bank owns the property, therefore any agreement between tenant and son is unenforceable. Once a property is foreclosed on, lease agreements are rendered useless. Have the tenant show you all paperwork related to this issue and especially the court papers allowing him to stay on. He may not be willing to do this and you will have to research it in the court where this was filed. All public records, if it actually exists.
Also, he cannot buy the property just because he wants to. He would have to submit an offer to the bank through his Realtor. He would be in competition with your inlaws and the bank would take the best offer. However, your inlaws are in contract to purchase already and he can only submit a backup offer
now as their offer has been accepted by the bank and they are in contract.
Don't immediately race to see a lawyer until you have all the documentation. The seller, which is the bank, must provide your inlaws with the lease, if it exists, because it goes with the house. That is their responsiblity when selling the property. If they don't have it, the issue is moot and your inlaws will have to evict this guy.
0 votes Thank Flag Link Fri Apr 8, 2011
There are 1,000's of listings in simi valley and your in-laws had to pick the one with the most trouble...hmmm. I'd move on to the other 999 homes as an option.
Web Reference: http://www.PaulAragon.com
0 votes Thank Flag Link Fri Apr 8, 2011
This is a legal and tax question. Please consult with an attorney and tax specialist. Good luck and keep in mind, the seller must produce any documents and reports which will affect the 'value and desirability' of the property. In this case, they may be exempt!
0 votes Thank Flag Link Fri Apr 8, 2011
Hello Khalid, Yoo do need to speak to an attorney but I remember hearing that one way you can break a lease is to tell the tenant that you want to live in the property yourself. things may have changed but I remember years ago a client was able to get a tenant out by telling the court he intended on moving in to the home as their personal primary residence. I recommend an attorney called Steve Weinshenk in Calabsas, 818-591-4100 or you can speak to a real attorney by purchasing a Pre-Paid Legal plan for just $26.00 a month. Check out the link.
0 votes Thank Flag Link Fri Apr 8, 2011
You need to speak with a Real Estate Attorney. Give Don Lanson @ Manfredi & Levine 805-379-1919 a call. They are in Westlake Village. Good luck! ~Katie
0 votes Thank Flag Link Fri Apr 8, 2011
One option is to have an attorney look up the case to see if his statement is true and verify any documentation from the bank. A 5 year lease extension to a relative in a distress sale sounds fishy and courts hear this stuff all the time so no reason to think they're stupid. Either way this tenant is likely to be an ongoing problem. Is the house worth it?
0 votes Thank Flag Link Fri Apr 8, 2011
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