Buying a 2 family home that is set up as a 3 family. Seller wants to close w/all tenants still in bldg...but with a large escrow. What do we do?

hi, we are thinking of buying a home that is a legal 2 family, but is currently set up as a 3 family. The illegal unit, the seller claims is a friend of the family (who’ve lived in the building for 16 years). The seller is promising contractually that all 3 families (the seller being 1 of the 3 fam) will vacate the house 30 days AFTER closing. Seller is securing this promise with a 30,000 escrow, in which we will be overpaid large sums for rent every month if they do not vacate. We are most concerned about the 1 illegal tenant on the middle floor. If said promise does not go as planned, and the illegal tenant stays on, what kind of recourse could we expect, worst-case-scenario? And what kind of rights does the illegal tenant have? I should mention the Sellers and their tenants all seem to be ok with moving out.  There doesn’t seem to be any major backlash reactions, except for their said desire to stay. Needless to say, we like this house and think it’s worthwhile.  But for what it’s worth (monetarily), we’re not sure…

radgirl

in Lawyers and legal service 12 years and 10 months ago

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200line | 12 years and 10 months ago

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Radgirl, There is something in the explanation from the seller’s broker that does not sound right.  First, it is nice that the seller is offering to pay for the moving costs for his or her tenants.  However, while moving can be expensive, it is usually not so expensive that you have to sell your house to pay for it.  If they are buying a new house, it will be tough to get a loan with absolutely no cash in the bank. Second, why are they paying the moving costs?  It could be because they are just incredibly generous people.  It also could be because they are trying to give their tenants an incentive to leave.  If the second reason is true or partially true, then you could also have a problem getting them to move. Third, why can’t the tenants just move the day before closing and the seller reimburse their moving costs after closing.  If this really is an incentive to move that the tenants are balking that they won’t get paid, the seller can agree to reimburse them at the closing table, although this seems like a lot of brain damage for a relatively small sum. If you put it all together, I think there is likely more here than the selling broker is telling you.  I would be very careful about offering to float the moving costs since, if you don’t close, there would be no credit to be had. Finally, as mdmh says, there are many ways to get around the issue of needing the proceeds of one transaction to complete a second transaction.  People deal with this all the time.

200line | 12 years and 10 months ago

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Radgirl, There is something in the explanation from the seller’s broker that does not sound right.  First, it is nice that the seller is offering to pay for the moving costs for his or her tenants.  However, while moving can be expensive, it is usually not so expensive that you have to sell your house to pay for it.  If they are buying a new house, it will be tough to get a loan with absolutely no cash in the bank. Second, why are they paying the moving costs?  It could be because they are just incredibly generous people.  It also could be because they are trying to give their tenants an incentive to leave.  If the second reason is true or partially true, then you could also have a problem getting them to move. Third, why can’t the tenants just move the day before closing and the seller reimburse their moving costs after closing.  If this really is an incentive to move that the tenants are balking that they won’t get paid, the seller can agree to reimburse them at the closing table, although this seems like a lot of brain damage for a relatively small sum. If you put it all together, I think there is likely more here than the selling broker is telling you.  I would be very careful about offering to float the moving costs since, if you don’t close, there would be no credit to be had. Finally, as mdmh says, there are many ways to get around the issue of needing the proceeds of one transaction to complete a second transaction.  People deal with this all the time.

curiositykilledthecat | 12 years and 10 months ago

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Do not close on a house with tenants in place–legal or otherwise.  Just don’t.

elmo | 12 years and 10 months ago

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There are other ways the seller could get around their problem of not having money for closing.  We had the same issue and our solution was to take out a HELOC as a temporary bridge loan, which we used for the downpayment costs and we paid it back to the bank after closing on our sale.   Why not suggest this route to the sellers now?

Reno2011 | 12 years and 10 months ago

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This is where I would ask for a much larger escrow- something upwards of 100K + or more (depending on the sale price).

armchairwarrior | 12 years and 10 months ago

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Don’t buy with tenants paid in the ass, takes 6 months or more for the legal ones. and illegal ones good luck on that one.

mousta | 12 years and 10 months ago

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I agree with edifice. Just don’t close until the tenants vacate. If there is no backlash against leaving then why don’t they move? Even if it takes an extra month or two it is worth the lack of headache.

bedstuytownhouse | 12 years and 10 months ago

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Are you financing?  If so, the bank won’t let you close with 3 kitchens which they’ll notice when they do the appraisal.

edifice-rex | 12 years and 10 months ago

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I would not take a building with a tenant I did not want without a substantial reduction in price. Why not just delay the closing 30 days. How can you be sure they are illgeal? They may have a lease you don’t know about. They may pesent a fraudulent  lease. Brooklyn housing court can be very forgiving with tenants no matter thier status. It can easily take 6 months to evict them even if they have a case with  no merits. I would give them as much time as needed to take a vacant building. If it goes badly that $30k will be small compensation.

200line | 12 years and 10 months ago

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If you are only talking about 30 days, why not just delay the closing 30 days so the house can be delivered vacant?  I am sure there is a good reason, otherwise this would just be too easy a solution.

200line | 12 years and 10 months ago

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If you are only talking about 30 days, why not just delay the closing 30 days so the house can be delivered vacant?  I am sure there is a good reason, otherwise this would just be too easy a solution.

anotherposter | 12 years and 10 months ago

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    ["deleted"]=>
    string(1) "0"
  }
  ["ID"]=>
  int(53767)
  ["caps"]=>
  array(2) {
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["cap_key"]=>
  string(15) "wp_capabilities"
  ["roles"]=>
  array(2) {
    [0]=>
    string(10) "subscriber"
    [1]=>
    string(15) "bbp_participant"
  }
  ["allcaps"]=>
  array(4) {
    ["read"]=>
    bool(true)
    ["level_0"]=>
    bool(true)
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["filter"]=>
  NULL
  ["site_id":"WP_User":private]=>
  int(1)
}

This is where you need a good attorney.  If the one you are presently using (and you should have one who is experienced in NYC real estate if you are consideirng buying a home here) is not helpful on this, find a new one.  I don’t have any rec’s but surely someone here or a friend can suggest a good attorney for this.