Buying or Selling Occupied Property
This presentation teaches the essentials of buying or selling occupied property (when tenants are in the building being bought or sold). We look at all aspects of the process:
- Offer stage - what to include
- Due diligence - what rental documents to request from owner/seller
- P&S - ensuring correct terms
- Closing ensuring transfer of last month's rent and security deposits
- Post closing - starting off relationships with new tenants on the right foot
These best practices ought to be known by all investors, brokers and realtors. Even if you have good help, it's always a good idea to know the process yourself to supervise it.
Slides, Past Video and Training Material
Buying or Selling Occupied Property
Resource Persons:
Douglas Quattrochi – Doug
Atty. Jordana Greenman - Jordana
Presentation
[Start 0:00:00]
Doug: We're fortunate to have with us today Attorney Jordana Greenman, and she'll be walking us through this webinar, Buying or Selling Occupied Property, and actually to pull up your bio, I have to pull up a different screen here. Attorney Greenman, if you like you can introduce yourself, say a couple words of introduction.
Jordana: I am the lawyer of the year, according to most sources that you would ask, no just kidding. I handle real estate, nearly anything that you need in the real estate arena. I love helping people especially small landlords, and I love speaking at MassLandlords events because I love to educate people. I’ve won a whole bunch of awards, yada, yada, yada, but you know you can read about that later/
Doug: Yes, and I pulled them up here, so Super Lawyers Rising Star Award 2012 through 2020 with a solo practice in main office in Watertown and additional offices in downtown Boston. Attorney Greenman covers a whole range of real estate stuff, so we often have Attorney Greenman here to talk landlord-tenant things, but Attorney Greenman does a lot of closing work as well, so we're talking about closings of occupied property today in particular. She's got a good reputation for aggressively advocating especially for landlord rights and Attorney Greenman is one of the first people to take on the unfunded eviction moratorium and also the Boston Eviction Moratorium, so the state and Boston moratoriums.
So please join me in welcoming with a virtual round of applause Attorney Jordana Greenman.
All right, Attorney Greenman so I’m going to advance the slides when you say so, so you give the word and we'll get started.
Jordana: Thank you all for coming. I think that for those of you who've been through a purchases of an occupied property, you probably know that this is very important and how much does it stink if you go to buy a house if it's your first house, or your first investment and the next day after the closing, you realize that the keys that the seller gave you don't work because the tenants have changed the locks and all of the tenants say that they are owed money and the sky is falling, the ceiling is falling, and there's no water. There are ways to alleviate this risk.
Can I tell you that it will go away and you can absolutely prevent it? No! It’s still Massachusetts at the end of the day, but okay let's go to the next slide.
Doug: I forgot the obligatory disclaimers. So Attorney Greenman is not in an attorney-client relationship with anyone on the webinar or obviously via the recording, so if you need advice, particularly your situation, please talk to and hire an attorney. It doesn't have to be Attorney Greenman. We're going to record this and post the slides. All right. Sorry about that, Attorney Greenman.
Here's the outline.
Jordana: Okay so these are basically the things that we're a very quick overview what's the goal of a closing, the offer stage. due diligence, purchase and sale agreement, closing, post-closing. I would advise that this is a much better way to do things than I have seen a lot of offers to purchase or letter of intent, which is something that's used more often by more experienced investors and it can often jump across the step that says that you know nothing's binding until a purchase and sale agreement is signed. But anyway, if you do your due diligence prior to the P&S, you will have a much smoother time period between P&S and post-closing than you will if you're trying to do due diligence after the P&S, so this is actually a very good order of events.
Next, so these are just some basic 101s about buying a property or selling a property. You want to work with the people that you trust to look for investment opportunities or to get rid of investments that you have or change up your portfolio on the seller side, you need to you know make the offer to purchase. You’re the seller of course, you need to review them, and most importantly for occupied property, starting the new relationship well is going to benefit you long term. For the selling and ending your relationship well will probably prevent you from ever hearing about it again.
Next. Yes, this is a very good goal. You want to have good customer service. Just think about so for instance I today had an issue getting into my credit card account even though I got an email and says here's a reminder to pay your bill, I clicked on it. The login and password were already in Chrome, I pressed enter and said this is wrong. It took me to this other screen where I had to put in all this information, still wrong.
[0:05:13]
I called the 800 number, and I told them the problem and the woman literally spent five minutes saying, “I’m so sorry that must be so aggravating to deal with blah, blah, blah.” But I don't care about your apology. Can we get on with it? So you want to give people what they're looking for not the excuses and not the runaround, but “What is it that you need? How can I do it? Have a nice day,”
Next. Ideally, well if you have time and money I wouldn't say ideally you want property vacant, but if you do want it vacant, it would probably be because you have renovations or you're an FHA buyer and you need to use one of the units, or you just have had bad luck taking on existing tenants, or like I deal with a lot of time and I have trial this week about renters who make showings difficult, so those are the times you're really going to want to have it not occupied. If it's occupied, it's more turn-key and you would want to just make sure that you shore up all the due diligence to make sure that you have everything that was agreed to before.
Next. Yes, emails can be determined to be binding, so this especially I would say when you are a seller or a buyer and you're emailing or texting with your agent because if they say, “Oh, hey, what about this offer?” and you're in the middle of feeding your kid dinner and you say yes and that that means to them they sign the offer on your behalf, they send it to the buyer, but you actually haven't even looked at it yet. So take a deep breath, make sure you don't answer anything by email or text until you actually have read I.
Next. So these are what I like to think of as the most important things to put in an offer, and going from the bottom up, I think one of the things I’ve heard from agents and investors is, “Oh, well just add the estoppels later.” I think that's dangerous because on the other side of a sale, I have said, “No, a estoppels certificates are a material term. It was not in the offer. I’m not agreeing to it. I have a client with a 10-unit building of nine Section 8 tenants, and we just aren't going to be able to get them, but if they had put in the offer we would have had to go that extra step to get them.”
I think you know it can be a negotiation process, but you really do want estoppels certificate when you're buying an occupied property whether it's residential or commercial. It is very important to know that the person who's going to be residing inside of the unit that you're buying is willing to sign that document because if they're not, it might be red flag number one: this person is difficult.
They dumbed these estoppels certificates down enough so that it's not just all legal jargon that somebody could say, “Oh, yes somebody said I had to sign that but I really didn't have any idea what I was doing.”
Doug: Yes, we're getting ahead of ourselves a little bit. There's a question coming in, “What's in an estoppel?” We're going to go through each of these contingencies in turn.
Jordana: Yes we have one in the slide show, right?
Doug: Yes, we do.
Jordana: Okay, so we'll get to that. You want to make sure inspection for security deposit compliance. If you think somebody's going to read something fast you could just basically say subject to compliance with 186 15B. Maybe they just will see a bunch of numbers and they won't even know what it means, and then they’ll move on. But we'll get into why that's important.
You want to make sure everything is assigned to you. Leases will be assigned to you and you're allowed to see them. One thing I’ll say is when people tell you there's no leases, include the word expired. Expired leases are in effect to the extent that a tenant is living in a property. It doesn't mean it automatically renews from a year, but say you have a no smoking rule, the lease expires July 31, they live there in the month of August without a lease, that doesn't mean they can start smoking. They're still subject to those rules.
You want to have your financing and inspection contingencies if you're in a market where you can get a property with those things in your offer.
Next. Okay so inspecting rental agreements. This is important you want to make sure you know who pays utilities. A new thing that you want to look out for is if you think or if there's some kind of indication that the tenant is paying for water, meaning cold water, make sure you inspect the property for the low flow devices and say that it's subject to compliance with all the law. There are things in the purchase and sale agreement that can address this but in Massachusetts and I think Doug had a little seminar on it, you can't just charge a tenant for water because it's separately metered. That's not where you start; there's a whole bunch of other things that go into charging tenants for water.
Make sure that the people who are supposed to be there are the people who are there, how long is it excuse me, and what are the conditions. Pets, smoking, parking a lot of people have this misconception that if somebody buys a property, any lease that was in effect does kerplunk. It doesn't; you can't do that. Anybody who has a lease, if it's not expired, it's subject to the lease. Tenants are not required to sign leases, so you should not be led to believe that just because you are buying a property you can deal with it later and have the tenants sign leases. They can say no, so you want to iron out the landscape for yourself.
Next. You want to bring that little guy with the magnifying glass, too, definitely. This next thing is very interesting because I just had a trial about this, and the trial and the closing fell apart when the buyer wanted to inspect the tenant's financials, so tread lightly because it's not always about will a seller be okay with it or not. Nine times out of ten, the seller probably doesn't care what happens to the tenants or what you ask the tenants. It's going to be the tenants who care, so it's going to be the tenants that might not want to share their financial information with you. But you could make if you're allowed access to them you could say, “Look, I’m going to do this and I want to make sure that you agree that you know I can see your financial information before the deal closes. You can excel your social security number you know because you have to be careful if I’m a tenant living in a property and a whole bunch of people show up to an open house and they all want to see my financial information, I mean I don't think so. But carefully when there’s a serious buyer, I think that can really work and it can go a long way.
You also don't want to cause problems for the seller. I mean that did cause pretty serious problems in the case I just had, but the people are stinky people so hopefully none of you run into that type of thing. I’m just generally not about occupied property but being a landlord in general, this is why things like checking in on your property once or twice a year, contacting your tenants when there's a huge storm to make sure they're okay just like actually treating people like people is going to lead people to treat you and the people you're dealing with more humanly in the future.
Next, yes you want to assign everything, so can Sammy Seller
after the closing yes we can bring actions. Okay so this will confuse me a little bit.
Doug: Sorry. Yes, the intent of this slide is to say that like if you have an agreement and you as a new buyer aren't a party to the agreement, then you potentially don't have the clear standing that you thought you had. You do as an owner certainly to bring in eviction action, but it's not so clear that you're the lessor and so any rights reserved to lessor wouldn't apply to you unless it's assigned. That's fair to say, right?
Jordana: Yes.
Doug: Yes, okay. So as an owner you always have right to evict I think that's right, but as a lessor, there are specific things reserved to you.
Jordana: Yes.
Doug: Okay. I should move on.
Jordana: Next, yes. Okay, so assigning unexpired notices. One of the things that you can do is if you haven't had language in the actual notice, you can assign it at the closing so you want to tell the person that you're working with, “I need that notice to quit assigned or I want to know assign this notice to quit.”
What I have been doing in my notices when people come to me and they say they want to sell the property is I’ve added this you know Doug Quattrochi and or his successors in title, and the reason is sale of property. That makes sense, or I’ll drop a footnote after the name of the landlord saying this notice is specifically assigned to any subsequent buyer for 90 days.
[0:15:20]
Executions, agreements for judgments, the problem with court documents is that they might have to go to court. One way around this that I’ve used in the past is to have the parties sign a management agreement if you will. It’s a little bit not real. I mean it is but it's not, so if say Doug is the owner and I’m the buyer, and there's already an eviction going and there's like one more hearing or he just has to issue the execution if I sign a management contract with him and I agree to pay all the fees and whatever or he agrees to pay all the fees of the eviction, I can feel a victim his name if he's somehow tied to it by contract, if he's still you know the landlord technically just for the purpose of not having to go back to court to delay things longer especially in places where we have very, very, very aggressive legal services because they might just say, “Oh, well this person's just going to have to start all over again.”
If you're selling your property and you're in the middle of any kind of court case relating to your property, you should definitely let that be known to everybody so that everybody can be protected, or if you have a judgment it could be for money judgments are good for 20 years so it might be good just to hang on to that or if the buyer wants to buy it, you could sell it to them. I think they're mostly pretty worthless but I have seen situations where a couple of years after an eviction with a big money judgment, Actually big news I found out recently the Marie Baptiste case the federal moratorium lawsuit we just found out by checking the Norfolk Registry of Deeds, the tenants were buying a house the whole time. They were buying a house the whole time, so I’m having an execution recorded in Norfolk County because I have a money judgment against them, so bravo keep your documents especially ones with raised seals on them.
Doug: Is that going to result in a lien on their new property?
Jordana: Yes.
Doug: Wow.
Jordana: For 20 years, well the judgment is good for 20 years.
Doug: Yes.
Jordana: Next. Transferring security deposits so this is something that you want to be careful about. You are going to want to make sure that if security deposit if the statue provides all of these things but it's also good belts and suspenders to put these things in writing between the parties that upon the recording of the deed, it becomes the property of the buyer.
My best practice advice is security deposits in last month's rents should be transferred to you by way of a separate bank check. The problem with putting it on the CD, closing disclosure, or HUD, you know the settlement statement, is that if you're not paying attention, you don't realize that you have the money because by doing it that way the money is then yours. You don't actually get the money; it's just credited to you so you would have to then go withdraw money from your own bank account to get the security back and do what you need to do with it.
When you purchase a property, you have 45 days instead of 30 to come into compliance with the Security Deposit Act. I would send somebody probably send them an apartment condition statement say you know, “This is something that was probably done in the past. I would like to know what the conditions are now. Please fill this out,” just so you have all of those check boxes on security deposits checked. Make sure how much money it is, and if the seller is not willing to provide you proof of a bank statement that has a tenant's name on it to show that it was outside of the reach of their creditors, and you still want the money you don't want the seller to just give it back, add 5 percent interest per annum and it's cumulative, so if the tenant's been there for five years, you take the security deposit times five percent and you add it up and then for the next year, you take that total add five percent, add it up for the next year. You definitely you want to get all these documents and you want to make sure that you quickly, very quickly get the information to the tenant and that's something that you should probably raise if you have exposure to the tenants.
A lot of times I hear, “Oh, I bought this property and the security deposit was transferred to me, and then I sent this W-9 to the tenant and they refused to sign it.” If they refused to sign it, you know what, send it back. It’s not worth having it and having the headache for it if you can't unless there's another way to get the money into an account that is not reachable by your creditors, which that doesn't mean you always create an LLC in my name. No, that's still reachable by your creditors technically. But there might be a bank out there that would put a trust account together that doesn't have the social security number of the other person, but I don't know of it.
[0:20:30]
Doug: We're actually working on developing that to the Rent Helper Service. Yes, that’s—
Jordana: Because that's a common problem.
Doug: Yes it's a common problem.
Jordana: You didn't have a security deposit correctly, but you didn't let me, so.
Okay, next. Lead paint inspection. See, that database is really good. What you should know about this database is just because you don't find a property that in this database does not mean that it does or does not have lead paint. What that means is that nobody's ever flagged the property, so a tenant never called the government or a lot for just homeowners I’ve heard recently are taking their kids for the lead tests and they're testing over the limit and then the state is coming after them.
These lead databases you need to make sure of them you know on top of needing to make sure that your children under six don't eat walls. It’s good to do these things just because they've dramatically lowered I think what the legal require or the legal whatever the level is to declare that you have lead poisoning is like I think everybody has lead poisoning now, so you have to deal with that. It becomes more and more important.
Doug: Yes, the CDC—go ahead.
Jordana: You should always be using that form even if there are no kids, even if nobody asks, and even in the rental situation when you're not renting to somebody who has a kid six or younger you're supposed to give that form and if you're the seller and you tick off, “No knowledge,” you better make sure you have no knowledge because if you actually got your property inspected 20 years ago and that comes out later, you are definitely going to be held responsible for anything that happens.
New buyers have 90 days to meet the full compliance requirements, but that can be problematic. You buy a property, you go in and you say, “Hey, I’m putting you in a hotel next week to do lead stuff,” and they're like, “Yes, right. Nice try.” You want to make sure that you carefully get your plans in order instead of making people scared or concerned you know it's a touchy subject because being misplaced is never fun but having lead poisoning is probably not fun either.
Next.
Doug: Yes, just a note on the timeline. Massachusetts lowered the blood level in 2017 so a de-lead cert from before that time could no longer be valid and then the CDC lowered the blood level in October of last year, and so the state is going to have to follow suit and do even more. This lead stuff is going to come up again and again.
Jordana: Yes, okay so contingencies on estoppels. An estoppel certificate is the tenants acknowledging to you or to the buyer or to the seller that there's various things and the most important thing is that there's no changes to the lease; everything above is true and usually above is like date of lease, term of lease, monthly rent. Was the security deposit paid? Was the last month’s rent paid? And the address of course.
You want to make sure that somebody sees that and verifies that. No changes: everything is how it's supposed to be so that you can't come in and they have six cousins living with them. [unintelligible 0:24:15] told me, well if they sign this document then that's not accurate.
Completed any issues like if there were things on the apartment condition statement or things in the lease that said that the owner has to do XYZ, you want to make sure those things are done, that whether a security deposit has been paid or not and etc., being what I always put in there is that there's no claims. The tenant does not have any current claims against the landlord; the landlord is not in breach of the lease because it can be used in court. It might not be this positive. It might not mean that it's like a slam dunk eviction case, but it will be helpful if you have that person's signature on a document that says these things it should help you.
[0:25:14]
Next. So the closing date we'll talk about I mean the purchase and sale will talk about when's the closing, how much are you buying it for, and it will have represent certain representations that there's no code violations. It usually says that you know it's being used in conformity with the zoning district that the property lies in, that any work that required a permit was done with a permit and the permits have been closed. A lot of this is due diligence of the buyer; the code violation is not so much but the permits have been really considered to be the buyer's issue so what you have to do is you have to call a building department. Some cities and towns have friendly websites, some don't, and some of the websites because we are still you know post-COVDI are not completely accurate. For instance in the city of Boston, I just handled the closing, we found six open permits. Well it turns out that all of them have been closed, but the records haven't been updated so getting your hands on the records but also contacting a human being and having them confirm that in writing for you via email or something can be very helpful.
Any sub-metering, so anytime you're buying occupied property, if it's two units you need to make sure there are three meters, three gas meters, three electric meters. Does electricity have meters?
Doug: Yes. Electric, yes common area meter plus two units, yes.
Jordana: So if it's three units, you want four; if it's four units, you want five, etc., etc., etc., etc., and this this could be something I just thought of to add to a sample certificate there's no current cross-metering because a lot of people it's like they're about to be evicted and they have no technicalities to rely on, all of a sudden they go out into the hallway and the light is out and they're like, “Oh, well I think I’ve been paying for that light for all these years. Actually now I have a claim.”
           Make sure due diligence on leases. You're going to see a lot of people especially I just did a whole bunch of closings in Western Mass for the first time and they kept saying, “Oh, there are no leases. There is no this. There is no that. We don't know how to get in touch with the Section 8 people.”
Well actually I just did a little bit of research myself and within an hour's time I had all the leases and all the names of the Section 8 people. I think it's Wayfinders that's out in that Springfield area. I think they might be the only administrator out there, I’m not sure, but you know they actually do respond, and there's a few property management companies that don't and they'll just tell you that they don't have any documents.
Do not under any circumstances buy a property with a Section 8 tenant without having the documents because it's federal also law that there are certain things that the seller and the buyer have to do and fill out to have the HAP transfer. Technically it's almost like the government has a right of first refusal on selling your property if they don't want that buyer to be a party to an HAP contract, so make sure that you get that information.
Next. I think yes we so we went over that.
Doug: Yes, okay.
Jordana: Code violations I’m just trying to think like a lot of times so the city of Boston this is something that another lawyer who sometimes speaks through a trial has a huge gripe with a lot of cities and towns when you go to buy a property and you order the municipality certificate, it has an indication of code violations on the document itself. The city of Boston does not do that there are. There are circumstances where you will never know until six years after you buy a property that there was a code violation. If it's Boston you've got to go to 1010 Mass Ave, in person on the phone over the internet all three um but other cities and towns I know a lot of like the Bristol County towns, they all have these things are right on the tax certificate.
Next. Yes you can check permits with the town, and if you go to see a house and the bathroom looks brand new and the person has owned it for 20 years, well obviously they redid the bathroom and there was probably something in there that required permitting. There are certain things that you can do without permits, and I just actually found out that you can actually install a stove without a permit if it's electric. If there's no gas hookup and it doesn't have to be like gas, you can actually put a stove in yourself, but if it's gas, you have to have the gas permit. MassLandRecords, yes you want to see when people bought it, etc.
[0:30:20]
If you're going to sell your property and you want to clean it up, talk to a professional because if cleaning it up means doing a whole bunch of stuff that you needed permits for, you're going to have to probably do it all over again, again.
Next. Yes that's a good idea, warranting that all submeters are in compliance with applicable law because it is hard to check that. It is hard to know what's what and you can't anyway even crawl into the walls and see what line goes where and what's doing what, so sometimes even if you have the right amount of meters, there still is cross-metering inadvertent or not.
Some two-family owners I’ve heard of have had specifically the common area meters channeled to their unit instead of having a separate meter to make sure that everything goes to theirs. It’s not always that safe. so ask them to warrant that but also if that's what you're doing you want that to survive closing, so you want to be able to come back and say, “That wasn't true. I’m going after you,” because in the general sense once your deed is recorded, the seller doesn't ever have to talk to you again.
Next.
Doug: Well before we leave that, that ties into a question that we can address here. “What are your options? What does it look like if you want to go back to a seller after you're now the owner and say you were not truthful about this. The submeters are not accurate. They're not working correctly.” How does that actually look?
Jordana: Grim.
Doug: It’s hard to do that.
Jordana: At least you have a better chance than the buyer who doesn't have that in their agreement. I think it was about a year ago, I got a call from somebody who had bought a property that was not connected to a public sewer, and the seller had represented that it was, or stated that it was, or stated that there was no well, but there was like a smaller version of a septic system buried in the backyard.
These buyers were totally caught by surprise because the person who owned it owned it for about a year and a half, but never lived there, probably maybe never even went to the bathroom because you can tell when you flush the toilet, it flushes differently if there's a septic system than when there's not. These things are they're hard, and the other lawyer gave me a really hard time. It was like, “The deed was recorded. What do you want me to do?”
We ended up settling for paying like half of the cost to connect to the public sewer, but it was a surprise and it was hard and it took several months. It was not just like, “I have this, here you go,” because what people who've ever been to court know is that even if you have a slam-dunk case, it could still take three years so it's hard. But it's less likely I think that somebody is going to lie if they sign off on this because people have you know all types of things that go on in their head about that, hopefully.
Doug: Okay, thank you.
Jordana: Next please. I think the only thing I would add to this slide is if you're having trouble getting estoppel certificates, what I’ve done is I had the seller sign the estoppel certificate as well as an indemnification of the buyer for any issues that arise that would have been covered in that estoppel certificate. If months after you buy a property, a tenant comes to you and says they have mold, that would probably be covered by the seller's indemnification.
Somebody is saying they can't see the slides.
Doug: That is generally the case because I do believe this slide share slept. Atty Greenman, can you see them?
Jordana: I can.
Doug: Okay, so I think we're all right there. Sanjiv, it must be a technical issue on your end.
Jordana: Okay, next. Yes, we went over this a lot. I mean I can't, but this gives me another opportunity to tell you do not buy a property that has a Section 8 tenant without seeing the documents. All HAP contracts are created equal, but you want to see the one with the seller's name on it.
[0:35:03]
Doug: Okay, that's that. That concludes the purchase and sale notes and then we're into closing here.
Jordana: So these things are the things that you'll see probably as adjustments on the settlement statement. If you're an investor, you're going to be signing something called a HUD; if you're a homeowner or you're doing any kind of residential transaction, you're going to sign something called a CD, which stands for closing disclosure and was part of all the fun changes to the law in 2015 maybe when RESPA was beefed up but it all fell apart. I think the HUD was a lot more understandable to everybody, so you want to make sure if you're buying a condo you want confirmation that the water is covered by the condo fee because this could be an easy thing to accidentally overlook not get a final water because it's a condo, but I live in a condo and I have separate water from my co-trustee, so make sure you know that. You want to adjust the HOA fees/
           Again for security deposits and last month's rent, I don't like to put those on settlement statements because well for my own liability, I want to make sure somebody understands that they're getting money and just by having it be like imaginary, it worries me a lot. If there's any questions about that, I can answer them later, but m sometimes sellers are like, “Oh, it's annoying. I don't want to have to go to the bank.” Well I mean it's going to take you five minutes ten minutes to go to the bank and get the certified check, close it out because technically the seller is supposed to send a letter to the tenant saying your security deposit is being transferred blah, blah, blah. You want to adjust the current month rent.
Some closing attorneys fight that the buyer should get the rent for the date of the closing; some fight that it should be the seller I think all of this stuff is it's very small compared to some other issues you could have, so it's not that big of a deal and make sure you get assignments because you want even if there's no leases in writing, I would still ask for an assignment of tenancies to make sure that everything that was due to the seller is now going to be due to you.
Next.
Doug: You covered some of this already, yes.
Jordana: I don't know if the buyer I mean I’ve never actually written checks to people for security deposits I guess it could be done that way. I guess it depends on how much money the buyer's attorney is charging, but it could it be done that way.
Doug: The main point here is like you said don't leave it on the final adjustment statement. You actually need some cash from the seller, so you can deposit those security deposits yourself.
Jordana: Yes I mean I when one of my clients recently wanted them, and it was like a five unit building on the settlement statement I said okay and I made him sign a piece of paper with my letterhead saying I have—here's the HUD. All of these security deposits went to you. This is your responsibility. Don't call me and ask me what I did later.
Next. So sellers should collect the rent before closing. This is an interesting topic because in certain purchase and sale agreements, sellers attorneys will say collected rents, which means, “Hey, buyer you're going to have no advance warning but you might not ever get the money for the rent for the month that you're buying the property and you might never get it again.”
I think this is something like on the seller side, I usually tell people let's just say rent for the then current month because if you know if you're a seller and you don't want to be asked questions and you're giving up a couple thousand dollars that you didn't get paid, you could also be inadvertently misleading somebody but that would be a protection for a seller. On the buyer's side, this can sort of go either way but this is why it's important to get all of that information at the beginning, so you know and if somebody says, “Oh, well I didn't get the rent yet, well that's a problem.” You could also have something saying that the closing is contingent on all tenants being up to date on their rent.
Same with utilities, all that stuff. You're not going to generally adjust utilities, and yes water and unpaid electric bills generally don't attach as leading to the property. What I have heard recently is somebody who bought a property and had trouble getting an account because there was so much owed in whoever didn't pay the bill in the past. I mean I would say that's the exception and not the rule.
[0:40:12]
Next. Yes, because again you're probably not going to talk to the seller again so you want to make sure that you have everything that you need when you walk away from that table. Since they don't need to be notarized, I’ve not really determined whether I think it's safer to have them e-signed or in person with a witness because you know I have a lot of I’m skeptical of the e-signing. On the other hand, I don't know if somebody might know this but like that number that's assigned to you in a DocuSign or Dotloop document, I don't know if that has something to do with your IP address which could be another indicator that it really was you that did it.
Doug: Yes, if you want to use DocuSign in a legally binding way, when you download, they give you an option to combine files or separate, always pick separate because it gives you a separate certificate from DocuSign that includes that tracking number, attributes it to an IP address and a unique email address as well so there's a good paper trail there if you do the separate option.
Jordana: Okay. Next.
Doug: So that completes the closing.
Jordana: Yes, so clean up. Make sure you deposit your security deposits. If you've initiated contact with the tenants already, then you probably are on your way. I think another way to maybe handle something if somebody's giving you a hard time about giving you their social security number for a W-9 for the bank, you could have a letter delivered by a constable that says, “I am in possession of your security deposit. I cannot hold it legally without this document. If I do not hear from you, I’m going to…” and we can fill that in when I figure out what we're going to do because I’m still trying to figure out could you just crash it and put it in a box and put it in a vault. I mean then it's going to not probably be reached by your creditors. I don't I don't know, but you know I’m trying to think of creative ways that you could still have the security deposit if they're not helpful.
           Or you could actually file a TRO in housing core. There's an idea. You want to start the deleading process if necessary for anything, bring everything into code compliance, and notify these people that you are the new landlord. Don't leave it up. I wouldn't even leave it to the closing attorney. People are people and the more you treat them like people, the more people will treat you like a people like a person, and if people are unhappy with some agreements, you can make new ones. I would always offer to make new leases but you can't push too far because nobody's required to sign them.
Doug: That answers potentially a question from Kathleen who said, “If a tenant is on a month-to-month, can you have them sign a new lease with you?”
Jordana: You can if they will.
Doug: Yes, I mean you can terminate.
Jordana: Or you could terminate.
Doug: Yes, and then they kind of sign or leave, but that's you know that's not a step to take lightly because terminating a tenancy can create all kinds of counter-claims and other issues especially if you haven't built up rapport with your new renters yet. Just coming in and terminating a tenancy could backfire horribly if you haven't addressed code issues or who knows what.
Jordana: Bad tenants are contagious, so what I mean by that is that I think I’ve told this story before with you guys. I have a client investor that I think it was 2012 or 2013 they bought a building, and they went into the property and they left a note on the table of one of the tenants that said, “Your rent is going to be increased like tomorrow,” I mean not really tomorrow, “but very soon and it's going to go from $895 to $1750.” Well, suffice it to say her anger was contagious and everybody else in the building stopped paying rent.
Just be careful how you introduce yourself, how you hold yourself out, how unfriendly you look, facial expressions, and treat everybody exactly the same—black, white, pink, purple, blue, brown, yellow everybody needs to be treated exactly the same, exactly the same.
Next.
Doug: All right so we'll go through each of these points in detail, and I think that will wrap things up here.
Jordana: Yes. So yes the new owner from the time of closing forward, the seller is liable from the time of closing backwards except for that the statute says when the seller's responsibility is cut off, so once you send the letter and say the security deposit was transferred but that doesn't really mean that the tenant couldn't go after them later probably. It can be hard to find people though if they're gone.
[0:45:26]
Okay, next one. Maintaining codes. Make sure there's no violations. Hou can even if you don't have inspection contingency, generally sellers will be amenable to inspection for informational purposes only.
Next. Deleading and Doug has the statute, which is very friendly. I think that he raised a good point about saying that since the law changed if you have these things from prior to 2017, they actually might not be valid.
Doug: Yes, and there was a question earlier. Abby asked, “When do you have to have a lead inspection?”
I mean the Massachusetts law is very clear a building built before 1978 is assumed to contain lead paint, and so if you're ever going to have kids in that building whether they're now or they might be brought in to visit somebody, you've got to know what their ages are and you've got to remove the hazards, so basically you should think of it as, all old buildings have to have this deleading compliance, and it's a good idea just to do it for all buildings. That way there's never any doubt about when exactly the building was built.
Jordana: Next. So yes we really did go over that. Somebody asked about going over. So the law about the levels of lead and what not changed in 2017, so if you have a certificate of compliance from 2012 you should probably get it updated because it might not be in compliance with the current law.
Doug: Yes, that's it. For instance you might have only scraped jambs up to six feet, and now they require those to be scraped all the way up or five feet whatever it was before.
Jordana: Yes, yes.
Doug: And you can see that under the paint, you still see the horizontal line there if you look closely. Yes, so retest and then you may have to do some deleading procedures again unfortunately to be in compliance yes.
Jordana: Yes. Is that another one?
Doug: Yes, I think we're good here. We'll go on to the next slide.
           If you have a question, Rob, you can use the Q&A button, which looks like two little thought bubbles somewhere in your Zoom control bar that's where I see these questions coming in besides chat.
Jordana: So in terms of terminating old tenancies and creating new ones, don't forget you can't just walk in and say hey I’m terminating. You have to give a full rental period that then the old lease and rules are going to end and that's why it's important to know what day the month tenants are paying rent on because that's going to be what triggers the rental period for giving somebody a notice because again 30 days does not really mean 30 calendar days. It means a full rental period from day one to day end of each month, so if it's the 15th to the 14th or the 1st to the 31st, you have to know that so that you can properly terminate.
I would suggest if you're trying to increase rent when you buy a property, increase it by a very small amount.
Next. Well, I think that there are probably a handful of us. I don't think there are that many closing attorneys that also do this because I get a lot of referrals from a lot of different closing attorneys, and I have to promise not to steal their closing clients. But I think it is important to make sure that if you if you're buying an occupied property, I would suggest getting somebody who is both, which would mean probably not going to one of the typical like closing shop firms because there's a lot of paper pushing involved with closings, a lot of road work, and caring what happens if your tenant just isn't something that you might have mental room for if that's all that you do.
These little words are all things that again if you did your proper due diligence, you would know that in advance, and the estoppel certificate would mean that it doesn't exist that somebody said you could pay rent 30 days late. Horses getting up the stairs I would not let the horses in to begin with because it really might be hard for them to get back down.
[0:50:20]
Next. Save your paperwork. The best way to do that is to have very good cloud storage. I have a handful of people that have come in the past couple of years that asked me for a printed copy and it kind of makes me really sad and I just think about all the trees that I already killed and how many more I’ll kill by making a physical copy and the fact that they're probably going to lose it anyway, but however it is that you will need to do it make sure you have access to the paperwork because there are some disclosures and some riders and all this stuff that might be useful to you later, so it is good to keep that paperwork or you can get it on a nifty little thumb drive.
It seems like that's the end of the slideshow.
Doug: Yes, pretty much.
Jordana: That happy couple, I mean they always they warm my heart so much.
Doug: We use that image a lot [laughter]. It’s a feel-good image
Questions and Answers
Jordana: So let's get to some questions.
Doug: All right, and I’ll put your contact details up on the slide here. So we did answer just a couple as we went through.
We have a question from Kathleen. “If you did not have an inspection for lead and there are no children under the age of six in the building, do you still have to worry about deleading?”
Jordana: You might in the future, so if you're going to have a vacant unit and you're going to start advertising it, you're advertising to the entire general public, which means that you're advertising to people who might have children that are under six years old. You don't have to worry about it instantly but my best advice about that is when you have a vacant unit, do an inspection. The inspection itself are not that expensive I don't think, maybe like a few hundred bucks. It’s the deleading itself that cost more.
Doug: Yes.
Jordana: I don't know if anybody's had experience with like the do-it-yourself wipes. I wouldn't trust it necessarily. I think there's something that can be said about having a professional do something.
Doug: Yes, yes hire professional always and don't worry about the professional report then becoming a public record. It will be a public record, but you've got lots of time to work with that inspector to come up with a plan to get the worst hazards abated. You can get a letter of interim control, which will give you two years before you have to do the full delay work. So it's much better to go through with a licensed inspector for lead, know exactly what you're dealing with, and they'll be able to make recommendations for how to get the hazards removed. I think you'll find it's not as scary as it sounds, and it's well worth doing because then every time a new household has a kid or they adopt, or you know you get new applicants coming in however the kid arrives in the building you don't worry about it and you just say congratulations to your renters and that's the end of it. It's much better as you said Atty Greenman to do it during vacancy.
Jordana: It’s not scary at all when it's vacant.
Doug: Kathleen asks about rent increases, which you alluded to in passing. But I mean if you buy a place that's way under market, how do you increase the rent how do you go about that getting it back up to market?
Jordana: Slowly.
Doug: Yes, very slowly.
Jordana: Depending on the rent, I would say if somebody's rent is $1,000, I would not increase in more than $50 increments. If their rent is $5,000 a month, go ahead and increase it by $300 or something like that. I mean I manage a property in the south and I think we're up to like $6,500 a month and I’m like, “Geez! Like who rents my property for that much money?” But hey it isn’t my business, I guess.
Doug: Yes.
Jordana: Yes but slowly. That's the reason why you want to know this when you're doing due diligence because it might not be a good investment if you're buying a property in Boston where there's seven tenants and they're all paying $500 a month, it's probably not worth it because it's going to take so long and if you try to go up by a lot and then they stop paying and then you go to court and at that at this point that can take a year two years, I mean it's evictions just keep getting worse.
Doug: Yes, we have on at the site if you go to Resources Certification, we have Level One Best Practices, and the best practices talk about rent increases and encourage us to think about how much our renters can afford, whether the renter will have counter claims on the basis of conditions if we have to terminate a tenancy. There's a lot of good food for thought on our site so take a look at that.
[0:55:05]
Now we have a question from Bran here. “Can you just sell as is, avoid some issues; as is for code; as is for deleading? That's it.”
Jordana: I take the position that as is does not mean that it can be illegal. You don't have to buy lawsuits just because you said as is. I think as it should be like okay I might need to replace the roof soon okay, the toilet's detached from the floor, or but not something that means that you're doing something illegal and you're going to possibly going to be sued.
Doug: Like a six-unit building in a lot zoned for two.
Jordana: Right or if there's tons of code violations and you're in a lawsuit with ISD, well if you're the seller you can easily they'll also guess what, they say you record the deed it goes away. They can't be responsible anymore, but they can hold the new buyer responsible and that's not really fair.
Doug: Yes.
Jordana: So I don't agree that as is means that there can be illegal things.
Doug: Yes, but if you end up in a situation where you have a seller who just can't manage and they've got mad problems but they're disclosing everything fairly truthfully right and the new buyers coming in, it gets things assigned, accepts the responsibility to continue the eviction, address the code non-compliance, etc., if everything is disclosed, a new buyer can go in and fix illegal stuff, right?
Jordana: Yes.
Doug: So it's really all about disclosure and honesty there.
Jordana: Yes.
Doug: Bran asks again, “If you sell a property with lead paint, the buyer assumes all the responsibility for deleading or renting to children going forward, correct? So you know I didn't have any violations when I was the owner, the new buyer comes in they put a bunch of kids into it, they haven't done their deleading, can I be sued?
Jordana: No.
Doug: Okay.
Jordana: But if you're the seller, and the kids are 10 and they've lived there for seven years and then the parents discovered that those children have lead poisoning, yes you can be sue. You were the person that owned it when the kids were of the age that they were poisoned, if you will.
Doug: Okay, so it depends what was going on while you were the owner.
Jordana: Uh-huh.
Doug: All right. I’m looking in the chat now for questions.
“Is there any way to—
Jordana: [crosstalk 0:57:541] about what the landlord's liability for a property is a valid but free 2017 lead cert?
I mean it's not valid if it's preset 2017 as I think what Doug and I would say or it's not necessarily valid.
Doug: Yes it's not necessarily valid. It’s a real. I think it hasn't been tried to the best of my knowledge but you're not you're not in compliance with the current law even though that certificate may appear on its face to be permanent because you don't have to renew certificates ever. I think that's something that's kind of not been tested in this gray area.
We have a question from Jesse. “How does a security deposit transfer work in a case where you're buying in a foreclosure sale?”
Jordana: Well…
Doug: So who has the deposits I guess the person who was foreclosed on still or did the bank take those over?
Jordana: No, the bank didn't take them over, and it's actually you can't get title insurance if you're buying a property that was foreclosed that's occupied, and if you do get title insurance, the attorney who gave it to you did something wrong, so I don't really have a better answer than that, but I mean that's one of the reasons why the title companies won't insure occupied properties.
Doug: Okay, so—
Jordana: If you're buying at a foreclosure sale, you should be an experienced investor. It’s not a good opportunity for a first-time home buyer.
Doug: Okay, but basically what you're saying is you wouldn't expect a security deposit transfer issue to come up because that foreclosed property should be vacant.
Jordana: Yes and to think that the person being foreclosed on gave the security deposit to the bank, the world is just not that good of a place. It’s just not.
Doug: All right—
Jordana: Maybe they gave it back to the tenant. No, they probably have bigger issues.
Doug: now I guess we should just add if the bank did something for their other real estate owned portfolio and they actually leased it and they took a security deposit, then yes the bank should be transferring that, too.
Jordana: Yes.
Doug: But I think that's very, very rare.
Jordana: It is. It really is.
[1:00:00]
Doug: Yes, we've stirred up a hornet's nest with the lead issue, so Anonymous asks, “Is it correct that any letter of full compliance done prior to 2017 is no longer valid?”
I think the answer is we don't know. That has not been tested.
Jordan: The answer is find out. It might be.
Doug: Yes especially based on the deleading methods used like if in 2016, they removed everything, so there's nothing left with any lead in the unit. Then there's no way that the new standards for higher scraping or friction surfaces can have any impact because there's no longer any lead, but if you do have one of those corner cases where you've got specific deleading methods used, you're going to find out, talk to an inspector.
Last question and then to be respectful of your time, Attorney Greenman we will break there, so Abby says, “Purchase two duplexes, four units very similar, rents are similar. One tenant is moving out. Carpeting is being replaced with LBP. Can I rent it out for a lot more than the others because it's vacant, resetting it to market, or should I just keep it the same as the other three units in the building?”
Jordana: Wait, what?
Doug: Well I think Abby is just asking she's got four units that are all the same, but they're all below market. Now a renter's leaving. There's no prohibition on her raising the rent for that vacant unit.
Jordana: Double it.
Doug: Yes, that's your time, Abby.
Jordana: That’s the moment that you’re moving from the other goods.
Doug: Yes, get that right up to market.
Jordana: That’s called opening.
Doug: Yes, get that right up to market.
Jordana: Yes.
Doug: So that concludes the questions I was able to find in the Q&A. If you have a question in the chat that we didn't answer yet, I apologize for missing it. Just email us at hello@masslandlords.net, and we'll introduce you, connect you to the right resource or to Attorney Greenman here. Attorney Greenman—
Jordana: Yes, thank you. As everybody who's seen me before knows I’m always happy to answer questions. One caveat I’m jumping on the road to go away for a few days like when this ends, so if you could be so kind as to hold your questions until next week I will be back on Wednesday, and I am one of those people that if you send me an email I don't ever just let it sit there so I’ll answer it, but I’m going to be huffy.
If you can hold your question until next week I will be so much happier because I will have a few days of rest, with my family and I will actually just be like I can. My email address so it's right there somebody just asked it's the second to last line on the screen.
Doug: Yes, Jordana. Well just do hello@masslandlords.net, and we'll hold our questions so email hello@masslandlords.net. We will hold your questions until you get back.
Jordana: Yes, but I mean there was somebody who came to the last seminar that I had a couple back and forth with yesterday and like you know, I’m not a big firm, I’m not counting 0.1 for all my billings so you know if I can take five minutes here and there to answer some of these questions I just really want to alleviate all of the burden that landlords are carrying because it is so heavy.
Doug: Yes, it's a lot. Thank you so much.
Jordana: I’m so sorry for everybody that's going through difficult evictions and difficult situations and I hope it gets better.
Doug: Yes, thank you so much Attorney Greenman. Great work.
Jordana: Thank you.
Doug: So we’ll end there. Take care everyone. Make sure to leave us feedback on today's event at masslandlords.net/yellow if you have suggestions for improvement, if you liked it. We read every comment and email us at hello@masslandlords.net if there's anything you need.
Take care all. Have a great afternoon.
Jordana: Have a good one.
Doug: Bye!
[End 1:03:26]
