So heres the situation:
I turned my personal home into a lease option. My wife and I wanted to move or build next year, so because we owed what it’s worth (bought 100% 2 years ago), the only thing I could do was rent or put it up for lease with option to buy. Money was also tight so it was nice to get out from under the payment while we saved up and transitioned with jobs.
From the first few days, the tenant has constantly been complaining about things he didn’t notice when he walked through the house. Things like doors sticking, drywall cracks above doors, and then a few bigger issues. The bathroom off the master bed has some water issues from the past. The linoleum floor was coming up from water seepage underneath and after removing a tile from the shower, the wood behind it was found water damaged. Some of the wood subfloor in the crawl space was soft from water damage. He’s saying that he thinks the roof is bowing some and there was some water damage from that in the past as well.
When he called about the bathroom, I met him over there and took a look at it with him. Because I partially knew about that beforehand, I agreed that I would reduce the contract purchase price by $1,000 in order to compensate for materials and labor and they verbally agreed at the time.
I called today to tell him that I had a contract amendment ready to bring over, and then he brought up the roof saying he didn’t know about things and would ‘look it over’.
What it boils down to is they rushed into the agreement, and now that they are in the house they are finding things they don’t like and are trying to negotiate the price down.
Should I just tell them tough luck and that they already signed a contract at said price? I’m afraid that they might get pissed and bail out and leave the place in shambles, and then I’ll be stuck with repairs and vacancy - neither of which I can afford at this time.
Not only did they rush into this, you did too. Now, YOU’RE the one who is stuck, because you’re the one who needs THEM, not the other way around.
You tell them “tough luck,” and you’ll be lucky if you get any house at back at all. Furthermore, depending on your state laws, you could be held liable for not disclosing these damages upfront. At the very least, trying to play it tough is going to get you a vacant house, IMO.
In your current position, I’d recommend a serious attempt at a written re-negotation of the contract terms that keeps the tenant in place, happy and paying your monthly. The chance of them actually closing on the deal is slim to none, so maintaining your monthly is the most important.
Also keep in mind you’ve already admitted to us you have no equity in this. Considering the current market and seeing all the news about plummeting home prices, they’re probably playing every card they can to get to lower the price and protect themselves against falling home values. Did you offer this deal “as is” with no repairs?
You are correct in assessing that I rushed into it as well. However, I didn’t have alot of choices given the situation.
The bathroom was the only problem that I knew of at the time, and I came to an agreement with them on that, although he is now ho-humming around about it and trying to get more $ off.
The other items, are things they are nit-picking about. The roof is fine and has no leaks with around 5 years left on the shingles, but he is saying the roof is bowing some and that he found signs of water damage, which may have been a past problem, but is not currently an issue.
They signed a lease for 1 year with an option to buy at the end of the 12 month term. The lease states that the tenants accept the property in “good condition unless otherwise noted for repairs”.
I owe $152k on mortgage and their option price is at $160k, which I’ve already reduced to $159k. They put $5k down as option consideration.
Maybe you should recommend to them that they get a professional home inspection and then agree to use that to do a final negotiation.
This sounds like a classic case of buyer’s remorse. I think this could get much worse, and I would do everything possible to lessen potential losses.
I would see a real estate attorney first to have that contract looked over. I also like the idea of the house inspection. In my opinion, that should have been done prior to their signing the lease option.
Consider the worst case scenario that could happen when you have an angry tenant/buyer. Could they sue you for fraud, failure to disclose, etc.?
Do they want out now? What would your legal fees and obligations be in the worst case? Do you still have their $5,000 to give back?
They are going to find a lot more things wrong in the next few months. Just the bathroom repair alone of new floor, subfloor, pipes could be several thousand dollars.
I would treat this very, very seriously. I have been sued a couple of times. Once when I was a real estate broker by a buyer for a supposed bad roof. Twice for tenant slip-and-fall accidents as a landlord. In each case I was as innocent as the freshly-driven snow…but I still had to pay legal fees and respond to the lawsuits. You don’t want to go there. You want to settle this somehow now before it gets worse. Don’t hide and expect it to go away.
Picture the process server at your door, and you handed legal documents that say “You are being sued for fraud, gross misrepresentation of facts, deception, etc…”.
See an attorney and get some perspective on your big problem as soon as possible. Get out of it somehow, even if it might mean giving them their money back and losing a tenant/buyer. It could get a lot worse.
Let’s get a little perspective here. You are RENTING your house to a tenant, not selling your house. There is a big difference between the two. The vast majority of lease-option “buyers” never buy the property and that is almost certainly the case here.
I agree with Furnishedowner that you should consult an attorney. You should have the attorney review your lease and option agreements and you should be absolutely certain that you understand the landlord-tenant laws in your state. In many (most) states, the landlord is responsible for maintaining the property, and the presence of an option to buy does not change that fact. If the floor is wrotted, you are probably required to fix it. Even if you are not required to fix it, you might want to do it anyway. If someone falls through that floor, you will be sued.
You are trying to turn a personal residence into a rental, which is almost impossible to do profitably.
I would try to come to agreement with the tenants WITHOUT USING A HOME INSPECTOR. A home inspector may tear the place apart in his report, costing you TENS OF THOUSANDS OF DOLLARS - good for them, not good for you. Now that the tenants have lived in the house several days, have them make a complete and final list of complaints and then work with them to get the issues settled. Doors sticking, cracked drywall, and other minor issues can be easily fixed for almost nothing. So, you might be able to do a lot toward making them happy without spending much money.
I do a form of lease/purchase. What I find is that the tenant/buyer always wants to get into the house very badly. The house has fresh paint and new appliances, etc. After they move in then they notice that house smells like their last house and the oven is now dirty. They think that maybe this is not such a good deal. Always get what you want up front (down payment, price, any fixups) before they move in. Then stick to the agreement.
I got a hold of the tenants and asked them to go ahead and make a list of things they are unhappy with and then we can work something out. We’ll see what will happen.
Okay, so my tenants are continuing finding things “wrong” and claiming that the property may not be safe, although I lived there for 2 years and did not feel threatened. They are saying they can’t buy a property that has so many problems and needs so many repairs and they are asking for their deposit back as well as rent lowered from 1400 to 1200. They wouldn’t have even been in position to buy for 2+ years anyway, but whatever.
I met with them the other day and looked at a few of the problems.
The roof is definitely going to need some attention. 2 Shingles from the top (up against a ridge) came off recently. I actually suspect they TORE them off, but that can’t be proved and is moot. Also, up in the attic it is clear that there is 1 or 2 spots where the trusses are sagging some. It was braced 2 years ago, but it is not holding very well. Also, one spot where the decking does not butt fully up against one another - looks like a roof job several years ago was done badly. You can see about a 1/2" wide x maybe 2 foot long strip of the bottom side of the shingles where the gap is.
They say they feel there is a possible mold problem. They said they saw mold in under the gutters in the front of the house. I doubt it, but that’s their claim.
The problems right now:
- 3/4 bath must be remodeled (possible water damage and needs stand up shower, floor and some trim replaced).
- roof issues - (slightly sagging trusses, shingle job needed for sure)
- possible mold problem - (need to inspect)
I told them that I plan to have inspections done on the safety of the roof/trusses as well as a mold check. I also plan to remodel the 3/4 bathroom. I don’t have the money for the roof currently, and am waiting advice on the roof to see if it’s possible to patch for now and brace the trusses.
I know this is alot, but I am in DEEP here and I could really use some advice from you veterans.
What are your thoughts about the repairs/inspections, as well as how to remedy this with them???
Also, I checked my lease and it does not say anything about the tenant inspecting the property. The only thing mentioned is in the section about repairs and it states that “they accept the property in good condition unless repairs are noted”, and no repairs were noted.
Can this used to disqualify them from getting their option deposit back?
I know a lawyer will probably have a time with this one, but does that help at all?
You’re in it deep. Yes, you’ve already said it, but it bares repeating.
Sounds like you have one of two problems: a) you leased a house with real problems, either knowingly or unknowingly, or b) you leased your house to professional renters. Don’t laugh, they do exist. Worse case, it’s both.
Don’t know your state laws and haven’t read your contract (was it attorney approved?), so can’t really give any specific advice.
The best option for you is to offer to give back their option fee WHEN they vacate the property and leave it was it was before move-in.
Sounds like that may be an issue. I’d definitely have your attorney review this with you. Without hard facts, it’s difficult to say what you can, and should do.
There are many things to consider here:
A Lease Option is nothing more than a rental agreement - you are in the rental business - you are not selling your house. The vast majority of lease option (or land contract) buyers NEVER buy the property.
Winter is almost here and it will be difficult to find a new renter over the winter (especially if you live in a cold weather area). If you let these people out of their lease, can you find another one during the winter or will your unit be vacant for several months?
The numbers matter! What are the numbers on this deal? Purchase price? Monthly Rent? Security Deposit you received? Option Premium you received?
What is the history of the tenants? I automatically assume that lease option tenants have terrible credit. However, do they have good jobs and job histories? Did they own a home before or have they always been renters? Do they have any criminal history?
You need to carefully consider the repairs and divide them into two categories: repairs that make the property safe and habitable and other repairs. As a landlord, in most states, you are required to provide a safe and habitable rental unit. If the floor is rotten, that MUST be fixed. If the roof is leaking, that MUST be fixed. Fixing a small area of rotten floor costs almost nothing and doesn’t take long. Likewise, replacing some missing shingles is inexpensive and is not a major problem. You rented (sold) them the house as-is, so you certainly don’t owe them a new roof. I would replace the missing shingles and that’s it. As I said in my earlier post, fixing some spots in the drywall and trimming sticking doors are extremely small problems and could be fixed in a few minutes.
How old is this house? If it’s 100 years old and the roof has minor sagging - TOO BAD! Houses sag and settle when they’re very old. As long as this isn’t a structural issue, I wouldn’t do anything about it. If you feel it could be a structural issue, I would have a contractor look at it and get a quote for bracing it in a better fashion.
Tenants can be a pain in the butt! It sounds like your first tenant is going to be such a pain. It also sounds like your tenants have changed their minds and want to move elsewhere. When tenants screw up or change their mind, they NEVER accept responsibility for their decision, they blame the landlord. That has what’s happened to you. You’ve got to decide if the stress of dealing with these scumbags is worse than the stress of not having the money.
Mold is caused by moisture. Could there be mold under the gutters? DUH! I would NOT do anything about that (and I’d probably tell them that they were IDIOTS - but don’t do that). To stop mold, you must stop the moisture. What are you going to do, insist that it stop raining?
I would give the tenant written notice that you will be fixing the floor and shingles on X day (soon). Get it done, and while you’re there fix as many of the little issues as you can (sticking doors, holes in drywall, etc). Getting these thing fixed is critical because the next thing the tenants will likely do is call the building inspector and health department.
Welcome to the rental business!
Thanks for the perspective guys.
The tenants say they will honor their 1 yr lease, but they are asking me to lower the rent by 200 and give them their deposit back. Still not sure what to do with that, even after I resolve any issues with the property.
The house is approx 35 years old, so I’m not sure about the structural aspect of it, but I am going to contact a contractor friend and have him look at the roof/trusses.
I notified them that I will be scheduling some inspections and estimates for the roof, bathroom etc.
I may be able to lower their rent, but to be honest this is not a cashflow situation. I backed myself into a corner financially and getting a tenant/buyer in there was my only option. I’ve contacted the mortgage company about a “loan modification” because I can’t refinance due to being over-equity with the falling market, and they will not suboordinate the existing second to a new first if I try to refi just the first. So I’m waiting to hear from them about getting the loans modified to lower the payments, and then I can lower the rent.
What are your thoughts about them asking for deposit back ($5k), and to lower their rent?
If you’re going to fix the issues, why would you lower the rent or give them their deposit back? ABSOLUTELY NOT would be my answer. Do you have a separate security deposit and Option Premium? If so, they would get their security deposit back at the end of the lease, if they leave everything in the same shape that they received it. I certainly would not give them back their option premium just because they changed their mind. I also would NOT lower the rent.
In any case, I certainly would not give them anything back now. If you do, they’ll simply move out. You won’t have the money; you won’t have a tenant; you won’t have a security deposit to fix anything they break…in other words - you’ll have nothing!
I did not take a separate security deposit. I took $5k down as the option premium and that was all. The contract does state specifically that the option deposit is NON REFUNDABLE if they choose not to buy the property.
My only concern is if I tell them no on giving the $5k option deposit back AND no on lowering the rent, that one of two things will happen or both:
They’ll vacate and damage everything on the way out. Or they will try to sue me somehow. I don’t think they have any grounds to sue, but obviously a scum lawyer would.
If they sue, I’m sure to wind up paying lawyer fees at the least, and if they leave, I have a vacancy and likely damages.
On the one hand, you give away your $5K and part of the rent. On the other hand, they might leave; they might damage the property; and they might sue you. I know what I’d do.
I must say PropertyManager is very wise about the situation. Follow the advice…do not give back the deposit - do not lower the rent. (5k is almost 4 months of rent…so if they bail or wreck the place you have a cushion)
Before I did anything, I would send them a certified written letter (Faded ink is better than the best memory - and it stands up in a court of law) - In the letter I would politely thank them for expressing their concerns about x, x, and x (be specific about the requests they made), assure them you would like to cooperate and fix any issues that could be dangerous and that you would have the issues assessed by “x” date by a professional contractor. Then I would state something along the lines of after assessing repairs, I will have them addressed and all dangerous/unsafe/unsanitary conditions will be corrected promptly.
Leave it at that for the time being and after having the assessments done - come up with a repair plan and again submit to them in a certified written manner the findings, and the way in which you intend to conduct the repairs. Then conduct the repairs. Most importantly remember - do what you say you will do.
After the repairs are conducted send a final certified letter to them - stating that the repairs were completed and thanking them again for informing you of the issue.
In Spring, I would ask them if they are going to excercise their option to buy or not - if no, put it in writing including a statement that when they move out if everything is in good condition you will give back their deposit - make them sign this…then put the house on the market during the best selling season for you.
Side note - while I was repairing the place I would take pictures of current and repaired conditions - just in case they do anything to the property…
Both PM and RealtyRenee have given excellent advice.
I, too, would not give any of the option fee back, especially since it was clear that it was non-refundable. I also would not reduce the rent (have they even paid any rent yet).
And if you’ve followed your landlord/tenant law/code properly, the likelihood of an attorney taking their case is slim unless they have upfront money to pay him. Even scumbag attorneys don’t work for free and they won’t take a losing case without upfront money.
As long as you fix the problems NEEDING attention (follow PM’s advice here), you should be fine.
thanks guys. I’m meeting with a friend who is a contractor and has been in construction for 20 years on Saturday morning at the house. Will update you all after that.