Our favorite closing attorney, Kati Heller, is always giving us great info and advice about the pitfalls to avoid in a real estate transaction. Today she focused on tenants and I’ll just share it here since she says it better than I can;
We are seeing more and more properties being sold with tenants either occupying the property or leaving just before the closing. Here are some things to provide for in your contract to avoid surprises at closing.
If there is a security deposit being held by the Seller, be sure the contract stipulates whether the deposit will be transferred at closing. If the tenant is remaining in the property after the closing, the Purchaser will be responsible for refunding that money. If there is a lender involved, the lender will need to know about this in advance to get it approved by their underwriting department.
If the rent needs to be prorated then there should be a contract stipulation stating what the proration will be based upon. The closing attorney will need to know in advance what the terms of the lease are and if the current month’s rent has been paid. If there is a lender involved, the lender will need to know about this in advance to get it approved by their underwriting department.
It is a good idea to get the Seller and the Tenant to sign an estoppel affidavit listing the terms of the lease. It is common that there is not a written lease after extended tenancies. The Purchaser needs to be certain what the terms of the lease are so that they are aware of their rights and responsibilities.
The Purchaser will need to be aware that they should purchase a Homeowner’s Insurance Policy that provides protection as a Landlord.