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Trust This. Stuck Tenants

September 16, 2022

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Trust This.

By Joseph E. Seagle, Esq. ● Sep 16, 2022

Smart Brevity^® count: 3 mins...858 words

👋 Happy Friday! We’re in Central Florida’s 🌧️ monsoon ⛈️ season, so don’t forget your ☔ umbrellas 🌂.

The MBA announced that this week’s national average 30-year mortgage rate is 5.94%. That’s almost 100% higher than it was last year at this time.

1 big thing: Tenants can’t move

Photo: Tomas Tuma

Buyers are canceling contracts because the seller’s tenants simply can’t move out.

Sellers of tenant-occupied investment properties are finding themselves stuck owning houses that they thought they could sell before prices dropped any more than they have.

Tenants, consulted at the beginning of the listing agreed that they would move out in time for a new buyer to move in.
Sometimes their leases have expired.
But they are reneging on their agreement because they can’t afford to move anywhere else, or they can’t find anywhere else they would want to live.

This puts the buyer and seller (and their brokers) in a tenable situation. Many buyers have sold their home or terminated their current lease, banking on moving into the new home they’re buying. They find out a couple of weeks prior to closing that the tenant in the home hasn't moved out and won’t be moving out any time soon.

What we're seeing: Landlord sellers and their management companies are taking the usual routes to get the tenants out so the sale can close:

Offer the tenants cash for keys to get out;
Find a technical breach of the lease and give a 7-day notice to cure or vacate;
Go to court for an unlawful detainer judgment for possession on expired leases.
Get a large deposit from the buyer and extend the closing date until after the tenant moves out.

These don’t work when tenants can’t find anything affordable or desirable. Some have demanded thousands of dollars for cash for keys.

When it does work, tenants often move out the day before closing, leaving yards of trash behind in their haste to vacate, costing the seller to have the trash removed.

Our thought bubble: Get tenants out before listing or be prepared to pay dearly.

2. Foreclosures are back

march, 2018.
shot on mamiya rz67 with Ilford hp5. developed and scanned by hand.

Photo: Matt Moloney

August brought 34,501 new foreclosure filings, a 118% increase over one year.

Why it matters: Foreclosure filings are back at pre-pandemic levels.

Rising numbers are an indication that the housing market is declining more steeply and may not be coming in for a “soft landing.”

By the numbers:

In metro areas of 1 million people or larger, Jacksonville ranked third in the nation with one out of every 2,074 properties in foreclosure.
Meanwhile, Orlando was fifth in the nation with one out of every 2,445 housing units in foreclosure.

The flipside: Repossessions, where a bank takes possession of a housing unit, rose 28 percent from July and 59% from last year. These rates are still lower than they were prior to the pandemic.

Repossessions are expected to remain low. Owners have more equity in their homes, allowing them to sell to arms’-length purchasers before the foreclosure and repossession are completed. Sellers can walk away with some money rather than lose everything.

What we're seeing: About 10% of the closings we’re involved with are for homes that are in some stage of foreclosure. We work with the foreclosing lender’s law firm to obtain payoff estoppels. They take longer because of the required over-communication.

The bottom line: If buying or selling a property that is in foreclosure, make sure the title agent orders the payoff as early in the closing process as possible.

To assist, provide a seller-signed authorization to release information about the mortgage to the title agent when submitting the initial purchase contract for the closing order.
Include a copy of the latest mortgage statement available to the seller, and
Include the seller’s Social Security Number on the authorization to help speed up the process.

Go deeper: Dodd Frank Update

3. What passed by

Ocwen is struggling to meet Ginnie Mae’s capitalization requirements. National Mortgage News
US mortgage lenders are starting to go broke. Bloomberg (subscription)
Homepoint lays off almost 30% of its workforce. Costar
Better mortgage goes through fourth round of layoffs since last December. Housing Wire
Sprout Mortgage closes up shop. National Mortgage Professional

4. Pic of the day

Play-Doh containers arranged behind "PCS" spelled out in green dough

Play-Doh containers through the years: (L-R) 1956, 1959, 1965, 1974 (my era), 2000 and 2018.

Today is National Play-Doh Day!

It started out as a wallpaper cleaner when coal furnaces warmed homes.

After oil replaced coal for heat, the wallpaper didn’t need to be cleaned as much.
The company’s founder’s son reimagined the putty as something children could use to mold and create.
Once Captain Kangaroo agreed to feature it on his new daily kids’ show, a former wallpaper cleaner became a beloved childhood toy for generations.

Think of something you could reimagine today, and then mold it with a few containers of Play-Doh.

I was in kindergarten the first time I ever saw Dolly Parton. She was visiting Captain Kangaroo on his show. He convinced her to perform one of Dolly’s standards. Classic.

(BTW, National Cracker Jack Day is February 19).

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