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Learn the Landlord - Tenant Rules!

As an investor working with tenants, you should be very familiar with the laws of your business. These laws apply whether you own a property and rent it, or you do a "sandwich" lease.

An eviction proceeding, usually called a "summary proceeding" or "unlawful detainer" proceeding, is a lawsuit to obtain a court order to remove the tenant. It is not lawful to physically or constructively remove the tenant from the premises. No matter how upset you are, don't even consider changing the locks, shutting off the power or taking the front door out for "repairs."

Before you can commence the proceeding, you need to terminate the tenancy. You do this by serving notice on the tenant as required by your state law. For nonpayment of rent, the notice is typically three to five days. If the tenant has not paid the rent in full or moved out after that time, you can commence proceedings in court. A typical summary proceeding takes anywhere from ten to thirty days, depending on the backlog of cases in your County. The proceeding is informal, much like small claims court.  Once the court declares you the winner (called a judgment or order), a warrant (called a "writ" in some states) is issued. A warrant is a legal document that directs a sheriff, marshal, constable or other local official to forcibly remove the tenant from the premises. Few tenants are actually thrown out; the official usually changes the locks and removes the tenant's personal property. In some counties, you are required to hire the movers and store the tenant's property.

I recommend that you learn the landlord-tenant laws and the timetable for evictions in your county. However, I also recommend that you hire an attorney to file the court proceeding. Landlord-tenant law is not difficult to understand, but it is very technical. A minor flaw in your paperwork or procedure could mean having your case thrown out and having to start all over. Thus you should consider paying an experienced landlord-tenant attorney to do the job (make sure it is an attorney that specializes in landlord-tenant practice).

Lastly, join a local landlord's association and meet other experienced landlords. If you are not familiar with the law, you will eventually run across a "professional" tenant who will teach it to you.

CONSIDER BRIBING THE TENANT TO LEAVE.  Time is money when it comes to evictions. The longer the defaulting tenant stays in possession, the more money you lose. Consider waiving the rent owed and offering the tenant cash to leave immediately. This may seem contradictory to the "tough landlord" attitude, but it makes financial sense. Court is the last place you want to be. If you can settle the matter quickly without litigation, do it! Do not pay any money to the tenant until he vacates, cleans the unit, hands you the keys and signs a written release of liability against you (called "general release").

RECONCILE THE SECURITY DEPOSIT.  Whether the tenant leaves voluntarily or by legal force, you need to deal with the security deposit. Whether or not you are entitled to keep the deposit, you must comply with state law. In most states you must return the security deposit within 30 days or send a certified letter to the tenant stating why you are keeping it. Even if you are entitled to keep the deposit, your failure to comply with proper procedure will result in a lawsuit against you for improper withholding. You can always sue the tenant in small claims court for rent owed and damages to the property, but you cannot withhold the security deposit without following the rules.

COMPLY WITH STATE & FEDERAL DISCLOSURE LAWS.  A minor "detail" that most lease/option gurus forget to mention is that if you sublease a rental unit, you are a landlord. As a landlord, you have state and federal disclosure requirements. At the federal level, you must disclose the existence of lead-based paint hazards and give your tenant an EPA pamphlet (see www.epa.gov). State law disclosures vary greatly, from radon gas disclosures to "Megan's" law (disclosure of known sex offenders in your area). Check with your state and county housing authority for the required disclosures. Also, keep in mind that some states might consider a lease/option to be a sale for the purposes of disclosure. Thus, you would need to disclose the same items on a lease/option that you would on a sale.

One should consult with a qualified real estate planning professional prior to implementing any real estate planning strategies. If you are a financial planning, insurance, tax or mortgage professional receiving this newsletter, please call our office and introduce yourself to us.  We are always seeking to grow our referral network and expose more service professionals to our client base.