This is from “Zang” on Ask Us: Upside to purchasing 2 units with protected tenants. This is just plain wrong:
Having just dealt with a greedy protected tenant I have more than a few thoughts about the tremendous downside of buying a property with protected tenants.
My case started in 2001 and just settled this summer. I innocently purchased a 2 unit bldg. to live in, with a protected tenant, and thought I’d slowly go about doing needed repairs, renovations and offer the tenant a huge lump sum (50K) to move out. At this point I didn’t know how greedy the tenant was and didn’t know about his financial resources. The tenant laughed when I made this cash offer and said he wanted $150K to move out. Seriously.
Shortly after I was sued by the tenant for all sorts of murderous activities thats on the boiler plate lawsuit forms the tenant’s lawyers use… for $500K, yep, half a million, not a typo. Not one of the charges stuck when it got to court recorded depositions…since in fact the tenant had only nice things to say about me but he wanted money and had me hostage.
My options were: sell the property at a minimum of 50% loss in value, pay the tenant his request of $500K, or Ellis the building & start a legal defense. I ended up hiring a bunch of attorneys, filing insurance claims and Ellising the property. I even had to hire a firm to keep the insurance companies and the insurance lawyers “in line” because of course, the first thing any insurance company says in response to a claim, is “we’re not responsible”.
Even though it was clear that I had NEVER done anything wrong to the tenant, his lawyer threatened a trial. I wanted my day in court, but my attorneys (I had an ever growing team of 6 attorneys by then) were deathly afraid of trial. Seems in SF most judges are pro-tenant. And even if the jury hears that the “protected tenant” plays golf all day, sails on their private yacht, drives a new Mercedes Benz, while checking on their bonds… (I wish I were making this up)…and has their own vacation property in Carmel, all while claiming disability and hardship… the case is bound to go the tenant’s way. HERE’S THE RUB: Even if the jury DETESTS the “protected tenant”, if they award the tenant even $1 of damages, the landlord automatically has to pay ALL of the tenant’s legal fees (in this case his fees were over $78K). All jury judgments are tripled and the juries are not told this while they are deciding the case. So there are cases where the juries, thinking they are doing the right thing, give a low award to a greedy tenant, only to discover later that the award was trebled AND all legal fees automatically awarded. And, insurance companies might pay towards the landlord’s defense but they WILL NOT pay judgments….so, trial is for the foolhardy.
How to calculate the downside and the cost? Difficult, because how do you calculate the grief and loss to life when going through something as crazy as all of this. The building was tied up for years… when it could’ve been generating money. My funds were tied up. I couldn’t enjoy being at the building and wanted to minimize my contacts with the tenant, who was paying $389/mo. rent, as much as possible. Legal fees, NOT reimbursed by eviction insurance and personal umbrella policies, were roughly $90K.
WHAT DID I LEARN? Ellis the property the day after you buy it, before you’ve met the tenants and they get a chance to claim you’ve done something wrong to harm them personally. It’s a business decision and you just move forward. Ellising would’ve saved me, but I thought the tenant deserved something for moving from a place he’d been in for 28 years… and that I’d try to negotiate something. I was so wrong. Lest you think Ellising is easy… it isn’t. You MUST have a law firm who has a GOOD track record with Ellis filings. There are strict deadlines that must be observed for several months and SEVERAL YEARS after you file for it…. one missed deadline means you have to start all over again AND can result in a harassment lawsuit from the tenant. In retrospect, filing for Ellis would’ve been a lot easier than the dealing with a frivolous, costly, time consuming lawsuit for 6 years!
I always wonder what Dashiell Hammett would have done with a story line about a tenant extorting a half a million out of their landlord…it’s a crime novel begging to be written.
Thanks for the insight and thanks for reading. We hope a few people pass this on.
Time for cocktails!