Closing in 2 days ---- Old Delinquent Rents


#1

Hey guys!

We close on a park in 2 days.

58 units.

Seller will keep 11 park owned homes, as his rentals.

QUESTION:

The balance sheets show $20k worth of old debt, from tenants not paying. Some debt from 10 years ago and those tenants have been paying an extra $25 mo for years to catch up.

The Seller wants to retain ownership of that $20k in debt.

The Seller is a wealthy Attorney, and we worry about the tenants fearing him more than us, and paying him first.

We also worry that he might place a lien on those trailers and then he could end up owning the trailers and turning half of our park into rentals that he owns. We don’t need him to monopolize our park by demanding lower rents or threatening to move all of his trailers.

What do you guys do with old debt when buying a park??

THANKS SO MUCH!!!


#2

I think your fears are well founded. But as I don’t own a park yet, I can’t give you specific advice.


#3

This theoretically should be addressed in the contract. Did you use the frank and dave one? I believe there is a provision in there.


#4

Hey Marvel_Equity!

Yes we did use Frank and Dave’s Buy-Sell.

No I do not believe it deals with unpaid rents.

Section 1b &1c Are the only sections that mention unpaid rents that I can find.

Thanks for your help!


#5

I thought there was a section in there that said it explicitly as it just came up on the deal we are currently working on but cant seem to find it after a quick scan… Crunched on time otherwise id try and find it but i was 95% sure it was in there. Sorry


#6

The attorney from information given is still got the reins and what is your position of power??? The attorney should at least provided a year of jubilee to the tenants or is he perhaps a real hero of greed . What is the occupancy?? The park should be real nice; excellent road and water and sewage lines other wise I question where he has put the money!!!


#7

I would just address the issue in the contract. Find the info in Frank and Dave’s contract. State that the lot rent and the bad debt owed is separate. I would state that there must be a deadline to collect the bad debt (a year or so) and after that he can’t collect. I’d also state that he can’t place a lien on the homes to collect it… you see where I’m going with this - make sure your fears/concerns are addressed in the contract and negotiate them if necessary. Don’t get into a bad deal.


#8

If this item wasn’t addressed in the purchase contract the unfortunately reality is that you really don’t have any leverage here to ‘demand’ anything.

Normally I would pay ~10 cents on the dollar for bad debt, which I think is a fair price. Since he’s an attorney though and values the debt more highly than most sellers would, I might offer to pay more.

You can’t make him agree to anything here, he holds all the cards, so I would be trying to buy it from him, and perhaps even pay a premium for the debt just to reduce the drama of him hounding my tenants.

ps. I would try to get his 11 park owned homes on long term leases so that he can’t move out.