I’ve sold several of my parks in the past but it’s been a few years. I will be selling another in about 3 weeks. Any creative ideas on getting tenants to settle up on delinquent balances prior to closing with new owner?
Attempting to sell any rental property with past due accounts would probably not help in marketing the property. I would either just ‘eat it’ and move on or offer the delinquent tenants an opportunity to clear their accounts for 50% of what is owed. Tell them by doing so they ‘avoid’ the potential immediate eviction issues a new landlord will certainly enforce. One time offer with a deadline.
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I would instill a solid collections process and run it continuously whether you are selling or not. When it is time to sell, I would do nothing differently.
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Offer to waive all late fees and or a discount if they pay within so many days.
Collect as much as you can before you close.
Then get an agreement with the buyer that he will forward all pre-close rents as he collects them.
If the buyer evicts the tenant that owes then the back rent is waived by you.
Thanks for the suggestion. In your opinion, how willing would a buyer be to agree to this?
I’d like to think that anyone who can buy a Mobile Home park places more value on their integrity than a few thousand dollars in back rent.
If they don’t, then that’s on them.
If I was the buyer, I would not agree to send all past due rents to the seller when collected. It causes a huge mess. We have had sellers try to collect rents in the past post closing and it is confusing to tenants. They may pay a month rent to the seller, so they figure they don’t have the pay the current month rent to you. Then you start asking for money and they claim that they already paid the seller.
An alternative is to step down the receivables as follows:
- If a tenant is past due and they pay after settlement, all rent goes towards current rent & fees first.
- If there is anything left, it goes to back rent (to the seller) for up to 30 days.
- Beyond 30 days, the buyer keeps 100% of any collections, and everyone goes their separate ways.
This type of a scenario protects sellers who have tenants who consistently pay a week or two late, but it protects the buyer for the fact that anything 30 days past due takes extra effort and expense to collect. In fact, it may never be collected and may require expense to evict. Additionally, we typically include a clause in the contract that says the seller is forbidden from collecting rent, and any inadvertently collected rent must be forwarded to the buyer for processing. In my opinion a seller should never handle a penny after closing.
Imagine going to eviction court to say your tenant is past due and he shows proof to the judge that he paid the previous owner a few days ago. The case has a good chance of being dismissed or at least delayed.