Lawsuit discovered during DD

So I’m in contract on my first park, and getting a little less excited about it the more I learn. I’ll post about that separately, but here’s what I discovered during my on site walk through …

There are 3 Section 8 tenants in the park. They all live in the same corner of the park. One is great, one is always behind on rent, and one is always on time with rent but a real headache.

The one who is a headache (but pays) is supposedly going to sue the current owner due to a ‘mold issue’. She allegedly has a history of similar lawsuits. The owner says his insurance will cover it, although I’m pretty sure this will still be ongoing after closing.

The current owner is planning to move her from the moldy trailer to a newly rehabbed trailer. Her lease is close to expiring, and they have indicated they are going to sign her to a new 3 month lease.

My goal is to transition out of Section 8 and have no POH. My questions are:

  1. Should I be concerned about the lawsuit against the current owner? (I assume not).

  2. If I non-renew her lease after the new 3 month lease is over, am I opening myself up to a lawsuit? (I don’t think so since the previous owner signed her lease and I want to sell the home, not own it)

Thanks!

You need to be set-up to accept section 8 tenants in order to have them. Our last section 8 tenant had to pay rent to the previous owner, who in-turn paid us, before we non-renewed her lease when it expired. We don’t do section 8 in our parks simply because we don’t have to to get them leased and I’ve never had good luck with those types of tenants in my other rentals. Doesn’t make going through the hassle of getting set-up to accept those renters worth it in my opinion.

Both of these are questions for a lawyer. Personally, I would not be too concerned but I’m not a lawyer so I couldn’t tell you everything that could potentially be a problem here.

Yes, I forgot to add, my attorney is definitely involved. Just wondering how other operators would view this.

This is definitely a problem because the next tenant of the “mold” house will probably sue you. You cannot have a house with mold in it in your inventory. However, the “mold” issue is so far just the thought of a tenant trying to use the system. You would need to hire a professional to evaluate the home and give you a written report, which would be Exhibit A if you ever went to court. I am also concerned that the Section 8 tenants are “clustered” in one part of the park – that may be a violation of fair housing. If you evict the tenant in question that may be construed as “landlord retaliation”, which is a crime.

The bottom line is that you need a licensed attorney in that state to evaluate all of these problems and tell you exactly what to do. If they don’t know, get a different attorney. The state MHA may have a list of attorneys with MH experience.

I consulted with my lawyer, who handles about 4-5 frivolous mold lawsuits per year. He recommended this not slow down or disrupt the deal. In practice, mold is an allergen (just like pollen or peanuts) and the source is hard to prove because the test methods are pseudoscience. Apparently the EPA ruled (in early 2000’s) that residential mold presence is harmless. (Note, this is not legal advice, etc)

I plan to ask the seller to get the house surveyed by a professional as suggested. If it’s really bad, I’ll tell him I need to scrap the trailer and can’t include the lot as occupied, so we’ll have to talk about price. If it’s ok, I’ll rehab the home and sell it. Will probably provide the clean inspection report as a disclosure when I sell it.

Thank you Frank and Charles!

Hi Johnny,

Here’s some more information/thoughts:

  1. Make sure you buy the assets/ real estate, and not the owner’s prior park owning legal entity;
  2. Include an agreement where the previous owner will defend and indemnify you should you be pulled into this lawsuit or sued directly by the tenant;
  3. Exclude that tenant’s particular home from your acquisition. You can buy it later once the legal matters regarding it are over. Why take the chance of known litigation for a small value rental MH?; and
  4. Because mold lawsuits were so successful originally, almost every General Liability insurance company now excludes coverage for alleged bodily injury caused by mold. The fact there is no insurance there severly limited future lawsuits as personal injury lawyers hated spending the time to win a long complicated lawsuit only to find that there was no insurance money filled golden pot at the end of that rainbow.

I hope that helps,
Kurt

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Wow, where did you hear this? It’s completely wrong, period. https://www.epa.gov/mold/mold-cleanup-your-home

A mold assessment with air quality test (which you should do) will cost about $300.00. I do them all the time, I generally charge about that.

Why would you scrap the home if it fails? Most likely it can be cleaned up.

Old carpet is one of the main reasons homes fail the air quality test. Carpeting is generally infested with mold, usually Penicillium / Aspergillus genus of molds after 6-8 years in CLEAN homes, much quicker in not so clean homes, depending on a number of factors of course such as where you live. So, remove the carpeting unless it’s brand new.