Expert: Lisa Webber - 8/9/2009

Question
My son and his wife are in the process of purchasing a house in Montgomery County, Maryland, on a short sale.  They were due to go to closing last Friday.  All their financing etc. is in order, but the closing was postponed at the last minute by the owner.  They just learned why: the people occupying the house are not the owners--they are renters who are refusing to move out. In all the previous negotiations, the seller never disclosed that the house was being rented out.  Was the seller under any obligation to do so?  My son and his wife paid for the appraisal, inspection, etc. in good faith, believing there were no impediments to an expeditious closing.  In a short sale situation looking towards avoiding foreclosure, is there any mechanism for forcing out renters on a timely basis?  Also, is there any chance of recouping the homebuyers' expenses?  Thanks for your help.

Answer
Your son and his wife are in a very unfortunate situation that is all too typical nowadays.  Normally tenants move out as soon as they find out the house is in a short sale situation because they are worried about being homeless.  I am surprised that they never mentioned the tenants.  The tenants may have stopped paying rent when they found out the owners were in pre-foreclosure and if that is the case, they are certainly enjoying living rent-free and may want to ride that out to the end.  The big problem is that if they decide not to move out, the owner of the home has to begin eviction proceedings.  The process can take several months to get someone out and depending upon where they are in the foreclosure proceedings, the bank could foreclose before they are able to go to settlement.  There is no quick way to get them out.  Banks often face this situation when they take back a house in foreclosure and many times will offer a financial incentive to the tenants to entice them to move.  I know theydon't want to spend any more money than they already have but if they or the seller were to offer them a little cash to help with their moving expenses, it might save you time and aggravation in the long run.  The more knowledgeable these tenants are about the rental system, the more difficult it might be if they want to take advantage of the options they have.  As far as recouping the buyers expenses if the sale does not go through, they would most likely have to take the seller to small claims court and try to get a judgment for the money.  

Since I am not a lawyer, I cannot give you legal advice in this situation, so I do recommend that they consult with a real estate attorney.  Make sure the attorney is a specialist in real estate law.  In the meantime I just wanted to give you some food for thought since it's the weekend and they'll need to wait until tomorrow to speak with an attorney if that's what they choose to do.