How long can a tenant stay after a condo is sold?
Q. My husband and I are attempting to sell a condominium we have owned for some time and are currently renting out. The tenant has been there for quite some time. She signed a lease a number of years ago but since then, we have just agreed annually to extend the lease for another year at an agreed price. We have had no problems with our tenant.
Our annual date when we agree to extend another year is Sept. 1 and we agree on the new rent. If we find a buyer for our condo, is the tenant entitled to remain at the unit until Aug. 31? Or, is there a way to terminate the lease earlier than that?
A. As a general rule, once a written lease expires and the tenant remains, a month-to-month tenancy is established. Month-to-month leases can be terminated upon 30 days written notice by either party. The notice must correspond to the period each month’s rent applies to. So, presuming your monthly rent covers the first through the end of each month, notice may be given any time up through March 30 to terminate the lease effective April 30. Once we get to April 1, the earliest you could terminate the lease would be May 31.
In my experience, there are attorneys who would argue that under the situation you describe, an annual lease is established once you commence accepting rent into the second or subsequent year. I don’t believe this position is followed by many courts, however. I’m just pointing out that I have been presented this argument by attorneys representing tenants.
My suggestion is to sit down with your tenant and communicate your wishes. Given your history with this tenant, the length of time she has resided there and the lack of any problems, it would be appropriate to give her as much time as possible to find somewhere new to live.
Q. I am considering selling my home. A few years ago I took out a 30-year FHA loan with an interest rate of 3.25%. A friend told me she thought this loan may be assumable. Can you tell me what that means and what impact this would have in me selling my property.
A. I am anticipating this situation arising many times over the next few years. Folks with assumable loans at historically low interest rates will generate much interest in the market given the current rates.
Let’s say you are selling for $300,000, you took out a $250,000 assumable mortgage when you purchased and the current loan balance is $220,000. I now come along and wish to purchase your property and assume your loan. Presuming I financially qualify for the outstanding balance, I “assume” your $220,000 loan and pay you in cash (or additional financing) the $80,000 difference (plus or minus closing costs, tax prorations, etc.). If handled properly, the seller is then released from any obligations on the loan.
The crucial issue here for the seller is to ensure the seller is fully released from any obligations associated with their original loan. A seller’s worst nightmare here is that your buyer defaults on the assumed loan and the lender includes you in the foreclosure proceedings.
The way you, the seller, protect yourself is by contacting your lender, advising them of your intentions and obtaining written instructions as to how to proceed. Of course, your buyer will be required to submit credit information just as he or she would be required to do if they were simply applying for a conventional loan. Your buyer must be approved by the lender for you to be released from your obligations. Proceed carefully and make sure you receive assurances, in writing, that your obligations under the note and mortgage are terminated.
Most home loans, which include virtually all conventional loans, are not assumable. However, if you are one of the fortunate homeowners with an assumable (FHA or VA) loan with a very low interest rate, you may very well be able to command a premium on your sale price in exchange for allowing your buyer to borrow money at perhaps half the going rate.
• Send your questions to attorney Tom Resnick, 910 E. Oak St., Lake in the Hills, IL 60156, by email to tom@thomasresnicklaw.com or call (847) 359-8983.