Was your investment property damaged by tenants? If it was, can you recoup the costs to repair your investment property?
Was Your Investment Property Damaged by Tenants? How Can You Recoup the Costs to Repair?
Q: My wife and I bought a house in Maryland in early July 2022. The sellers wanted to stay in the house rent free for 30 days. They put up a $2,000 security deposit. After the sellers moved out, we found they had removed a light fixture, damaged a wall while removing an art object, and hired a contractor to do tree work without our prior approval.
We had to replace the light fixture, paint the room where there was wall damage, and pay the tree contractor. The cost to us was over $1,700 and we have the receipts for these items. The escrow agent will not release the funds saying that the tenant (previous owner) has to agree.
The tenant moved out of state and we don’t know how to reach them. Four months have passed. The escrow agent offered no help and seems willing to hold the money indefinitely. Do you have any advice?
Make Sure Your Tenant’s Security Deposit is Substantial to Cover Any Damage
A: It isn’t always fun and games being a landlord, whether you’re renting your home for two days, two months or two years. There are always risks, whether you’re an investor renting a property you own or a buyer renting back to the seller after closing.
In some real estate markets, the form contracts provide that the seller must pay the buyer a daily fee equal to the buyer’s carry cost for the home. This includes principal and interest on the loan, and a proportionate share of real estate taxes, homeowner’s insurance and homeowners association assessments. In addition, the seller may have to put into escrow up to 2 percent of the purchase price of the property.
While you received a security deposit from your seller of $2,000, you didn’t get paid for your carry expenses. We understand that in some areas of the country, buyers often agree to allow the seller to live in the home rent free for a period of time after closing to make the deal happen. You should have made sure that the security deposit was substantial enough to cover any potential problems with the home and ensure the seller moved out in a timely fashion.
Renting Your Home Post Closing
Buyers who allow sellers to rent the home post closing won’t have the opportunity to view the home vacant before closing. As the seller will still be living there until they give up possession of the home sometime after the closing. When a seller causes damage to the home before the closing. The buyer can hold up the closing until the buyer and seller resolve the issue of the damage to the home.
Most real estate contracts provide that the seller needs to deliver the home in the condition the home was in as of the contract date. Buyers usually conduct an inspection of the home just before the closing. Hopefully, this occurs after the seller has moved out. If the home passes inspection, then the buyer will close. But frequently, buyers may ask sellers to make repairs to the home resulting from the final walk-through or request a closing cost credit to take care of those inspection items.
Here is where it gets tricky. Buyers typically hire a professional home inspector during the purchase process. If there are issues raised in the inspection. The buyer typically asks the seller to make repairs or reduce the price to compensate for those issues.
When that happens, buyers should not then come to the closing asking sellers for more money if the home has no new damage. But often, when buyers see the home empty, after the seller has moved out, they see other things wrong with the home. And they expect the seller to take responsibility for those items.
Buyer has Claim if Seller Damaged Home While Moving Out
We don’t think this is fair unless the seller was hiding the problem.
For example, when sellers take down artwork or objects from walls, you may see some wall damage from nails or screws. When sellers pull up area rugs, buyers may discover discoloration in the flooring, staining or damaged wood flooring. And, when furniture is removed, the buyer may see carpet damage, stains or other carpet wear. But just because the buyer sees something for the first time doesn’t mean the damage is new.
A buyer should have a claim against a seller if they damage the home while moving out:
- If they break a light fixture, banister, window or door moving furniture
- the seller’s movers damage wood flooring, staircases or doorways while moving furnishings or boxes
- Any appliances have broken and no longer work
In these instances, the buyer should address the problem with the seller before closing on the home.
Objective Perspective of the Investment Property Damaged
Now, you’ve already closed on the home. The only thing you have is the security deposit left behind by the seller to cover any issues.
Let’s start with the light fixture. Was the light fixture excluded from the contract? Did the seller have the right to remove it? If they did, you should have known you’d have to replace it. If the seller did was not allowed to remove it under the contract. Then you may have the right to get funds to cover the replacement.
Did the removal of the art object damage the wall beyond leaving a couple of nail holes? If so, you likely are not entitled to anything for that issue.
As for the tree issue, once you closed on the home, the entire property was yours. The sellers were renters. While we agree that they should have consulted you before hiring someone to deal with the tree. The question is whether you’d have had to hire someone to take care of the tree issue. If your answer to that question is that the tree issue would have been your responsibility, you might have ended up paying for that item anyway.
We’re not taking sides but giving you an objective perspective of the situation.
Talk with a Professional
If you conclude that the seller owes you the money, you’ll need to decide how to proceed. Did you sign an agreement allowing the seller to stay in the property after closing? Does that agreement give you the right to sue the seller for any damages to the property? Can you recover any attorney fees you may incur in collecting money from the seller.
Take a look at your agreement. Then talk with an attorney who can go after the seller and force the escrow company to release the money to you. At the end of the day, you’ll have to decide whether the cost and effort of going after the seller is worth the expense. You can also file a claim in small claims court.
An attorney might be able to find and persuade the seller to release the escrow money without taking it further. You could try contacting the seller as well directly or through the brokers to request the release of the money owed to you. Good luck.
Read More about Investment Property Damaged by tenants:
Should You Put Your Rental Property in an LLC?
Is a Condo or Townhouse a Better Investment?
Flipping Property as a Good Investment (video)
Inheriting property in a trust
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