Property manager closed shop - how to deal with tenant?

Archived From: Finance
  • Page :
  • 1
  • Text Only
Voting History
rated:
I have been using a property manager (PM) for my rental unit for the last 6 months. I have a contract with PM for managing my property. PM has a separate contract with the tenants for the annual lease.
Usually PM deposits the money in my bank account no later than 10th of the month. However, in Nov they didn't deposit it till the 29th - and that after a dozen reminders. They are late again this month.

The property is in California.

To make a long story short, I just found out that they have likely closed shop. This is consistent with my own experience and that of other folks who contract with them as well.
What should be my next steps? My goals are (ideally):

1. Transfer the lease from PM to either me or to a different management company 
2. Do something about the tenants' security deposit - ideally transfer that to the new management company
3. Break my contract with them citing delayed rents
4. Recover my Feb rent.

Not sure how to achieve any of the above since they are untraceable.
I spoke to the tenants and asked them to hold off paying PM next month's rent until I get more clarity.

I am trying to find a lawyer - in the mean-time I am trying to research this situation on my own as much as possible.
Thanks folks for any guidance.
 

Member Summary
Staff Summary
  • Also categorized in:
Thanks for visiting FatWallet.com. Join for free to remove this ad.

This is thorny, but first, can you explain the two contracts involved? First, the one between you and the PM - is it a lease agreement, in which you lease the property to them, and then they sublease to the tenant? If not, I don't see how the tenant can have a lease with the PM when the PM doesn't own the property or have any ownership interest. It could make eviction really tricky.

Sorry, no experience with a PM, I'm stunned that the arrangement calls for the PM to lease to the real renters and be the recipient of their rent payments. Are you sure that's typical? Both sound like trouble.

I think I'd wait to discuss this with a local lawyer. The details can vary a lot city to city and depending on the lease. Are there two in this case, one between you and the PM and then essentially he's subleasing to the tenants? It seems possible they've got no obligation to pay or re-lease with you, your issue with the PM and remaining lease term may be yours alone. Mishandling tenant issues can make things much worse, so I wouldn't rely on any advice that's not very specific to your situation. Posting your location might help if someone happens to have relevant expertise.

We had a PM skip out on us with some of our money. We hired another PM and the new PM took things over.
We lost the rent that the 1st PM walked away with.


I'd recommend you : send a letter to the 1st PM and tell them you're terminating the arrangement due to their breech of contract, hire a 2nd PM, have them take over. You might also ask the tenant for a copy of the lease they signed if you don't already have it. The lease may still be enforceable as the PM was just acting as your agent.

You might want the help of a lawyer.

Who has the security deposit right now?

Thanks for the responses. Here are some answers.

In the contract between me (Owner) and PM (Agent), the key sections are
1. "The Owner hereby employs and grants Agent exclusive right to rent, lease, operate and manage the property known as xxx for a period of one year.". The rest of the contract specifies that the contract can be terminated on either side by giving a 60-day notice. 
2. "Agent shall render monthly statements of receipts, expenses and charges and remit to Owner receipts, less any disbursements on behalf of Owner, in excess of the Owner’s Repair Fund specified herein."
3. "Agent shall maintain all receipts for Security, Cleaning and Pet Deposits in a separate Trust Account and make disposition of such funds in the manner and within the time limits prescribed by law."

The contract between the PM and the tenants is a standard residential lease. 
The way I understood it is that I am employing them to rent the place on my behalf, collect rent and disburse rent to me less any fees. 

So let's say I manage to get a second company to step in and take over the lease (with some legal help if needed). How is the deposit handled in this case?
If I am lucky, PM will hand over the deposit they are holding to the new management company. 
But if they are untraceable, I assume I am on the hook?


 

mojoshtudd said:   Thanks for the responses. Here are some answers.

In the contract between me (Owner) and PM (Agent), the key sections are
1. "The Owner hereby employs and grants Agent exclusive right to rent, lease, operate and manage the property known as xxx for a period of one year.". The rest of the contract specifies that the contract can be terminated on either side by giving a 60-day notice. 
2. "Agent shall render monthly statements of receipts, expenses and charges and remit to Owner receipts, less any disbursements on behalf of Owner, in excess of the Owner’s Repair Fund specified herein."
3. "Agent shall maintain all receipts for Security, Cleaning and Pet Deposits in a separate Trust Account and make disposition of such funds in the manner and within the time limits prescribed by law."

The contract between the PM and the tenants is a standard residential lease. 
The way I understood it is that I am employing them to rent the place on my behalf, collect rent and disburse rent to me less any fees. 

So let's say I manage to get a second company to step in and take over the lease (with some legal help if needed). How is the deposit handled in this case?
If I am lucky, PM will hand over the deposit they are holding to the new management company. 
But if they are untraceable, I assume I am on the hook?


 

  What do you mean they are untraceable? Who the hell did you hire? 

mojoshtudd said:   
But if they are untraceable, I assume I am on the hook?


 

  
You are most definitely on the hook for the security deposits.

You refer to unit (singular) but tenants (plural).  To clarify, it is just one rental unit?  If so, the risk is less severe, but still a concern.  Some of the items below may not apply if you only have a single unit (example: if no recent turnovers, probably no past due balance to a painter, carpet company, etc).

If you truly cannot get in touch with the old PM, you should consult a lawyer.  There are many bad things if the PM disappears:
1. You never get the rents owed to you.  As a side note, make sure any tenants who may have a direct deposit/debit make arrangements to cancel that by the next rent due date.
2. You never get the security deposits that are being held and due back to the tenants upon move out (less damages).  YOU will be personally liable for those funds to the tenant.
3. You can be held liable for any payments due to the electric company, water utility, property tax agency, gardener, painter, carpet company, painter, handyman etc.  If the PM is so delayed in remitting rents, I have little doubt they are behind in paying any bills/vendors they have received on behalf of your property.   They could be months past due at this point.
4. If the PM is this shady, who knows about the quality of any tenants they rented to.  Bad credit, criminals, etc.  They likely just wanted to fill a unit and hope that the person pays rent rather than picking a quality tenant which is best for your long term performance.

PM should be licensed by the state.  You'll want to file a complaint against the PM via the Bureau of Real Estate.  Not sure if they will investigate and assist on your behalf, or merely only take action against their license status.

Best of luck to you and please report back with updates.  This is the first I've heard of a PM disappearing and curious how it turns out.
 

Thanks. I will be meeting with a couple of lawyers early next week and will update this thread.

@alamo - by untraceable I mean: website goes to a blank landing page, official phone keep ringing and doesn't go to voicemail, one of the two emails they gave me bounces with "doesn't exist" message, their office is locked with a UPS delivery slip dated from a week ago taped to their door. The one good employee there finally got back to me saying she was recently let go and doesn't know anything about their current status.

@civ2k1: One apartment and two tenants (roommates). I had found them myself before I decided to give the controls to PM. They are really good and have always paid rent on time. I got the chance to visit them today and the apartment looks like its in good shape. The one roommate I spoke with is very co-operative and is willing to work with me if I change management companies. She also gave me a lot of feedback about PM - mostly about how shoddy their maintenance work is and that they'd be glad if we changed PMs.

I will file the BRE complaint. I guess no real point in filing a BBB report. Should I file a police report?

mojoshtudd said:   Thanks. I will be meeting with a couple of lawyers early next week and will update this thread.


One apartment and two tenants (roommates). I had found them myself before I decided to give the controls to PM. They are really good and have always paid rent on time. I got the chance to visit them today and the apartment looks like its in good shape. The one roommate I spoke with is very co-operative and is willing to work with me if I change management companies. 

The costs of a lawyer will erase any profit you've made with the property.

If you found the tenants yourself, and they are really good and have always paid rent on time, why do you even have a PM company?

Concern yourself with getting a new PM first, or consider handling the unit yourself. The best course of action against the defunct PM may be to collectively sue along with any other property owners. Depending on what occurred you may also need to include the PM's banking institution in the lawsuit.

Consult an attorney for best advise on how to handle the apparently out of business property management company. Sounds like you or your attorney should send a certified letter to the PM's last known business address to officially terminate the PM agreement on grounds and request return of all escrowed deposits, then allow x amount of time for response and prepare to file suit in small claims court for recovery if no response is received.

Why not manage the property yourself since you were the one who secured the tenants in the first place? Just have them pay rent directly to you and get in touch with you for any maintenance issues that arise and if any do come up call up a plumber or whatever & handle the problem. It's really not difficult to do and it saves you paying half the first month's rent for new tenants and the 10% per month mgmt. fees these companies want.

mojoshtudd said:   Thanks for the responses. Here are some answers.

In the contract between me (Owner) and PM (Agent), the key sections are
1. "The Owner hereby employs and grants Agent exclusive right to rent, lease, operate and manage the property known as xxx for a period of one year.". The rest of the contract specifies that the contract can be terminated on either side by giving a 60-day notice. 
2. "Agent shall render monthly statements of receipts, expenses and charges and remit to Owner receipts, less any disbursements on behalf of Owner, in excess of the Owner’s Repair Fund specified herein."
3. "Agent shall maintain all receipts for Security, Cleaning and Pet Deposits in a separate Trust Account and make disposition of such funds in the manner and within the time limits prescribed by law."

The contract between the PM and the tenants is a standard residential lease. 
 

Yea, you need a local attorney. I'm afraid the tenant's lease isn't even valid. 

OP - any updates?

Here's a quick update.
- They responded to my email saying they filed for bankruptcy and their attorneys would be contacting me
- In the mean-time, I found out that more than 50-60 home-owners are affected. We have a private group now to strategise next steps. 
- I filed complaints with the California Bureau of Real Estate - so did many others. They have opened an investigation to shut down the PM's license.
- I spoke to several lawyers and none of them could find any bankruptcy filing in PM's business name or in their office bearers' names. Since there was ample evidence of fraud, I wrote to USTP Bankruptcy Fraud - they confirmed no bankruptcy filing was made. So that email was definitely a lie
- There is an FBI investigation that we (as a group) initiated through the DA's office
- Local news-channels ran 3 stories on this already - fourth one in progress

- I have instructed tenants to pay me rent directly but haven't transferred lease over because I am not sure it would be legally binding anyway. I plan to write a new lease with the tenants in 4 months when the current one expires. 
- I have emailed PM terminating my contract with them with immediate effect and am sending them registered mail with return receipt. Not sure if that is legally binding either as I don't think it will even get received by them. 

Not much more to go on at this point. I am debating filing small claims but not sure if it is worth it. The damage is less than $5k and I don't know how to collect even if I do get judgement in my favor. The PM has been totally untraceable.

Thanks for the update, OP! Sorry to hear you have to deal with this.

I'd recommend utilizing the Bureau of Real Estate's website to keep track of the Principal(s) in the management company. They may update their address (required per law) which may assist you in serving them...but also, they may begin working under a different corporation - which would help you keep track of where they are, and give you a source of income to tap to recover your funds.

Best of luck to you and please update us as things progress.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017