Every day of the week we are contacted by investors who purchase homes via assignments from wholesalers. It works something like this…the wholeseller secures a deal, and then assigns it to the investor, who buys the property directly from the seller. The investor never meets the seller and never inspects the unit. They then close escrow and quickly find out that the person in the property is not the former owner. What now? Can you get that person out? Are they a trespasser?
Investors often think of trustee’s sales, when they consider what their rights are when they buy a property. With limited exceptions (e.g. bona-fide tenant paying fair market rent), when an investor buys a home at trustee’s sale, they have a right to terminate the occupant’s right to possession. This is because of two things: (1) it is often the former owner in the home and (2) there is a statute directly on point. Investors don’t realize that it is because there is a statute that they can serve a demand and file an eviction against someone who is not a bona fide tenant paying fair rent.
This is not the same when an investor buys a property in a traditional sale. There is no statute saying that the sale terminates the prior person’s right to possession. The right to possession is controlled either by the purchase contract or the rights the occupant had before the sale. If an occupant is in the home and has a (not fraudulent) 10-year lease, the buyer must honor that lease. Even more extreme, if an occupant in a property has a lease and an option to purchase a property, the buyer has to honor that option – even if the option price is less than the price the new owner paid.
Now, that may seem unfair…how is it that the new owner has to honor such contracts? Arizona law provides that the new owner has constructive notice of the rights of the occupants because they had a chance, before closing, to determine what rights the occupant had. Any time you buy a property, you should go to the property, meet the occupants, and determine what rights they claim they have. While we understand that occupants may not always be honest, you need to understand what you are buying into. This is the same in the case where the investor is getting an assignment from a wholeseller. The investor needs to go to the home and ask about what rights the occupant allegedly has.
It is important to note that under case law, its not just contracts that investors must be aware of. If a person is in adverse possession of the land or property, their claims lie against the new owner as well. The Court of Appeals has held that, “A bona fide purchaser takes title subject to any adverse possession which commenced before the transfer of title.” Stat-o-matic Ret. Fund v. Assistance League of Yuma, 189 Ariz. 221, 223, 941 P.2d 233, 235 (App. 1997), as amended (Apr. 3, 1997). Adverse possession means that a person can get title to the land of another, if they hold possession of it against the owners will for 10 years. Therefore, if an investor buys a property in the 9th year of adverse possession, the investor may lose title to a person that has held adverse possession. So, what is the lesson here? Before you close escrow, go meet the occupants of your property and determine what rights they claim.
By Mark B. Zinman, Zona Law Group