Ep 145 - What Is A Tenant Estoppel Certificate & Why Are They Important?

Hey everybody. Flippin Danny here, founders of the Freedom Real estate group family of companies. And welcome to another episode of our.

Podcast which is called Freedom through passive Income.

That's right, it should be Freedom through Glitter Income.

I'm saying that because this is right after doing our fifth anniversary episode and I'm looking at glitter all over him right now.

There's glitter everywhere. I never had the need to want to shower more than right now. But welcome to another episode and this episode is called what is a tenant estoppel certificate and why is it important? Very important actually, which we found out not too long ago.

Yes.

So a tenant estoppel certificate. Now this is a certificate that you go to and this is especially important with huge multifamily. But if there's a tenant in the property and there's no record of anything, you need to take this document, go to them, get the information from them that you have from the previous property manager or the previous owner and get them to sign off on it and. Very important.

Yes, exactly. Right. So we just went through this process. So as you know, and I repeatedly say, we always like to add a case study to any lessons that we're teaching. Anyway. Right. So we just went through this process. We're closing on our 48 unit and the last piece was getting all the rent prorations, all the security deposits, all of that in order. So we had to ask for the May rent roll. So we have this big spreadsheet of all the tenants and all their information and the what they're supposed to be paying, what their security deposit is, what the people with missing leases. We had all that information and had it logged and ready once the May rent roll came in because we're closing May 16th. Once that came in, we were able to then go, okay, is all of this still lining up according to what we had? So I have a bunch of this tenant estoppel certificate. I actually printed it out. It's not like that you guys can see it, but it's like it was a two pager here. And flip can just run through real quick what some of the things that are on it in those blanks that they had to fill out. Yes.

So it's almost like a contract, you know, it's here the undersign the tenant and their name, you know, they agreed that they were in a lease as of this date on this, this property. It commenced on this date, supposed to expire on this date. My rent was this. My security deposit was this. You know, all of the important things that could Easily get, you know, the previous owner could say, oh, no, they only paid me $200, you know, in.

The previous owner says they gave me zero deposit. And the tenant's going, where's my deposit?

Back when they move out.

Right, yeah, exactly.

And then just, you know, and then the tenant signature on the same page, you know, so. And there's a lot of legal mumbo jumbo in here too, but it's basically just to clear up everything and make everybody all on the same page.

Yeah. And it's only two pages. You can. We don't have it on here in front of you. It's got. Actually, this is actually one of the tenants that signed. Assigned it. So we're not going to throw it, you know, into the. Too close into the video. But you can just Google it. Tenant estoppel certificate. And you're going to find many, many examples that have all of these forms that you fill out. Find the one that you like the best and use it. But anyway, so here's like, I don't know how many pages this is, but the very beginning of this email thread was me going through every single building. There's four different buildings, every building. And how many. The unit number and what was missing. So there was some. And I'll just see if I can hit that very. So the very first building, there's five units I put in there. One of them is a deposit discrepanc, including the fact that they have pets and I don't know if they have a pet deposit or monthly pet FEES.

Now that's 5 out of 12 units in one building.

Yes.

The next one is 6 out of 12 units in another building. The next one is 7 out of 12 units in another building. Oh, no, no, no. That was 8, 24 versus 884.

Oh, so 7 out of 24.

Yeah, 7 out of 24 for that next one. So there was a lot of questions. And then. So back and forth. Property manager is giving us information. We've got the information in the red with the property manager's information. Then it goes back to them with what's still missing. And then ultimately we figure out, okay, these are the tenants that need to sign the certificate so that we've got the final information that we need. And it was literally yesterday, Friday. We're still in the email going, we need this one, we need this one. And she's running to get it signed. We finally got all the information that we needed in order to fill in all the blanks that we had. Colored a specific color that said missing, missing, missing. So we didn't have any hiccups at closing going, oh, we don't have something. Once we had it, then we got to the very end, we could answer these questions.

So now we know what the security deposit transfer is on the HUD from the owner or from the seller to the buyer. Now we know what the rent proration transfer is from the previous owner to the buyer. And then this also finalizes our renovation game plan.

Yes.

So it's like the final piece of the puzzle before closing.

Yes.

And one of the things that we did at the very end was we knew that some of the May rents that were coming in were actually back rents. There was like a couple tenants had given like a 1500 deposit, $1500 towards rent. Their rent's like 750 or something. Somebody else was like 3000 towards rent. Somebody else is like 700, when really they're rent 650, because it included a late fee. So there's all of this on the main rent roll. When Tiffany and I sat in the office real quick to go through it so that we could get these final numbers, part of that was, okay, if they gave us $2,000, what was that? Was that back rent or was that May's rent? If that was back rent, that goes to the seller. Right. If it was 650 plus 50 of a late fee and 700, well, this is now May 16th that we're planning on closing. We're going to give the late fee to the seller, and then we're going to prorate the rest. So we were doing all these, and it didn't have to be that way. Part of the reason we did it that way is because we talked to the seller or Della did and asked, how do you want this to happen after we get to close? Because there's going to be rent still coming in. Said, after close, any rent or late fees and all that stuff that comes in for this month, just keep it. And so we were doing the exact same thing as, hey, any of the rent that came in that just, even if it's a late fee, just give it to him. Because it hasn't closed yet. But at least it came in prior to closing. And so we kind of worked this out between us and the seller as to what's going to go to him, what's going to go to us. And so that was just part of the process.

It's a mess. And this is a 48 unit.

Yes.

I'm like, can you imagine a 400 unit or a 1200 unit.

Yeah.

Once you get to those bigger properties, usually they have better records, right? That's true. Very good point. But at least on these smaller ones, you expect this to come up because it's usually a mom pop or an investor who's just not really paying attention. Property manager can only do so much in response to what the seller wants them to do, right? Yeah. So it was a good experience for everybody to go through. It was the first time our team had to go through something like this. So it was a learning lesson for them and so we thought it would be great to share.

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Yes.

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Sam.