Tuesday, July 6, 2010

Struggles with Larry the Landlord and Marijuana

Larry the Landlord and his Illegal Marijuana House

Larry the Landlord has a number of misadventures that are sometimes his own doing and sometimes absolutely at the invitation of others.

Larry [A Fictitious Person] has a rental property available for a reasonable amount of money and finds himself a suitable tenant. The Tenant pays cash for a few months ahead of time and everything seems fine.

The Neighbourhood Watch committee decides that there might be too many cars frequenting the house for short duration visits; so the property must be a) operating as a take out restaurant b) involved in the sale and distribution growth of illegal substances.

The Police take note of the lead from the neighbourhood vigils and start surveillance, obtain a search warrant, serve the warrant, discover the illegal growth of marijuana in the property and promptly arrest all those seemingly [allegedly] involved. The Landlord now has a property with a grow op in his basement and is looking for a solution.

WELL….. The hydro has been disconnected by the local utility as the grow operation may or may not have tampered with the wiring and service panel, Theft of Hydro services may have occurred, inspections need to be made but not before an Environmental Assessment has been made. Removal of the Hydro meter effectively terminates your ability to occupy the property or live in. The Hydro will not be reinstated till the Air Quality Testing has been completed. (Your power tools and lights do not work in an un-powered house; there is no heat.

Mold, Mold may be in the basement caused by the high humidity or the mold could have contaminated the entire property. Inspectors need to be called. Inquiries made. Air Mass sensor are used to measure the PPM parts per million of mold in the air and if the staff can be permitted into a hazardous (toxic) work environment with or without protective suits and masks. A normal home inspection will not suffice. A base line of air quality (outside) is taken to compare with interiors. There will be mold. Mold is in bread, Mold spores are everywhere, not all mold is harmful. Some mold is deadly.

How to identify a Grow House

Remedial action must be performed that may include chemical washing agents, removal of drywall to the joists, removal of all ductwork and wiring, (so that the nooks and crevices can be accessed) possibly sand blasted to clean off the mold. There may be required filtration with HEPPA filtering.

I neglected to mention that the Bank has issued a Power of Sale demand letter on your residential mortgage; You have changed the quality and value of their security, they have added additional insurance premiums for their risk during this period. If you have the financial wherewithal you need to refinance (lenders are available to a max of 50% advance to value, rate is not cheap).The lawyer’s fees for “Correspondence” are added to the Claim amount. You will need a different lawyer to discharge the mortgage. If you owe more the property would actually become a power of sale and revert to the Bank. They may at this point in time become responsible for the remediation.

So lets recap. You have cleaned, remediated, inspected every electrical outlet junction box, light switch and socket; have run new wiring in the basement to all the circuits and upstairs where possible and are awaiting the re inspection and re-certification of your property. You are waiting to remedy any deficiencies found on your ESA Statements. You still have the stigma of being an illegal grow house.

This must be disclosed to the Prospective Purchaser prior to an offer;

The Buyer acknowledges that the property and buildings and structures thereon have been used for a criminal use or activity and acknowledges that the Seller makes no representations and/or warranties with respect to the state of repair of the premises and the Buyer accepts the property and the buildings and structures thereon in their present state and in an "as is" condition.

This offer is conditional upon the Seller providing to the Purchaser's Lawyer to review and find satisfactory in the Buyer's Lawyer's sole and absolute discretion. This documentation shall show evidence that the Seller has had the proper government required inspections of the home completed, and that the home has passed such inspections. These inspections are specific to homes that have been found to contain or used for the growth of illegal substances, regular home inspection reports will not be accepted. The Seller shall also provide receipts and records that all fines have been paid in full and that any other fines that arise due to the manufacture and growth of illegal substances in the house before buyer's completion date shall be paid in full by the Seller. Unless the Buyer gives notice in writing to the Seller personally or in accordance with any other provisions with 10 (ten) business days of acceptance that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

This creates the STIGMA of Grow House, and this will need to be disclosed when you are selling again in 8 or 18 years.

But in reality, this house is cleaner, wired up to the standards that are applicable to today’s wiring, inspected for air quality, thermal efficiency (HVAC was all reinstalled remember) City Permits to start and complete the work; Various fines and penalties all paid. In theory Buyers should be lining up to make this purchase.

The Purchaser will find a challenge in obtaining new financing on this property as a high ratio mortgage. Mona Rafiq Mortgage Specialist with CIBC Mortgages was successful in funding a recent purchase with 15% down, a paid CMHC fee, and a slightly elevated interest rate. CMHC will insure previous grow op properties as they understand the remediation and re inspection process.

Do you have a landlord story to share?

If this is not the type of information you are getting from your agent... What are you paying for?


Cathy Mena said...

The Tenant pays cash for a few months ahead of time and everything seems fine. The Neighbourhood Watch committee decides that there might be too many cars frequenting the house for short duration visits.
real estate

Afshan said...

Wow! talk about headache. I hope no landlord goes through anything like this. Thanks for the informative article.

Afshan S.