Squatters’ Rights: Guide to State Law and How-To Evict

Squatters’ Rights Explained

Property owners around the globe have been paying close attention to squatting— a topic that boomed in recent years thanks to the establishment of organized groups like Take Back the Land.

Squatter inhabiting property

Many residential and commercial property owners are now apprehensive about leaving their buildings unoccupied— concerned that onlookers may view their realty as a squatting opportunity.

Even landlords seeking tenants must be exceptionally vigilant when it comes to screening potential renters, as some may pay their rent for a short period of time before deciding to occupy the space unlawfully.

But what, exactly, are the legalities surrounding squatting? And how should landlords who are being affected by this phenomenon go about addressing it?

These are the questions we’ll be answering in today’s post.

But first, let’s cover the basics.

What is a squatter?

A squatter is any individual who decides to inhabit a piece of land or a building in which they have no legal right to occupy. The squatter lives in the building or on the property they select without paying rent and without lawful documentation stating they own the property, are a law-abiding tenant, or that they have permission to use or access the area.

What are squatters’ rights?

Squatters rights refers to laws which allow a squatter to use or inhabit another person’s property in the event that the lawful owner does not evict or take action against the squatter.

Typically, squatters rights laws only apply if an individual has been illegitimately occupying a space for a specific period of time. In New York, for example, a squatter can be awarded “adverse possession” under state law if they have been living in a property for 10 years or more.’

It’s important to note, however, that each state has their own laws surrounding this topic. Thus, how squatting is approached and dealt with varies greatly depending on where it occurs.

Which states have squatters rights?

Squatters rights, also known as “adverse possession” laws, exist in all 50 states. However, how these laws are enforced, and when they are enforced, differ greatly from state-to-state.

The below states have a squatters law which requires the individual to have lived on the property in question for 20 years or more:

• Delaware
• Georgia
• Hawaii
• Idaho
• Illinois
• Louisiana (30 years)
• Maine
• Maryland
• Massachusetts
• New Jersey (30 years)
• North Carolina
• North Dakota
• Ohio (21 years)
• Pennsylvania (21 years)
• South Dakota
• Wisconsin

The below states have a squatters law which requires the individual to have lived on the property in question for 19 years or less:

• Alabama (10 years)
• Alaska (10 years)
• Arizona (10 years)
• Arkansas (7 years)
• California (5 years)
• Colorado (18 years)
• Connecticut (15 years)
• Florida (7 years)
• Indiana (10 years)
• Iowa (10 years)
• Kansas (15 years)
• Kentucky (15 years)
• Michigan (15 years)
• Minnesota (15 years)
• Mississippi (10 years)
• Missouri (10 years)
• Montana (5 years)
• Nebraska (10 years)
• Nevada (15 years)
• New Mexico (10 years)
• New York (10 years)
• Oklahoma (15 years)
• Oregan (10 years)
• Rhode Island (10 years)
• South Carolina (10 years)
• Tennessee (7 years)
• Texas (10 years)
• Utah (7 years)
• Vermont (15 years)
• Virginia (15 years)
• Washington (10 years)
• West Virginia (10 years)
• Wyoming (10 years)

Note: Some of the states listed above require the squatter to possess a deed, or to have paid taxes during their occupancy, while others do not. In some states, if the squatter can produce the required documentation, the number of years may be reduced.

How to evict a squatter

With the squatting movement gaining traction, more and more landlords are looking to arm themselves with information about how to get rid of squatters.

This is an excellent step to take, since successfully defending a property against individuals who intend to take advantage of squatters rights will rely heavily on the landlords understanding of the law and their ability to respond promptly.

Below are the permissible steps we recommend taking when evicting squatters:

1. Call the Police

The more quickly you contact your local law enforcement, the better. They will be able to file an official police report, which you can use in the future if you end up having to pursue an eviction via the court system.

The more evidence and documentation you have to demonstrate your efforts to remove the individual(s) from your premises, the stronger your case will be.

Remember, you can not legally try to intimidate the squatter or forcibly remove them from your property. If you must engage with the individuals who are illegally inhabiting your property, it’s best to have a police officer present.

2. Provide a Formal Eviction Notice

After you have notified the authorities that there is an illegal tenant on your property, you’ll need to file an Unlawful Detainer action. The process of filing such an action can vary from state to state, so it’s important to speak with a lawyer or your local court office to ensure you understand all of the required steps.

3. Litigation

If the squatter refuses to leave after being ordered to do so, you can take further action by filing a lawsuit. After doing so, a hearing date will be set and both parties will be required to attend.

If the courts rule in your favor (which is most likely), the judge will order the police to escort the squatter from the premises. At this point, you will be allowed to change the locks to the property.

4. Remove Any Possessions Left Behind

As frustrated as you may be at this point, it’s important to remember that you can’t always just discard any possessions a squatter leaves behind. Some states require landlords to provide written notice to the squatter stating a deadline by which they must collect their belongings.

Because squatters are often difficult to contact, you can protect yourself by having this letter prepared and bringing it to your court hearing. In this same notice, you can disclose what you intended to do should the belongings not be collected by the specified date. Either way, be sure to speak to a lawyer or your local judicial office to ensure you are following the proper procedures.

What Is A Trust Deed

A trust deed, also known as a deed of trust, is a document sometimes used in real estate transactions in the U.S. It is a document that comes into play when one party has taken out a loan from another party to purchase a property.

The trust deed represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off.

How a Trust Deed Works

In a real estate transaction—the purchase of a home, say—a lender gives the borrower money in exchange for one or more promissory notes linked to a trust deed.

This deed transfers legal title to the real property to an impartial trustee, typically a title company, escrow company, or bank, which holds it as collateral for the promissory notes—security for the loan. The equitable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property.

This state of affairs continues throughout the repayment period of the loan. The trustee holds the legal title until the borrower pays the debt in full, at which point the title to the property becomes the borrowers.

If the borrower defaults on the loan, the trustee takes full control of the property.

Trust Deed vs. Mortgage

Trust deeds and mortgages are both used in bank and private loans for creating liens on real estate, and both are typically recorded as debt in the county where the property is located.

However, a mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). In contrast, a trust deed involves three parties: a borrower (or trustor), a lender (or beneficiary), and the trustee.

The trustee holds title to the lien for the lender’s benefit; in case the borrower defaults, it will initiate and complete the foreclosure process at the lender’s request.

Contrary to popular usage, a mortgage is not technically a loan to buy a property; it’s an agreement that pledges the property as collateral for the loan.

Foreclosures and Trust Deeds

Mortgages and trust deeds have different foreclosure processes. A judicial foreclosure is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage.

The process is time-consuming and expensive. Also, if the foreclosed-property auction doesn’t bring in enough money to pay off the promissory note, the lender may file a deficiency judgment against the borrower, suing for the balance.

However, even after the property is sold, the borrower has the right of redemption: He may repay the lender within a set amount of time and acquire the property title.

In contrast, a trust deed lets the lender commence a faster and less-expensive non-judicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law.

If the borrower does not make the loan current, the property is put up for auction through a trustee’s sale.

The title transfers from the trustee to the new owner through the trustee’s deed after the sale. When there are no bidders at the trustee sale, the property reverts to the lender through a trustee’s deed.

Once the property is sold, the borrower has no right of redemption.

Furthermore, a trustee has the responsibility of paying the proceeds from the sale to the borrower and lender after the sale is finalized.

The trustee will pay the lender the amount left over on the debt and pay the borrower anything that surpasses that amount, thereby allowing the lender to purchase the property.

Pros and Cons of Investing in Trust Deeds

Investors who are searching for juicy yields sometimes turn to the real estate sector—in particular, trust deeds.

In trust deed investing, the investor lends money to a developer working on a real estate project. The investor’s name goes on the deed of trust, as the lender.

The investor collects interest on his loan; when the project is finished his principal is returned to him in full. A trust deed broker usually facilitates the deal.

Pros

• High yielding income stream
• Portfolio diversification

Cons

• Illiquidity
• No capital appreciation

What sort of developer enters this arrangement? Banks are often reluctant to lend to certain types of developments, such as mid-size commercial projects—too small for the big lenders, too big for the small ones—or developers with poor track records or too many loans.

Cautious lenders may also move too slowly for developers up against a tight deadline for commencing or completing a project.

So these developers are often in a bit of a crunch. For these reasons, trust deed investors may often expect high-interest rates on their money.

They can reap the benefits of diversifying into a different asset class, without having to be experts in real-estate construction or management:

This is a passive investment.

Trust deed investing has certain risks and disadvantages. Unlike stocks, real estate investments are not liquid, meaning investors cannot retrieve their money on demand. Also, investors can expect only the interest the loan generates, with any additional capital appreciation unlikely.

Invested parties may exploit any legal discrepancies in the trust deed, causing costly legal entanglements that may endanger the investment.

The typical investor with little experience may have difficulty, as a certain set of expertise is required to find credible and trustworthy developers, projects, and brokers.

Details about payment of principal and interest

• Escrow funds
• Liens
• Property insurance and structure maintenance
• Structure occupancy—stipulating the borrower must take up residency within 60 days

The form also includes non-uniform covenants, which specify default or breach of any of the agreement terms.

There is also a specification that the loan the document deals with is not a home equity loan—that is, something the borrower will receive cash from—the loan is for purchasing the property.

3 Common Myths Around Online Rent Collection

Tenant Rent Collection Strategies

Myth 1 – It’s Complicated

Sure, you’ve been doing it by hand for years, and despite all the time, effort, and headaches, it eventually gets the job done.  We get it.  But did you know, online rent collection software is easy to set up and flexible enough to support your current business processes?

Just think how amazing your life could be if you could instantly reduce the monthly stress of collecting rent. No more texts, calls, or emails chasing after rent. Technology does it for you… automatically… for every tenant… every month.

Whether you manage your properties by yourself or with a team, online rent collection automates invoice creation, rent reminders, payment collection, and direct deposits. No need for excess reporting or tasks to CYA.

Are you still having to track down tenants after the fact to collect late fees? If your tenants are late paying rent, rent collection software will automatically calculate the late fee, add it to their invoice and send continuous reminders until rent is paid or you decide other action is necessary.

Support When You Need It

Most online rental management solutions have support teams ready to help you and your team during the transition. In some cases, these support teams can even help your tenants set up the software so you can focus on your work instead of playing the role of customer service.

When searching for the best solution, we recommend checking out their website, make a list of questions and schedule a demo. Once you’re on a call, you’ll be able to share your specific needs and challenges to ensure you’re choosing the best online rent collection solution for your business.

Myth 2 – My Tenants Don’t Use Technology

A common misconception is that tenants don’t have access to technology or worse yet, don’t have an email address.  Did you know that according to a recent 2019 study, 96% of Americans own a cellphone and over 70% of Americans use some form of social media?

To pay rent online all a tenant needs is an internet connection and an email address.  If they use a smartphone and log into Facebook, Twitter, Snapchat, LinkedIn, or any other form of social media (and there are lots out there) they have an email address.

Technology isn’t Scary When you Communicate

Introducing change can sometimes seem scary, especially if you’ve been doing the same thing for a while.  However, when we communicated that we were switching to an online payment option, we found that our tenants were not only relieved, but grateful to finally have a more convenient way to pay rent.

These days, people are used to the convenience of digital payment methods for everything like paying credit cards, car loans, utilities, online shopping and student loans.

Why not add rent to the list? Once we introduced online payments, not only did our late payments decrease, but 30% paid before rent was even due.   With the ease of automated email and text rent reminders, it takes less than one minute to pay rent.  Making things more convenient for your tenants is a benefit to them and a benefit to you. We call that a win-win.

Myth 3 – My Tenants Don’t Have Bank Accounts

Just because your tenants pay you in cash or money order doesn’t mean they don’t have a bank account. According to a 2017 FDIC survey, 94% of Americans have bank accounts yet only 40% actually write checks.  Because of debit cards and ATM’s, fewer people own checks.

Before offering an online rent payment option, our tenants had to make a special trip to the bank to get a money order, or worse, because rent was more than $500, they had to make multiple trips to the ATM to get cash.  We never realized what a hassle it was for our tenants to pay rent.

With online rent collection you give them the option to use the free digital check service or pay with a debit/credit card (for a small fee), all from the comfort of their home.  No more trips, no more hassle.

What About Credit/Debit Card Fees?

Many rental management solutions offer the ability to process credit or debit card transactions with no cost for you. Tenants pay the transaction fee along with their rent payment. And although it’s an extra cost, often it’s less than a late fee.

It’s Expensive

There are many solutions available that you can quickly work into your budget without breaking the bank. And with the amount of time you’ll save using an online solution, you’ll more than cover the cost in free time…and as everyone knows, time is money.

Your time is valuable and equates to real dollars. That’s why an online rent collection software is designed to not only save you headaches, but also help you streamline processes, which saves time and money across your operations.

 

Reasons to Reject a Tenant Application

Many landlords believe that they cannot reject a tenant application for any reason, that they have to accept the first one to come along with the money or risk the grief of a lawsuit.

Not so.

There are numerous legitimate, businesslike reasons to reject a prospective tenant’s application.

Unsatisfactory references from landlords, employers and/or personal references.

These could include reports of repeated disturbance of their neighbors’ peaceful enjoyment of their homes; reports of gambling, prostitution, drug dealing or drug manufacturing; damage to the property beyond normal wear and tear; reports of violence or threats to landlords or neighbors; allowing people not listed on the lease or rental agreement to live in the property; failure to give proper notice when vacating the property; or a landlord who would not rent to them again.

Evictions.

Frequent moves. You have to decide what constitutes frequent moves and apply the same criteria to every applicant.

Bad credit report.

If a report shows they are not current with any bill, have been turned over to a collection agency, have been sued for a debt, or have a judgment for a debt, that is grounds to reject. These do not have to be debts connected in any way with housing.

Too short a time on the job.

As with frequent moves, you have to decide what too short a time is and apply the same criteria to every applicant.

Too new to the area.

There is nothing to say you have to rent to people who have just moved to town. Be careful, though, many times these would be excellent tenants and the time and long distance call expense of checking them out could pay big dividends.

Smokers.

Some newspapers mistakenly believe that smokers are a protected “handicapped” class. They will never be. The tobacco companies would not allow it. Do do so would be to admit that tobacco and nicotine are addicting. Industry lobbyists would be sure to fight that idea tooth and nail. So you can safely discriminate against people who smoke. Newspapers will not accept ads that say “no smokers,” but they will accept ads that say “no smoking.”

Too many vehicles.

Lots of cars can be a real source of irritation to neighbors and make the entire neighborhood or apartment complex look bad. Chances are, if they have more than one vehicle for every adult they spend a lot of time broken and being fixed. That means they could be in pieces in the front yard or parking lot.

Too many people for the property.

Be extremely careful with this. Before the familial status protection clause of the Fair Housing Act, you could discriminate on this basis without fear of any problems. Not any more. Now the same criteria must be applied without regard to the age of the inhabitant. Be sure it is applied equally to all applicants. Check your state’s Landlord-Tenant Law.

Drug users.

They must be current drug users. If they are in a drug treatment program and no longer use drugs, the Federal Government considers them handicapped and protected by the Fair Housing Act.

Any evidence of illegal activity.

You must be able to come up with some kind of satisfactory evidence. I don’t know what that would be, every case would be different. Certainly a letter from the police department warning a previous landlord of their illegal activity and threatening to close the property is considered sufficient evidence.

Insufficient income.

You must set up objective criteria applied equally to each applicant. Insufficient income could reasonably be if the scheduled rent exceeded 35% of their gross monthly income.

For example, if the rent is $600, their gross monthly income must be at least $1714.29. The formula is: Acceptable income= scheduled rent divided by income ratio. You can require proof of all income.

Be careful, though, if you are willing to accept only one member of a married couple to supply the total dollar income, you must be willing to accept the same of unmarried, co-tenants that share the housing. Under Fair Housing law you cannot require that unmarried people meet different income requirements than married people.

Too many debts.

Even if their gross income is sufficient, they may have so many other debts that they would be hard pressed to make all the payments.

A rule of thumb might be that all contracted debts, including rent, cannot exceed 50% of their gross income. Contracted debts would be such things as credit card payments, car payments, loans, etc. Those would not be cable TV, water and garbage, telephone, or other utilities.

Conviction of a crime which was a threat to property in the past five years.

Included in this could be drunk driving convictions, burglary convictions, robbery convictions, and other such misbehaviors.

Conviction for the manufacture or distribution of a controlled substance in the past five years.

The best way to proceed is to post a list of the acceptable rental criteria and hand it to each applicant.

You can use the list above, but under no circumstances is it intended to be legal advice. Check with an attorney who is familiar with the Landlord-Tenant Law before posting or handing out anything like a list of acceptable criteria for applicants. Laws change constantly, and what you don’t know can and will hurt you.

 

DUE DILIGENCE – THE BROKER’S DEAL MAKER OR DEAL BREAKER

Due diligence is one of the very first steps to building this strong foundation with your clients. If the loan broker does not do his due diligence and makes a deal with a borrower that is less than trustworthy, it could mean thousands of dollars lost and a black mark on his career. Even before offering loan types, or financing options to potential clients, some amount of due diligence should be done.

So, What Is “Due Diligence”?

Due diligence is the process of verifying the information that clients give to the broker in the original loan request. Based on this information, the broker will make the decision on whether to move forward or not. The main purpose of due diligence is to determine if there are risks involved and what impact they may or may not have on the loan agreement.

During the due diligence stage, we hope that the client will be as open and honest about their credit, business financial information and property as they can be. It is wise to remind clients that their credit report will reveal quite a lot of information, and that transparency is the best way to obtain a loan quickly.

Due diligence can include background checks, internet searches, and contacting references. You will need to look closely at a potential client’s bank records, payment history, and business ethics. Depending upon the type of loan and the loan amount, the due diligence phase could take 30 days or more to complete. It is definitely recommended that you notify your clients of this to maintain that important transparency.

Although it may seem invasive to ask your clients for so much personal information, it is absolutely necessary to ensure that you are not spending time trying to secure financing for businesses that just aren’t qualified to repay a loan.

Not only is due diligence a form of protection for you, the business loan broker, but it also protects your lenders. Performing due diligence on your end saves time and finances for the lenders and they will appreciate you vetting the borrowers before referring making introductions.

We talk a lot about the relationships that you are constantly nurturing as a business loan broker and this is no exception. Start every relationship with trust and insist that every client be transparent.

Due diligence is a business loan broker’s insurance and could be the difference between the best deal of your career and the deal that ends your career.

 

The “Five Cs” of Credit Analysis

Capacity to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan.

Payment history of existing credit relationships — personal or commercial — is considered an indicator of future payment performance. Prospective lenders also will want to know about your contingent sources of repayment.

Capital is the money you have personally invested in the business and is an indication of how much you have at risk should the business fail.

Prospective lenders and investors will expect you to have contributed from your own assets and taken on personal financial risk to establish the business before asking them to commit any funding.

Collateral or guarantees are additional forms of security you can provide the lender. Giving a lender collateral means that you pledge an asset you own, such as your home, to the lender with the agreement that it will be the repayment source in case you can’t repay the loan.

A guarantee, on the other hand, is just that — someone else signs a guarantee document promising to repay the loan if you can’t. Some lenders may require such a guarantee in addition to collateral as security for a loan.

Conditions focus on the intended purpose of the loan. Will the money be used for working capital, additional equipment, or inventory?

The lender also will consider the local economic climate and conditions both within your industry and in other industries that could affect your business.

Character is the general impression you make on the potential lender or investor. The lender will form a subjective opinion as to whether you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company.

Your educational background and experience in business and in your industry will be reviewed. The quality of your references and the background and experience of your employees also will be taken into consideration.

What do the 5 Cs of Credit mean to a small business?

One of the most common questions among small business owners seeking financing is, “What will the bank be looking for from me and my business?” While each lending situation is unique, many banks utilize some variation of evaluating the five Cs of credit when making credit decisions: character, capacity, capital, conditions and collateral.

1. Character. What is the character of the company’s management? What is management’s reputation in the industry and the community?

Lenders want to put their money with those who have impeccable credentials and references. The way the owner/manager treats employees and customers, the way he or she takes responsibility, timeliness in fulfilling obligations are all part of the character question.

This is really about the owner or manager and his/her personal leadership. How the owner or manager conducts business and personal life gives the lender a clue about how he/she is likely to handle leadership as a manager.

It’s a banker’s responsibility to look at the downside of making a loan. The  owner/manager’s character immediately comes into play if there is a business crisis, for example.

Small business owners place their personal stamp on everything that affects their companies. Often, banks do not differentiate between the owner and the business. This is one of the reasons why the credit scoring process evolved, with a large component being personal credit history.

2. Capacity. What is the company’s borrowing history and record of repayment? How much debt can the company handle? Will it be able to honor the obligation and repay the debt?

There are numerous financial benchmarks, such as debt and liquidity ratios, that lenders evaluate before advancing funds. Become familiar with the expected pattern in the particular industry. Some industries can take a higher debt load; others may operate with less liquidity.

3. Capital. How well capitalized is the company? How much money has been invested in the business? Lenders often want to see that the owner has a financial commitment and has taken on risk for the company.

Both the company’s financial statements and the personal credit are keys to the capital question. If the company is operating with a negative net worth, for example, will the owner be prepared to add more of his or her own money?

How far will his or her personal resources support both the owner and the business as it is growing? If the company has not yet made profits, this may be offset by an excellent customer list and payment history. All of these issues intertwine.

4. Conditions. What are the current economic conditions, and how do they affect the  company? If the business is sensitive to economic downturns, for example, the bank wants to feel comfortable with the fact that the business is managing productivity and expenses.

What are the trends for the industry, and how does the company fit within them? Are there any economic or political hot potatoes that could negatively affect the growth of the business?

5. Collateral. While cash flow will nearly always be the primary source of loan repayment, bankers should look closely at the secondary source of repayment. Collateral represents assets that the company pledges as an alternate repayment source for the loan. Most collateral is in the form of hard assets, such as real estate and office or manufacturing equipment.

Alternatively, accounts receivable and inventory can be pledged as collateral, though in some countries, these “movable assets” are not well supported by the legal framework. The collateral issue is a bigger challenge for service businesses, as they have fewer hard assets to pledge.

Until the business is proven, a loan should nearly always have collateral. If it doesn’t come from the business, the bank should look to personal assets.

Keep in mind that, in evaluating the five C’s of credit, lenders don’t give equal weight to each area.

Lenders are cautious, and one weak area could offset all the other strengths. For example, if the industry is sensitive to economic swings, the company may have difficulty getting a loan during an economic downturn — even if all other factors are strong. And if the owner is not perceived as a person of character and integrity, there’s little likelihood he or she will receive a loan, no matter how good the financial statements may be.

Lenders evaluate the company as a total package, which is often more than the sum of the parts. The biggest element, however, will always be the owner.