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Leasehold Interest Related Questions

A leasehold interest is a claim or a right to the exclusive possession and use of a property or asset for a specified period as stated in a written lease. A long-term lease interest is looked upon as a valuable asset, in its own right, that can be traded or mortgaged as a physical asset.

Listed below are a few questions answered by real estate lawyers on leasehold interest related issues.

What is meant by “leasehold interest"?

More Details: I thought I was buying a property in Baltimore with a balloon note. Six months later, I have a deed and paper that says; "Witnesseth; that in consideration of the sum of $49,000 (the purchase price), the said party of the first part does grant and assign to the said Valued Properties (me) as it's successors and/or assigns, the leasehold interest in all that piece or parcel of land situated in Baltimore City, Maryland and described as follows, to wit".

A leasehold interest simply means that this interest you are purchasing is the right to a lease. What you probably have is a house that sits on land that is owned by someone else that is being leased from the land owner. You would need to find out from the title company the exact nature of the title you are getting. From what you have said it doesn’t seem like you are buying a fee simple title which is probably what you want.

In Pennsylvania, do both owners of a property have to sign a residential lease?

They would have to. If they don’t, the tenant will not get a 100% leasehold interest in the property. Instead, he/she will only have a 50% leasehold interest in the property.

I want to buy a tax deed sale at the county tax deed sale auction in Orange County, Florida. If I am the winning bidder, would I be responsible for the liens on the property? Can I also get immediate possession of the place even if there are tenants?

A tax deed sale should remove any mortgage liens on the property but you should still be responsible for any unpaid municipal utilities. You would probably need to legally evict the tenants, but if they have a leasehold interest, it would be wiped out by a tax deed sale.

I rented a lot to a person without a lease, who in turn rented it out to someone else with a mobile home. I now want to move back and put a mobile home on the lot. The renter has informed me that he has already signed a year’s lease with the HUD. Could he have done this without the property owner's knowledge?

To begin with, you need to understand that this person has successfully managed to scam HUD.

A renter who does not possess a property title, or does not have the permission of the property owner to act on his/her behalf, is not allowed to sign any kind of property agreement that will legally bind the rightful owner or the property to it. This person may have entered into a lease agreement with HUD but he can only offer what he legally has a right to. Based on the facts of this case, he has no right to a legal claim over the property and therefore cannot convey any leasehold interest to th HUD. Also, he didn’t sign a lease with the owner so there would be no question of a leasehold interest arising without having something in writing.

You should get in touch with HUD and find out the name of the person at the HUD office who worked with your renter on the lease. Once you get this information, let him/her know immediately that you have rights over the property as the rightful owner and not the renter he/she was dealing with. Also, inform them it has just come to your notice that a lease for your property has been signed with HUD, without your knowledge, and no one other than you has the authority to do this. Therefore, you cannot be bound to any lease agreement that has been made.

You also need to make it clear that the renter is a scam artist, he had no right to give HUD anything he had no claim over, and all payments to this renter should immediately be stopped by HUD.

Put all this information into a letter to be sent by certified mail and request a return receipt. Also, have a copy of the letter sent by regular mail and save a copy for your files. Add your contact details in the letter and request HUD to contact you within ten days of having received the letter so you can decide the best way of handling your renter and discuss the next steps together.

Finally, also write to your renter and ask him to cease and desist holding himself out as the rightful owner of the property. Demand that all the money received from HUD be paid to you, failing which you will sue him in Small Claims Court.

For investors who are cash flow sensitive, buying leasehold interests can be a smart way to invest in real estate. Once you buy a long-term lease, you get control of the land and can rent it out to a third person at a profit. Although a part of your rent will go to the owner, you still receive a cash return that is twenty to thirty percent higher than that of a property owned the traditional way.
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