Legal Question in Real Estate Law in California

I am an investor. I was just recently notified I need a business license to rent property and they went back three years. I was not aware that I needed a business license. I have taken a huge loss and I have always had trouble getting tenants to pay. I invested in the wrong area at the wrong time and I am at peace with that. My question is why the lender does not tell you at the time of purchase that a business license is required. Also, I thought if a business is a loss for five years then it is considered a hobby. My note has always been more than the rent so I have never once made a profit and the tenants tear up and I had three evictions last year alone. I want to know should lenders let you know up front about the license. That might have made me think twice.


Asked on 8/06/10, 11:51 am

1 Answer from Attorneys

Did you buy REO from a lender? Only if it was property that the lender took back at foreclosure and then sold to you would a lender have any obligation to tell you ANYTHING about the property. Even then they would have no obligation to tell you anything about what business licenses you might need. The seller of property only has to disclose things about the condition of the property. The lender on your loan to buy the property only has to disclose all relevant information about the loan transaction; they don't have any duty to tell you anything about the property except the appraisal. It's up to you to make your own inquiries and decisions about taxes and licenses for a business. Also, a business run at a loss for five years is only a hobby for income tax purposes, meaning you can't keep operating at a loss and then deducting that loss from other income indefinitely. It doesn't mean it's not a business for local licensing requirements.

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Answered on 8/11/10, 12:09 pm


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