In a bit of trouble, sorry about length - Posted by tp

Posted by tp on September 18, 2003 at 17:05:34:

Thanks Ed, I hear where you are coming from. At this point, the seller won’t even talk to me, nor will the t/b. I think it would be best to let it go, but I just want to cover my bases as best as I can. I’ll evict and then go from there. I just don’t want to make myself any more vulnerable than I have to. Oddly enough, the t/b and the seller are best friends now, even though I have been faithfully serving the house for 2+years now and he is blowing smoke up, well you know. Anyway, what is the best walking strategy, if you get a sec?

Thanks again,

TP

In a bit of trouble, sorry about length - Posted by tp

Posted by tp on September 17, 2003 at 19:38:09:

Alright, I hope I can get some opinions on this issue. BTW, this is a sand. lease/option. My business is slowly running out of steam and due to a tenant failing to pay the rent to me, and me being out of reserve cash, I have not been able to pay the seller. The seller got the old 30 day letter from the mortgage co. and asked for the 3 payments to prevent foreclosure. After this, I got a payment from my tenant, giving me 2/3 due with 30 days to spare. I held on to the first because I wasn’t sure whether or not to pay all at once or one at a time. Anyway, so I have 2 payments and make an arrangement with the tenant to get his payment owed in time to give all three to the seller/bank to avoid any problems. Well, it turns out the seller went behind my back to the tenant, whom she thought was paying me and I blowing the money or something. Anway, she tries to arrange something with him and tell him I am out of the deal because I am behind. So he thinks he doesn’t have to pay me. Regardless, I never got that 3rd payment from him nor the one due this month. I now have a pickle on my hands as the seller says her attny. has advised her not to speak with me and the tenant now thinks he doesn’t have to return my calls even though he is behind 2 months to me. He hasn’t paid the seller anything but lip service.

I offered to stay in the middle, get his 2 months plus what I was holding on to, and to get things back to kosher. The tenant won’t budge, even though I threaten eviction, so I offer to get out of the middle if both parties agree to sign a release. They did (agree but not sign), but now have changed their mind after conspiring yet again. So now I am in the middle here, with 2 payments I don’t know what to do with and a messy situation. I don’t want to hang in the middle while they conspire and possibly sue, but I also don’t want to evict unless I have an arrangement from the seller. I am lost here and have not dealt with a situation of this sort. Any help much appreciated. My ultimate goal is for everyone to come out ok, but with the tenant’s beligerance and my sellers tricks, I am starting to think about myself. I have 2 years invested in this property, (this is my 2nd tenant in it).

Thanks,

TP

Re: In a bit of trouble, sorry about length - Posted by B.L.Renfrow

Posted by B.L.Renfrow on September 17, 2003 at 22:43:43:

Ed Copp is nothing if not blunt, but he has some very valid points. You have not followed the advice often repeated here about having adequate funds in reserve to cover payments if a tenant stops paying, if you are going to do these types of deals.

Now, given that part of the reason that advice is so often repeated is because of my experiences in the past similar to the one you’re in now, let me give you some advice from one who has stood in your shoes.

The FIRST thing you need to figure out is how to get the payments current right now. Can you borrow money? Have a garage sale? Take a part-time job? Work overtime? Sell some stock? Do you have a security deposit from your tenant you can use for one of the two unpaid payments? If so, use it.

Next, what does your agreement with the seller say? I assume it states what happens in the event of default. How you approach a solution is going to be limited by the terms to which you’re bound by the contract.

It’s going to be tougher for you now that lawyers are involved. In my situation it was a property I’d taken subject-to, then lease optioned to tenant buyers. When the private lender threatened to call the note due because of DOS violation, the T/Bers stopped paying. They felt they had me over a barrel and they were just going to wait it out, then make their own deal with the mortgagee.

I badly wanted to evict them for nonpayment. My attorney strongly advised against it. He felt they would raise all kinds of issues related to equitable interest in the property, and an eviction would turn into an expensive, protracted legal battle which he was not sure we would win.

To this day, I’m not sure whether he was right or wrong, but I eventually followed his advice and ended up deeding the property back to the lienholder – in exchange for general releases from everybody involved.

At this point, Ed is right: you are NOT in control of the situation. Your situation is a bit different from mine, so I think, from the information you’ve presented, that while you are raising the funds to pay the past-due payments, you should simultaneously begin eviction proceedings against your tenants. They are 2 or 3 payments behind, they are going behind your back causing trouble; they deserve no more chances. Get rid of them.

Who knows how a court would view it, but unless you have taken rent from the tenants and failed to pay the note, I doubt you’d have much trouble there. There aren’t too many defenses to a tenant’s nonpayment as far as a judge is concerned.

Are you at risk of being evicted yourself? Again, it goes back to the terms of your agreement with the seller and your state law.

If your relationship with the seller is beyond repair, and if you don’t have the money to cover the payments until you get a new tenant, perhaps you’d be better off to offer to void your lease and give the property back.

Also, you refer to a “tenant”, not a tenant-buyer. If this is the case, how about next time offering a lease option instead of just renting? That way you could get option money from your T/Ber to keep in reserve for future unexpected situations.

Finally, I’m not an attorney and if lawyers are involved and people are threatening to sue, I suggest you get one involved on your behalf pronto.

Do let us know how this turns out.

Brian (NY)

Re: Are you in control? - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on September 17, 2003 at 19:59:18:

Looks like not, to me.

This is your responsibility alone. Don’t get upset with the property owner who is just attempting to keep you from putting them into a foreclosure.

Evict the tenant like, yesterday. They are not going to pay you what they owe. Not now, not ever because you have allowed this. Borrow some money for legals and payments, toss them out and get this operation on track.

I have no idea what your contracts say, but I would be willing to bet that you are not living up to what you have agreed to do. Fully expect that the property owner will sue you if you harm thier credit, or cause them to have thier property foreclosed on, I know I would.

Just curious, which course did you take to achieve this slop?

Re: In a bit of trouble, sorry about length - Posted by tp

Posted by tp on September 18, 2003 at 12:58:50:

Thanks for the comments. Let me clarify a few things. My tenant is in fact a tenant/buyer. Years ago, when I took this property, I did have reserves set aside. However, the past 6 months have tapped me dry literally with evictions, attorneys, and making up payments/damages. At this point, I don’t really think the seller has an attny. I think she is just trying to blow smoke. I have told her repeatedly that I would either exit to make room for the tenant, whom she thinks can save the day (I’m not sure why or how) or evict him and work things out with her. She refuses to make a decision and just keeps saying she is going to wait on him to pay her. So obviously my message isn’t getting through to either the tenant/buyer or the seller.

I also was worried an eviction would bring up issues as far as eq. interest, but most judges I have been in front of understand this situation. I don’t even mind being evicted if that’s what the seller wants, but I refuse to sit in the middle and just let them sort things out. If I’m going to get bit, I would rather it just be from one side. The seller doesn’t care as much about the foreclosure, but she is trying to give the tenant a shot while there is one to be taken. I’ve given up talking to her until the tenant is evicted because she keeps changing things behind my back right after.

Anyway, I will keep you posted and appreciate your help.

TP

Re: Are you in control? - Posted by tp

Posted by tp on September 17, 2003 at 20:19:56:

Edd, while I appreciate the comments, I don’t appreciate you thinking I designed this mess. Of course I defaulted on my agreement, I’m not ashamed to admit that. However, I haven’t evicted the tenant because if I did that the seller would lose out on the tenant they are now hoping to keep, inviting more legal action. I’m not mad at the owner, although she has said she doesn’t care about her credit or the house so much, but that she just wants the best option possible. However, if she wanted me out of the way, all she had to do was ask. She hasn’t evicted me, so as far as I cam concerned I am still in control on both sides. Every time I work something out, they go behind my back. Eviction is my only option, I just wanted to leave the seller with something.

Lastly, again thanks for the comments, but I took your course.

Re: In a bit of trouble, sorry about length - Posted by B.L.Renfrow

Posted by B.L.Renfrow on September 20, 2003 at 18:02:01:

Believe me, I certainly understand how, despite the best intentions, the reserves can disappear quickly when one can least afford it.

I think if I were in your shoes right now, I’d proceed ASAP with the eviction while trying to raise the funds to bring the payments current and cover the expenses until you can get a new T/Ber. If that just won’t cut it, you may have to cut your losses and bail, while doing everything in your power to cover the amount due the seller up until the point you give the property back.

Hopefully, you will be able to raise the cash one way or another, get the defaulted T/Ber out quickly and get another one in.

Brian (NY)

Re: Are you in control? - Posted by rm

Posted by rm on September 18, 2003 at 06:53:12:

Have you tried actually asking her what she wants?

You might actually be pleasantly surprised that her demands are less than you have assumed.

Have you asked her what, specifically, she means? How would she describe the best solution possible?

Then, do what you can to make that happen.

Re: Wrong again - Posted by Ed Copp

Posted by Ed Copp on September 17, 2003 at 21:05:06:

You did design this mess. It is your mess, alone. You can learn how to fix it if you want to, or not. Your choice.

My coures? I really do not know what you mean by that remark, since I have no course.

I do have a lot of experience on such things as:
Negative cash flow (not all bad).
Being too cheap (or broke) to run a credit check.
Taking part payments on rent.
Taking BS, stories in place of part rent payments.
Working my backside off for long periods of time on situations that are out of control.
And a few other things that are not easily described.

Point is this it is your mess, you can take control and fix it completely, or not. It is your choice.

I tried, it didn’t work… - Posted by tp

Posted by tp on September 18, 2003 at 17:02:08:

she won’t even talk to me anymore. She has become so deluded that I think there is no longer a shot to work something out.

Re: Wrong again - Posted by tp

Posted by tp on September 17, 2003 at 21:18:56:

Edd, I didn’t design it, but did let it happen. The only reason I am so defensive is because 2 years ago this never would have happened, but the past 6 months have been he!! for me. I didn’t have any other choice. I am borrowed out, broke, etc. But I do understand where you are coming from in regards to letting this happen. I just kept trying to figure it out, to no avail. Anyway, if I get what you are saying, its that I have broken my link with the seller and my tenant with me. I have no doubt my tenant is trying to get his best deal possible (he is trying to get his deposit back) and my seller is trying to keep her house. To fix this, I need to evict the tenant, whether the seller cares or not. I agree that no matter what she thinks he won’t have the money, if he did he wouldn’t be making excuses. Normally, with this guy, we were pretty good on working through late payments, however its obviously out of hand now. So I evict him and race the clock to keep my seller from evicting me and in the process get the money or place another tenant. Is that what you are saying? I know I need to step up and fix it, I’m just trying to make sure I don’t do all this and somehow end up with no leg to stand on. I didn’t know how a judge would view this whole thing, both from me/seller and me/tenant. Do I have it right?

Thanks,

TP

Re: Excuse me if - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on September 18, 2003 at 15:40:52:

I seem blunt. This matter is a particular sore spot for me. I have been where you are far too many times for one lifetime. There is a way to keep it from happening again. Unfortunately the way to accomplish this is an expensive lesson to learn. Call it a massive seminar if you like.

If you wake up in the middle of the night you should not be thinking of business automatically. If you should happen to think of your simple sandwich lease as business it should bring a slight grin, or a little chuckle. If it causes concern then it needs fixed.

In your situation you still have “walk away power”. You most likely can just walk away and get by with it.

I do not know if there is a good profit potential or not. Sometimes there is very good potential. This is useless if we can not hold on. So here is one way to hold on. Do not do it unless the deal is profitable, and do not allow th current tenant to use up the profits.

Since you are borrowed out, you need a non traditional source for money. I would do this. First find the money, and then take title to the property from the owner, now. Bring everything current. Kick the tenant out, ASAP. Take title in a partnership, or a land trust. Keep about a half interest for yourself and sell the other half interest to the person who puts up the money.

Often the money is available but we do not know how to ask for it. The person that you get the money from needs to be in an upper tax paying situation, and paying taxes. You can assign all the tax benefits to the other person, such as interest expense, depriciation, legal fees, and etc. This will make the deal more attractive to this non traditional investor.
If he is paying lets say $5,000 in taxes, then why not buy half of your deal and get the tax deducts as a bonus, plus a profit down the road to boot.

The trick is to find the lender, most of us never look because we do not know how or where, but there is a solution. It is really good that you are borrowed out, because you can now let someone else share this excitement with you.

The situation may be negative as far as cash flow is concerned, for a time. It is appropriate to do it this way if there are other benefits, and there is a profit in the future.

If the deal is really too skinny, or just outright hateful you can most likely walk away without too much problem. If there is a way to involve a partner now, and get some of your expense money back now, that would be better I would think.

Look for money where you think there is none. You will find plenty as soon as you learn to identify it.