Posted by David on January 11, 1999 at 24:27:06:
A couple of years ago my wife and I bought two fixer properties in a small town. We used creative financing to buy both of them. The first property was a three level 2000 square ft. house that needed a lot of work. It needed new ext. siding, new carpet, paint, kitchen remodeling, and other cosmetic repairs. I new how to do most of these repairs and I also knew the only appraiser in the area. She went with me to the property and confirmed that the house would worth at least $65,000 after it was fixed up. I also got several comps for other properties that also confirmed the 65k selling price. After negotiating we settled on a price of $29,000 with $12,000 down (they needed this to move).
The other house was a manufactured home on three beautiful city lots. This property needed minor cosmetic work and would be worth $60-$65000 after fix-up. I also did my homework on this one. The listing price was $45,000 and after negotiating I made a deal for $30,000 with $13,000 down. Since I didn’t have the funds available I brought in an investor who put up the $25000 down payments that I needed. He was secured by a second on one property and a third on the other. The next thing I did was bring in another investor to put up the $15,000 I needed for fix-up. This person also wanted security on both properties so I gave it to him. This would mean a third pos. note and a forth pos. note. The first investor was to get a $11,000 return for his investment and the second investor agreed to a $2500 return on his $15K. The market was very good in this town and I already had people interested in buying before I closed. Now here is the stupid thing that I did. I agreed to a 6 month note to both investors. I wanted a longer time but the first investor insisted on it and the second investor wanted the same after seeing the deal I had mad with the first one. I figured that I could get the manufactured home fixed and on the market in a short time or I could refinance If I needed to. Well I did this in the late fall and right after closing my area had one of the worst winters on record. Huge amounts of snow, flooding, mud slides, everything you can think of. I couldn’t even get to the manufactured home to work on it. The roads were closed for months. I worked on the house when I could but I could’nt really get a lot done. As you experienced investors know, the 6 months flew by. The notes were due!
The first investor didn’t want any excuses , he wanted all of his money and he wanted it now($36000). The second investor was willing to work with me. Investor #1 hired an attorney and filed suit against me right away. Now, here’s another curve. The deeds of trust were filed in the wrong order. So investor #1 had a third and a fourth and Investor #2 had a 2nd and a third deed of trust (the opposite of what it was supposed to be). The closings were all done by 2 real estate attorneys. I guess one of them didn’t complete his job. So instead of just filing suit, investor #1 and his attorney put fraud charges in with the suit. They said that I did this on purpose which was definately not the case. Meanwhile, I had been pouring every dollar that I could into the properties to try and sell or refinance them. This attorney even put something on the houses where I couldn’t sell either one until investor #1 was paid. Also, they added about $10,000 worth of legal fees plus a huge amount of interest. I talked to an attorney and he told me that because they had backed me into a corner that the only way out was to file bankruptcy. I waited until the latest possible time to file bankruptcy. I was doing every thing I could possibly think of to avoid BK. I didn’t go to court to defend myself because my attorney told me I didn’t have to since I was going to file Bankruptcy. After the court date the sherriff’s office came after my possessions. I called my attorney and got the bankruptcy started. The sherriff’s office was gone but my investors were not happy. I had to file Chapter 13 because of the Fraud charges. This whole situation was not fun! It caused me, my wife and children a huge amount of stress.
In my bankruptcy papers it says that I have to get approval from my trustee before I take on any additonal debt. My attorney tells me that real estate investing is probably out. I’m 35 years old and have been studying creative real estate since I was 20. It’s in my blood. I love it! I made some mistakes, but does that mean I can’t buy real estate? It’s been about a year and 3 months since we filed bankruptcy. We will be in BK for three years total. I’ve read things on Legal Wiz about buying real estate using a land trust and or corporation / LLC. I recently helped my brother-n-law buy a printing business with real estate. He bought with no money down and pocketed over $3,000. I also showed him how to buy a 4-plex with no money down, pocket $5,000, and end up with over $500 per month positive cash flow. I then helped him refinance his business and real estate. He saved over $40,000 (the previous seller needed money and discounted his note by 50%) and put $9,000 in his pocket. He gave me $1,000 for my help. I’m doing all of this and I’m not buying any real estate. I know of deals right now that I can profit from but I don’t know what to do because of my BK. I don’t want any more legal trouble. Can anyone help me with some ideas? I’m sorry this is so long but I wanted to tell the whole story.