Need Suggestions for Backing Out of L/O Contract, Please....(long) - Posted by Tim Randle

Real Estate Investing
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Posted by Bud Branstetter on December 17, 1999 at 18:21:43:

Tim,

A our last AIREO “study group” with a local attorney we discussed the disclosure situation regarding contract for deeds and L/O. Since the code requires the disclosure a T/B could make a claim for all his money back since there was not disclosure. Of course, the counter claim would be fair market rent. But that does not address any down or credits. Therefore on any existing contract it would be prudent to get a disclosure signed as of the date they took possession. A buyer has up to seven days after the disclosure to void the contract. Can you imagine a buyer waiting years to close then voiding the contract because some defect has developed.

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Need Suggestions for Backing Out of L/O Contract, Please…(long) - Posted by Tim Randle

Posted by Tim Randle on December 16, 1999 at 17:08:12:

I won’t give all the gory details, but here’s the meat. I have an L/O agreement with a seller and have been trying to sell, lease option, or just lease this place for months. I gave myself 8 weeks before my payments started and don’t fully understand why I’ve been unable to at least rent the place.

I finally found someone very interested in purchasing with enough margin for me to recover my costs and just get out. Turns out the prospective buyer has a friend in the complex and one thing leads to another and, lo and behold, the entire complex has serious foundation problems and past repairs. Engineer letters make it pretty clear foundation movement will continue and that I will never be able to sell this place.

Owner faxed me a copy of her seller disclosure from her previous attempts to sell this summer. After reading, I respond that I never would have made this agreement had I been aware of this problem - the deal wasn’t that great, anyway. Owner has been very upfront with me and I don’t think this omission was intentional - I had asked about repairs, etc. at our initial meeting. She never offered this disclosure and I never asked for it.

Counting prior payments, ads, and minor repairs, I’m now into the property for about $2,500. So, here’s my questions:

Should I just cut my losses and tell the owner I will not make any more payments?

Should I leave my affidavit of agreement recorded and hope that someday the property sells and I can recover my costs?

Does that lack of disclosure allow me to break my contract with the owner? (I used a slightly modified LeGrand contract, and can not find any clause that would address this other than “Breach by T/B”)

Suggestions are very appreciated as I would like to have this conversation (and whatever written confirmations are necessary) done by this weekend. Thanks…

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Re: Need Suggestions for Backing Out of L/O Contract, Please…(long) - Posted by Thom

Posted by Thom on December 17, 1999 at 09:25:22:

Yes, the seller should have disclosed, but you’re the professional here, why didn’t you know? Did you have it inspected?

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Re: Need Suggestions for Backing Out of L/O Contract, Please…(long) - Posted by JPiper

Posted by JPiper on December 16, 1999 at 18:47:51:

My opinion is that this is lack of disclosure of a material fact…a fact that should have been disclosed in writing in all probability. The fact that it wasn’t is probably fraud…and would be grounds to terminate the contract at a minimum, get your money back, and perhaps some other damages as well.

Talk to an attorney…I’m sure they can fill you in. The problem is that an attorney may well cost more than you have to gain. And what lengths you wish to go to are another question as well.

Whatever you do should be done formally, in writing, not verbally.

By the way, who’s to say that there isn’t an opportunity here in this complex? Why don’t you look for it?

JPiper

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Re: “Nice” seller has selective memory - Posted by chris

Posted by chris on December 16, 1999 at 17:57:19:

I believe it is fairly standard practice throughout the country that the seller has a duty whether selling through a broker or as FSBO to notify a prospective buyer of any known defects. You may want to check with an atty on this. Just because it is not in the agreement does not mean you are stuck. If the seller was not aware of any problems to begin with that would be a different story.

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Re: Need Suggestions for Backing Out of L/O Contract, Please…(long) - Posted by Bud Branstetter

Posted by Bud Branstetter on December 16, 1999 at 17:46:11:

Texas property code requires disclosure and within the allowed time frame after the written disclosure the(any) contract can be voided. Your problem is getting your investment back. Maybe a subject to deal. How much do you want to spend in court to try and get your money back.

If there is a condo assoc. they may be responsible for repairs. Different ways of handling that problem.

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Re: Need Suggestions for Backing Out of L/O Contract, Please…(long) - Posted by Tim Randle

Posted by Tim Randle on December 17, 1999 at 09:55:16:

Thom,
As I stated in my prior post, I didn’t think to ask for the disclosure since I wasn’t purchasing immediately. I assure you that item has been added to my L/O checklist. I did verbally inquire at least twice as to any repairs and/or problems with the property and the foundation problems were not discussed at that time.

Again, since this was a L/O, I did not really consider having an inspection done. Do you do that on all your deals regardless? I think that may not be a bad idea at all. I’m just learning as I go, trying to keep my word and trying to find solutions that work for all involved.

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Re: Need Suggestions for Backing Out of L/O Contract, Please…(long) - Posted by Tim Randle

Posted by Tim Randle on December 16, 1999 at 22:57:41:

So, I’ve read and reread the “opportunity” theory in your last paragraph. I’m still in the sandbox, I’ve given my shovel (but not my bucket) away, and you suggest I go check out the entire playground to see if I can have more fun. Interesting.

I haven’t been outside long and my eyes haven’t adjusted to the light. I can’t see past the two plus million they spent last time to temporarily repair the foundations, parking lots, amenities, exteriors, etc. on these fifteen buildings. With no structural warranties and the engineer’s promise this shifting will continue to occur, I just want my shovel back, but I would probably accept recess tomorrow.

Having not experienced the 7th, 8th, or 9th, etc. digit in a deal, I have limiting beliefs. In the future, whenever the numerous ways I could have worked this finally surface, I’ll try and remember to share it with you. Of course, if you’ve already deducted the possibilities with the limited information I provided, please share. Thanks…

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Re: Need Suggestions for Backing Out of L/O Contract, Please…(long) - Posted by Tim Randle

Posted by Tim Randle on December 16, 1999 at 22:37:29:

Bud,
I don’t suppose you would know off the top of your head what that “time frame” is and whether or not there are any strange nuances related to a L/O? I’m going to make several calls tomorrow, but it would be nice to know what I’m up against, especially considering the holidays. Thanks…

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Yes… - Posted by thom

Posted by thom on December 17, 1999 at 10:16:49:

Not meaning to preach, but always cover your Assets and other things. Treat every deal like it’s a purchase and have everything in writing, even notes on phone conversations. If it’s not in writing, it didn’t happen. Thom