Deal Killers? - Posted by Tommy T

import · May 17, 2007, 11:40am

Posted by Frank Chin on May 22, 2007 at 10:08:18:

Tommy:

Having read your other responses, another thought came to mind.

I have aged parents, and a good friend of mine with an aged uncle, each of us having recommended “estate attornies” to do estate planning, and as they had investment real estate, and businesses, the “estate” attorney often gets involved in decisions on those as well.

If it’s an older guy, someone not in the best of health, have lots of other assets, making top dollar may not be the highest priority, and the emphasis may involve “estate planning”.

My friend’s uncle owned a gas station, and when he was in his mid 50’s, thought the best thing to maximize on his investment was to do a long term lease with a major oil company rather than selling outright. In theory he just sits back and collects the rent, and the value of the land goes up in the meantime.

In practice, the oil company completely reconstructed the place, and with widening of the state road in front, it turned out not to be a “go to sleep” investment. His approval was needed on a wide range of issues, and when it was happening, some years later, he had alzheimers, in a nursing home, and his nephew, my friend did all the running around with a “power of attorney”. He since passed away.

So whenever a developer wanted to partner with my dad, no down, to develop his commercial property he ownes, where it’s zoned for a high rise, I always console him not to be that to “get more”, but sell it conservatively, since someone getting around in a walker, and in and out of nursing homes may be better off taking less, and just “get out”. Partnering with others, selling on terms, while making him a few dollars more, would entail his involved with others way into the future.

In other words, I can’t picture him at 95 years of age, chasing some guy for a note payment, on a walker, (and I have to drive him around) on some creative deal, where he a few dollars more on the deal. Just get a few dollars less NOW, cash!!

If you plan to sit down with this guy, or his attorney, keep in mind that he and his attorney may have priorities other than this one investment.

Frank Chin

import · May 17, 2007, 11:40am

Deal Killers? - Posted by Tommy T

Posted by Tommy T on May 17, 2007 at 11:40:36:

Suppose your seller takes the Purchase and Sale agreement to be reviewed by
his/her atty., and the attorney goes beyond advising on legal points of the
contract, and says, “this is a great deal, you should grab it”, or, “this is not a
good deal, run like heck”. Has the attorney overstepped his bounds, and has
he now opened himself up for an action against him if your seller does the
deal and loses money, or doesn’t do the deal, and sees another buyer take
the deal and make a huge profit (hey, you told me not to do this, and I just
saw some else do it and make a fortune, so you were wrong and now you owe
me)? Is it improper for an attorney to give this kind of advise?

I am finding that my buyers are getting ‘investment advice’ from their
attorneys, who are killing what would be great deals for all concerned. (Note
for those that are wondering, I have 29 years REI experience and know a great
deal from a bad one). I understand that a prudent attorney will always tell a
client not to do the deal (unless it’s a conventional all certified funds to seller
at close) as a standard CYA procedure… but how does one prevent the
attorney from scaring the socks off the seller and killing the deal?? Is there
any leverage we might have, a tactic, anything?

import · May 19, 2007, 10:17am

Re: Deal Killers? - Posted by Natalie-VA

Posted by Natalie-VA on May 19, 2007 at 10:17:14:

Tommy,

Is it possible to express your concern to the seller that he may not be getting the best advice? Try to respectfully tell him that you’re not sure that his attorney understands the deal and that could be swaying him. Maybe he’ll consider getting a second opinion.

It’s worth a try.

–Natalie

import · May 18, 2007, 12:37pm

Re: Deal Killers? - Posted by Frank Chin

Posted by Frank Chin on May 18, 2007 at 12:37:27:

Tommy:

I partnered up with a Real Estate Agent who marketed his services through attornies. We had an interesting discussion on “buyer” attornies once.

We were looking to sell low end houses we rehabbed to mostly first time buyers. These are usually young folks with little experience in Real Estate.

My partner’s view was it’s nice to have the attorney in your back pocket. He noted that the agent represents the seller usually, and buyers often look to their attorney for assurance they’re not being ripped off.

In my area, there are attornies that do nothing but RE closings, day in and day out, and generally very knowledgable of local practices and prices. It seems that if a seller comes along with a price, term, or condition out of line with the area, he would know.

So if an innocent young couple, first time buyers, offers 250K for a house, and the attorney just closed on an exact house down the block, better condition, for $200K, should he just keep his mouth shut for fear of “offering financial advice”, and killing a perfectly great deal for an investor??

My partner said inexpereinced buyers often seek assurances, and attornies find it hard to say “I can’t comment on if it’s a good deal”. I know in the purchase of my first home, and if an attorney said “I can’t comment on this or that…”, I probably figure I’ll need another attorney.

Frank Chin

import · May 18, 2007, 10:58am

Another perspective - Posted by Rick, the Probate Guy

Posted by Rick, the Probate Guy on May 18, 2007 at 10:58:27:

I agree with you. However, it’s pretty hard to step around the problem that you describe. Mind you, 96% of my deals come FROM attorneys.

As for trying to influence the attorney, I think that you’re darned if you do and darned if you don’t. You just happen to be on the wrong side of the team.

Maybe you ought to reconsider either your market niche or your business model, that is, if this problem is too persistent.

Consider focusing of sellers who are less sophisticated, have fewer resources, and are less likely to consult with legal counsel before doing a deal with you (not that you’re trying to hide anything, either).

Or, as my business model has been for 17 years now (I changed it in 1990 - after 12 frustrating years) I find ways to insert myself into situation which the attorneys contact me and ask me my advise and let me pick and chose which cases to work on and make transactions. What a difference being on the same side of the desk makes.

Sorry if I don’t have a better idea on how to counter attorneys meddling. Most of the time that I have an attorney who intereferes, it’s either because they have control issues, insecure, are baby attorneys or possess limited skills. And you and I can’t fix that very well, can we.

import · May 18, 2007, 7:34am

Don’t Worry About Lawyers - Posted by Jimmy

Posted by Jimmy on May 18, 2007 at 07:34:37:

how do you know what the attorney said to his client? Did you talk to the attorney? Or did you get a report from the buyer that “the atty told me…”
YOU have no recourse against the atty, because you have no relationship with the atty.
if the atty truly recommended a deal, and the deal loses money, the buyer/client could sue. for malpractice, I suppose. if the atty brought the deal to the client, or if the atty was the seller, its an easier case. otherwise, its an evidentiary headache. client will say “lawyer told me this was a great deal.” lawyer will say “that’s not how this went down. I simply told client is looked like a good opportunity” nothing in writing to substantiate or disprove anything.
In my 20+ years of practice, my best clients viewed me as more than a tax lawyer. I was a business advisor on a wide range of issues, legal and otherwise. and sometimes, they would ask me for my opinion about investments (real estate, life insurance, investment advisors, etc.). I killed deals for a number of reasons. If I did not trust the person bringing the deal, I killed it. If the deal seemed overpriced, I killed it. I killed what would have been good deals BECAUSE THEY WERE INNAPROPRIATE for the particular client at the particular time.
and I particularly disliked pushy / arrogant / brokerish people. I enjoyed helping clients get into deals with the assistance of more profssional advisors (handpicked by me, of course) while bypassing the greedy turds. and I always let these folks know what I was doing, and precisely why I was doing it. Rubbing noses in the dirt was a fringe benefit of my practice.

import · May 19, 2007, 2:08pm

Re: Deal Killers? - Posted by Tommy T

Posted by Tommy T on May 19, 2007 at 14:08:44:

Good points. Based on the quotes of the atty. comments from the
seller, I told the seller it was apparent that the attorney did not
understand the offer, and I made my best shot at explaining to the
seller that the attorney is in a position whereby his potential liability
and prudence actually prevent him from being able to recommend ANY
deal that doesn’t have “slam-dunk, zero risk” written all over it… the
atty. understandably has to be careful. I also have to be careful not to
insult the seller and their choice of counsel, of course, so I had to
choose my words carefully. I’m up against the seller’s last
statement, " I need to have a contract that my lawyer will ok," and I
don’t see the atty. giving his OK without some sort of challenge.

I am going to go with your idea of recommending a second opinion,
and also I’m thinking of requesting a conference with seller and seller’s
atty., and I’ll bring my atty. and a couple associates, and see how the
atty. backs up his “run like hell from this deal” position, when (politely,
of course) challenged face-to-face to defend his position, point by
point (if he actually has any) if that’s what it takes. Could be fun, we
pull out a tape recorder and legal pads, ask pointed questions, and
take notes furiously. Maybe he’ll be more thoughtful.
He’s not the one losing over a million dollars from following his
opinion, his client is.
To add insult to injury, the attorney charged the seller $500 for this
bad opinion.

BTW, thanks to all for the great response!

import · May 18, 2007, 12:03pm

Re: Another perspective - Posted by Tommy T

Posted by Tommy T on May 18, 2007 at 12:03:31:

Thanks Rick. I’ve always done most of what you recommend, but that
was on SFH deals. Most of the time the sellers didn’t even feel a need
to run it by their attorney. But, this one is a commercial deal. The
particular deal on the table that I don’t want to lose is a multi-million
dollar development project. Seller will be able to retire after this and is
understandably being cautious. We spent a lot of time negotiating and
had reached an agreement we were all very happy with. I don’t have a
problem with seller’s having attorneys review docs to see if it’s illegal,
immoral or fattening, but from my side of the table, I think the
attorney, unless he is an experienced active investor himself, is out of
bounds to flat-out tell the seller they should or shouldn’t do the deal .

If this seller follows the attorneys advice, seller will go with a more
traditional offer that’s on the table and may or may not ever close, and
will end up with 1.4 million less than my offer (involves some seller
financing, nothing unusual, atty. doesn’t like/understand it I think).
Frustrating, the power the attorney has to blow a deal, just to make
sure he has no liability.

I could try for a face to face meeting with their attorney to discuss this,
but that seems like the waste of a perfectly good afternoon, LOL.

import · May 18, 2007, 12:30pm

Re: Don’t Worry About Lawyers - Posted by Tommy T

Posted by Tommy T on May 18, 2007 at 12:30:08:

Did not get to talk with the attorney. Seller was very happy with the
deal, pre-attorney, and planning on delivering signed docs to me
immediately after atty. “review”. I could try to arrange a conference
with seller and their attorney, but I’d just as soon go have a double
root canal… may have to go for it, this is a commercial development
project that will net seven figures.
That’s a given.

You sound like the kind of attorney the seller should have. The seller
is going to retire after this sale. I worked with a tax planner to
structure my offer to the seller’s maximum benefit. My offer was
designed to net the seller the seller, after taxes, the same amount as
they would gross, before taxes, with the next-best offer they have. In
other words, I matched their best offer and then increased it enough to
cover their taxes. In exchange, we agreed on some seller financing,
nothing unusual. Seller was considering a 1031 to defer the taxes, but
would rather have the cash for more flexibility in investing. Was a win-
win deal.