Posted by GregMeade on August 01, 2009 at 07:35:46:
The Peon really is NOT a peon but actually two very fine people that I know and respect. What a mess.
Anne, they say hindsight is 20/20 but I can’t think how ANYONE could have seen this coming…ever. I have had business dealings with all of the folks here and a handshake was all I needed especially from the Pawn. This is almost beyond belief. Millions of dollars are involved here…many, many millions. I predict it will end badly.
Greg Meade
Fractured Fairytale (What Seminars Don’t Tell You) - Posted by Peon
Posted by Peon on July 16, 2009 at 16:33:43:
This is the first of two stories, posted to give others
insight in deals gone wrong. Some of the parties in
this deal are well-known to the mobile home community,
and many of you already know the story.
The King, The Pawn, and the Peon
The Peon was approached to enter this deal. The
property was already owned by the King (major money
partner) and the Pawn (minor money partner), but they
desired a knowledgeable tried-and-true partner to run
the enterprise. The Peon was wooed with promises of
gold at the end of the rainbow: the rainbow was
projected to last for ten years before the gold
was reached.
The Peon entered into two LLC agreements with the King
and the Pawn, remitting an equal amount of membership
money as each of his two partners. Each member owned
1/3 of each company. One company was a management
company, created to run the project and the other was a
financing company to finance the end-buyer. The Peon
was also to have an option on the property itself - the
gold. The property was already owned by an LLC with
the King and the Pawn as members.
The Peon left his current project, which he owned most
of, with a Manager. He moved to another state and
dedicated his life to the new project with the King and
the Pawn. He agreed to take only a small management
fee for his efforts, knowing that his sweat was giving
him and his children a great future. The current
management fee was much smaller than the amount of
money coming into the household from other current
sources, but the promised gold made the current lower
lifestyle palatable, if not necessarily comfortable.
There were many facets to this project: homes needed
to be purchased and brought in and then refurbished for
sale, homes that had come with the property also needed
(in most cases) major refurbishment as well. Several
employees were needed for this portion of the project,
so employee management was required. (At least one
problematic employee was inherited by the Peon.) The
property was very large, and had between 100 and 200
tenants, so day-to-day park management was required of
the Peon as well. That obviously included collecting
money, giving tenants notices when necessary, as well
as occasional court appearances. Permits and titles
needed to be applied for, and rehab materials purchased
for the project. Also included was keeping track
of all financial matters on a daily basis, up-to and
including year-end meetings with the CPA and providing
the King and the Pawn with proper income tax
documentation. Sales were also necessary, so the Peon
showed homes on a regular basis and sold an impressive
amount. Some of the current renters moved from their
rental home into a home of their own, giving them an
opportunity to participate in the American Dream, but
as a consequence the homes they had been in were added
to the list of homes needing refurbishment.
Lo and behold, after many months a few small issues
arose, and the Peon took his nose from the grindstone
long enough to realize that no option agreement had yet
been completed. The King and the Pawn were scheduled
for a visit to the property, and the Peon made them
both aware that an agreement must be put in place
during this visit. The King, however, had other ideas!
The King had decided that due to economic conditions
the property was not currently worth what it had been.
He also decided that he wanted to change directions:
instead of continuing with the current high standards,
his stated intention was to bring in 100 lower-priced
homes and a Contractor, who would refurbish those
homes. He believed that each home could be
sufficiently refurbished by two men each week. He
stated to the Peon that he would give said homes away,
if necessary, although his preference was to make money
with them.
So, against the stated wishes of the Pawn and the Peon,
the King erased the rainbow and told the Peon to leave.
He hired a manager to handle the day-to-day operation
and sales. He required the Pawn to become more
personally involved in the project than had previously
been agreed, and he was caused to take over some of the
duties previously performed by the Peon. The King
stated that unless the Pawn went along with his decree,
he would sell the property and take the loss (since he
could well afford to do so.) The Pawn could not afford
to take this loss, so had no choice but to do as the
King wished. The Peon was sent on his way with only his
personal property after investing almost a year of his
life for a small amount of money. Since there had never
been an agreement consummated for the option agreement
or a buy-out clause, he became the odd man out.
The Peon (and the Pawn, for that matter) needed better
control of this deal. The King, after learning what a
turnaround project is, was unwilling to spend the mount
of time and money it takes to complete the project,
even with a line of credit in place. He wanted
immediate gratification. Even though the Peon and the
Pawn together owned 2/3 of the management company, the
King held control by being the major partner in the LLC
that owned the property. Since the option agreement
had never been firmed up, the Peon will never reach the
gold. It remains to be seen in the Pawn will. The
moral of this story is that ALL agreements should have
been in effect immediately.
Thanks…from a newbie - Posted by Keith Cag.
Posted by Keith Cag. on August 13, 2009 at 24:54:07:
lesson learned…the hard way it seems. I would hope that it is turned into a stepping stone. But thanks for posting this as a warning to newbies (like me)…although I’ve learned this lesson the hard way already. Point is indeed taken…
Shows need for 3 lawyers - Posted by John Merchant
Posted by John Merchant on July 23, 2009 at 21:56:11:
As Shawn says correctly, most p’ships fail and few indeed succeed, especially the oral. unwritten & those not well done by experienced biz lawyers.
While litigation lawyers love oral and informal p’ships gone bad as they furnish lots of practice fodder and legal fees, most such could probably have been avoided by some straight talk upfront with the biz lawyers and a hard look at what ugly consequences and contingencies might arise in future.
Oh, I well know that nobody wants to address such negatives upfront with such “nice guys” (you think so now?) such as the Big Ds…death, divorce, dishonesty, disabilities, disenchantment, depression (e.g.current financial recession) etc., these are all things that should have been looked at and addressed head-on upfront.
Although lawyers are quite commonly called deal killers, isn’t an early death preferable to a slow tortured and expensive one such as this example?
Attention Newbies! - Posted by Shawn Sisco
Posted by Shawn Sisco on July 17, 2009 at 08:49:31:
Folks,(espicially newbies) the names of the parties involved have been scrubbed so as to avoid legal action being taken against them. These are posters to this forum that have made many contributions to this community for many years, these are no rookies. I should also add that neither struck me as being naïve, or likely to be manipulated. In my conversations, I have found them to be diligent, effective and hard-working entrepreneurs.
And yet they will have spent much time on turn-around projects never to realize any financial gain for their efforts. Their time devoted to these failed partnerships could have created/ grown/improved the performance of their other endeavors. Partnerships are treacherous, on many levels. I heard Dave Ramsey suggest that before entering into a business partnership, one should consider how they will handle the following challenges of partnerships; Death, Disability, Disinterest, Divorce, Dishonesty. Exactly how much the other party pays on what day upon partnership being disolved should be spelled out as plain as day. If both parties can not go into a partnership from day one and be made whole at any point for the pitfalls associated with these issues ? the partnership is a no go. The reason for all these contingencies is simple ? MOST PARTNERSHIPS FAIL!
I realize this commentary flies in the face of much that is written about partnering a creative real estate deal and some may say that partnering without making provisions for worst case scenarios is just ?the chance they?ll have to take.? To that I would add that avoiding costly mistakes is a key to prosperity, and since so many partnerships result in costly mistakes for members of partnerships, most partnerships should be avoided.
(What Seminars Don’t Tell You) - Posted by Anne_nd
Posted by Anne_nd on July 17, 2009 at 07:57:06:
You know, while it’s popular to espouse the opinion that a good education isn’t needed to get rich or to do well is this business, I’ve heard enough stories of this ilk to make me realize that a good education in business or business practices is a HUGE help if not absolutely necessary to long term success. Or a lot of luck.
I’ve had great mentors, and very good luck, but even though I have about as much education as a human being can get, I lack much in the way of business education. Someone with a classic business degree would have acknowledged the personal relationships involved, and said “no offense, but we sign the contracts TODAY”
I know, or suspect, that all the principals involved here are college educated, so this isn’t about smarts, but rather about adhering to a strictly business practice where money of this magnitude is involved. It makes me think of Donald Trump’s mantra: It isn’t personal, it’s business.
The other thing that stands out to me is that the self-described Peon is anything but a Peon- he was treated like one by the Pawn (through negligence) and the King (through active agency), but as the only partner who really knew how to run the deal, he’s really the most important part of the trio. Over and over again I’ve seen people lose control of deals because they think of themselves as the peon, rather than the keystone who is holding the deal together. We should all value our contributions and not be afraid to demand our proper remuneration and respect. In other words, be careful of how you describe yourself. Peons never get rich. Mentally, you have to call yourself something else: a prince-in-waiting, perhaps.
princess-in-waiting,
Anne
And let me be clear, these are lessons I need to learn and practice too.
Re: Attention Newbies! - Posted by osupsycho (OK)
Posted by osupsycho (OK) on July 27, 2009 at 13:42:43:
I had not heard it put this way but I like it:
Death, Disability, Disinterest, Divorce, Dishonesty
That basically covers things. The one that gets me is Dishonesty. Anyone have any suggestions on ways to build in something to resolve this challenge (barring legal action that is)?
No I must remember to keep these 5 D’s in mind for the future…
Jad