Posted by Jim Locker on December 19, 2000 at 11:16:50:
When I read your original post, my first thought was that you were thoroughly f*****.
I am glad to hear that you have a buyer that is so willing to be flexible. Although you are unlikely to make any money off this buyer, at least you will get out with your skin (nearly) whole.
And, some of the other responses to your original post have some good ideas in them to keep this from happening again.
L/O Seller in foreclosure - Posted by Becky
Posted by Becky on December 18, 2000 at 22:38:13:
Please advise!! I did a sandwich lease. I have a tenant/buyer who has leased the house for a year and wants to close. Each month I send the owner the payment. The owner quit making the payment and foreclosure on the house has begun. Additionally, the owner went and refinanced the house for $142,000 although he had a contract with me for $109,000. The owner says he is going to file bankcruptcy, and the tenant/buyer wants to sue me. What can I do??
Thanks,
Becky
Re: L/O Seller in foreclosure - Posted by JPiper
Posted by JPiper on December 19, 2000 at 20:02:01:
Becky:
Sounds like you may have things worked out with your buyer.
But if I were you I would read ScottE’s post below carefully. In some states it’s fraud to collect rental payments and not make the mortgage payment. I would first check with my attorney to see if this is the case in your state. And while you’re talking with your attorney you might ask him if claims arising out of fraud are dischargeable in a bankruptcy. It’s possible that they may not be.
Depending on the answers to the above question I would contact this seller, and point out that he may have some jail time coming, and that perhaps this fraud situation is not able to be discharged. See if that causes him to react a little differently.
And clearly, the seller may well have breached the contract, and therefore you would have a claim in bankruptcy court.
As many of the other posts have indicated, you could have protected yourself against all of these actions. It stands as notice that you will pay for your education one way or the other…but through experience is an expensive way.
JPiper
Re: L/O Seller in foreclosure - Posted by Jim IL
Posted by Jim IL on December 19, 2000 at 19:23:35:
Becky,
I just read the entire thread here, and it is good to hear that you got your buyer to agree to the solution you posted.
Please disregard the “Stanley” type of postings, they are common here, and anywhere online, but certainly not the majority.
At any rate, in the future, make sure to C.Y.A.
You have some great suggestions below for this.
I try to get my sellers on L/O’s to allow me to either send the payments directly to the lender or use a third party, but on some occassions, they will not do this. (for whatever reason.)
Rather than run from a good deal, due to one little item the seller wants, I try to compromise.
I have one seller on a L/O that wants to “See the funds in his hand every month”, and therefore DEMANDED that I send the payments to him and no one else.
I explained my releuctance to him and we came to a solution.
I now have the info regarding the loan on file, as well as an “Authorization to release loan info” for that loan.
In addition to the contract stating that the seller cannot encumber the home above out sale price, I added something.
I am allowed with this “Auth to release” form to call the lender and “Check on the loan status” occassionally.
My change to the agreement states that in the event the seller gets 30 days late, I am then authorized to send all future payments directly to the lender for the duration of the agreement, and that the seller MUST pay the arrears within 30 days, plus any late fees, or title will pass.
I also have the deed in escrow with that one, so I feel pretty safe.
Bottom line, C.Y.A. on ALL deals, and be prepared to be creative to accomplish this as well.
We after all, “Creative” investors.
HTH,
Jim IL
Lessons learned - Posted by Bud Branstetter
Posted by Bud Branstetter on December 19, 2000 at 14:03:06:
Not to beat a dead horse but I would be interested if you had someone’s course or did you conceptually learn how to do a L/O and try to apply it. Over time the following points have been made here.
Do not trust the owner to make the payment.Have a third party collect. At least have the ability to check.
Record something-a memorandum or better a performance mortgage.
Have the title put into a land trust. Have the trust added to the insurance policy in an amount to cover your sales price.
I hope that you will let us know the cause.
Re: L/O Seller in foreclosure - Posted by ScottE
Posted by ScottE on December 19, 2000 at 12:48:16:
Becky,
How much is the house worth? What did the seller do with the money he got on the re-finance? Depending on the answers to those questions, the bankruptcy trustee (and judge) may not let the seller discharge those debts. Also, depending on the type of loan, the seller could be looking at criminal fraud for collecting mortgage (rent) payments from you and not paying his mortgage.
On another front, you could have a breach of contract claim that, again, the BK trustee/judge may not let the seller discharge. It sounds like he makes at least decent money and that could be a factor.
If there is enough equity in the house, then it may be worth fighting a bit. I sure would enlist the help of competent legal counsel right away.
Let us know what happens.
Scott
Re: L/O Seller in foreclosure - Posted by George
Posted by George on December 19, 2000 at 07:26:39:
WOW! you sure are in a pickle. There are some people like the one below who thinks he is a comic…but besides. How did you structure the L/O? Corp or personally? Also is there away to reach an agreement with the buyer? “payoff or find them another house”. I would tread slowly and get legal advice fast. Chances your tenant buyer couldn’t hire a lawyer to fight you anyway because of legal fees. And I am sure an attorney wouldn’t take it on a contengeticies basis if you do have any other assets. I would talk to your attorney it would be the best 200 bucks for right now.
Good Luck,
Keep us posted and do not let the likes of Stanley’s brilliant post keep you from posting
Re: L/O Seller in foreclosure - Posted by Stanley
Posted by Stanley on December 18, 2000 at 22:48:38:
Bend over, grab on to both ankles and smile!
This lil lesson will teach you to do things differently next go round!
Hope ya ain’t got any assets or they’re history as well!
Things won’t be a total loss. (You’ll get what the bird left on the rock)
Stanley
Re: L/O Seller in foreclosure - Posted by Becky
Posted by Becky on December 19, 2000 at 10:54:56:
George,
Thanks for your help.
Becky
Re: L/O Seller in foreclosure - Posted by Maggie
Posted by Maggie on December 19, 2000 at 09:13:15:
How do U prevent something like this from happen?
I am a Newbie interested in L/O. Which course for L/O is the most informed and the best?
Thanks
Maggie
Re: L/O Seller in foreclosure - Posted by Becky
Posted by Becky on December 19, 2000 at 10:53:50:
Stanley,
Thanks for your help. I know you will be disappointed to know the buyer settled on me finding another house for him. Of course, I wish you the very best in whatever precarious position you get in.
Becky
Re: L/O Seller in foreclosure - Posted by dewCO
Posted by dewCO on December 19, 2000 at 13:31:13:
In additiono to what Matt said, you can have the seller put the property in a trust with you as the beneficiary. You can also learn about the PACTrust which is a souped up version of an LO at
www.cal-equity.com
Re: L/O Seller in foreclosure - Posted by Matt B
Posted by Matt B on December 19, 2000 at 10:04:25:
There are a couple of ways to prevent things like this from happening. First and foremost, NEVER EVER make payment directly to the seller. Because it is usually the motivated sellers that we do deals with, that motivation can be caused by a number of things. One of which can be poor handling of finances. Always make sure to make the payment directly to the bank, and if the seller refuses that, pay through a third party escrow service.
I also always used to have the seller contact the bank and have the statement sent to me. No bank ever had a problem with that. That allowed me to monitor the principal and ensure that my payments were being credited properly.
Another way to protect your interests in the property is to record a memorandum of option against the property. While this does not specifically address the issue of the above post, it does prevent the seller from trying to get out of the contract illegally and sell the property to someone else while you are involved with it. This will cloud the title and cause the seller to have to deal with you before they are able to sell the property.
As far as taking out further loans against the property, I’m not sure. I know that the contract that I have used (Ron LeGrand’s) states that the seller is not permitted to do such a thing.
As far as good courses go, there are plenty of them offered here. I’ve yet to hear a bad thing said about any of them.