Seriously Twisted Deal - Legal Minds Unite - long - Posted by VJ
Posted by VJ on October 06, 2009 at 09:12:08:
Hi everybody? a friend of mine has asked me to take a look at a deal he’s been working on. Knowing that I’m in the “creative” side of the RE business, he’s hoping I can help him out here? but? this is one twisted deal? and the deal has some angles that are making my head swim? so I wanted to see if some of the brilliant legal minds here could lend some possible roads to explore? and thank you all in advance?
Here is the scenario:
A year ago last August, my friend was approached by a business associate who said he was selling his duplex and wanted to know if my friend would be interested in purchasing it.
Property location: Rural Alaska
Property type: Duplex
Current Property Value: approx. 400k
Agreed price: 360k
Strategy: Long-term hold (employee housing).
My friend, who is always looking for investments, and who is a “get it done” kind of guy, who has done very well for himself, was familiar with the property, and trusted the seller (since they had done lots of business together in the past), agreed to purchase the property.
The seller told my friend that there was money owed to the bank in the form of a first mortgage, which left about 200k in equity to be negotiated. The property value at that time was 360k (as previously stated).
The deal they negotiated is as follows:
Signed “Purchase Agreement” and an accompanying “promissory Note” with the following terms (“subject to” and the bank was not notified of the “sale.”) You’ll see shortly why I wish my friend had called me sooner!
At any rate, onward with the negotiated deal points:
- Earnest Money: 17k (due at signing of the “Purchase Agreement” (which he paid).
- Down payment of 100k to be wire transferred to the seller the next day (which he paid).
- Installment of 100k to be paid four months later (as principal payment directly to the mortgage company).
- Additional installment of 100k to be paid after another four months. Again, a principal payment to the mortgage company).
- A final installment of 43k to be placed into escrow to do the actual closing and transfer of title.
Okay? the deal is a bit different, but workable nonetheless? until the plot twists!
My friend overlooked checking the title for liens (the seller was a trusted associate)?so? just to be sure of things… AFTER having paid 117k, and just before making the first 100k “installment,” he went to the court house to check the books? and was blown away to learn that the house was CO-OWNED!!! Yep? the guy who “sold” the house, had his wife on the deed as well? not to mention a child support lien (5k), and an IRS lien (18k), and a judgement (4k).
The guy never even mentioned that his wife was on the deed! The guy took the money? left the state? and has made himself very difficult to locate? (monitors phone calls, ignores message, etc).
After finding all this out, my friend contacted the man’s wife, who was also blown away. Not because hubby had “sold” the property, but because he had taken off with 117k and had not given her a penny of the money (or even mentioned the “sale” to her). So? she immediately went down to the courthouse and filed an additional lien against the property in the amount of 40k! (Are you all crying yet?)
So? enter me? here is what I’m thinking so far (I would love for you all to have a look at each point and help me crystalize this strategy for my own education):
-
The wife has agreed to sell, as long as she gets 40k at closing (the husband is refusing to show up at the closing table, and this is making all of this very difficult? because he WILL NOT agree to go to the closing table and sign over the deed). Isn’t there a way, now that he’s signed the “Purchase Agreement” to bypass having him sign over the deed? I thought I’d heard this somewhere…
-
Even though there has not been a quit claim deed granted by this seller, there HAS been a legal sale, even if it’s only for HIS portion of the property (am I correct here?)
-
The fact that he has “sold” the property by signing a “Purchase Agreement” would surely have triggered the “due on sale” clause in the mortgage company contract (I’ve sent away for a copy from the courts just to be sure).
-
Neither he, nor his wife can afford to make the monthly payments nor satisfy the due on sale, should it be triggered by the bank.
So? I am recommending that my friend contact the bank and deliberately trigger the due on sale? let them know that not only has he purchased the property on a wraparound (over a year ago), but he’s paid nearly 140k to date, having also paid the monthly payments to the bank since the time of the “sale.” (the bank will show that my friend’s company’s name is on the checks that have been paying the mortgage.)
I’m recommending that he explain the situation to the bank and let them know that he is willing and able to purchase the property and close on it immediately. My thinking is that the bank would MUCH rather get the house sold, than have to foreclose because the seller and his wife cannot afford to make the payments.
Lastly, I’ve told him that the lien placed by the wife should be negotiated away or legally removed? here’s why:
-
There is an IRS lien on the property. Even if there WAS equity there for the wife, it would have to go toward paying off the IRS lien? in other words? these are liens she OWES? and there’s just not enough money to pay all the liens and then pay her?
-
She will have to go after her husband for her part of the equity that he was paid in the first two payments.
So? are we on the right road here? Is contacting the bank a wise option?
And is there a way, even if the bank decides to help get this to closing, is there a way to close the deal even if he refuses to go to the closing table? My friend has the signed “Purchase Agreement” in hand?
Really looking forward to your replies.
VJ