Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums
Mark in St. Louis

Terminating a sandwich LP

Recommended Posts

I have a situation that has just gone from bad to worse.

 

I have a T/B in a house that is behind 2 months.

 

I hired a lawyer to have him evicted. Court date was today and he is now 3 months behind.

 

A lawyer showed up on his behalf so he has decided to fight it and stay in the house. Unbelievable!!!!

 

The next court date has been set for mid June....Yikes!

 

That means 2 - 3 more months rent that I would be out...at a minimum...double Yikes!!

 

I simply can't afford to do that.

 

My question:

 

If I terminate my contract with the sellers, (using paragraphs 21 & 23 in the Lease with Option to Purchase Agreement) do they just inherit my problems with this dirtbag or am I still on the hook somehow?

 

Also, would they really be stuck with this guy? He would have no valid agreement under which he had a right to reside in the property. I guess the fact that he is still living in the house means that they'll have to evict him anyway to get him out?

 

The obvious downside is that the sellers inherit a squatter in their home that they now have to evict....something I am sure they will not be very pleased about. They might even decide to sue me. I'm sure they will badmouth me to everyone they know.

 

The upside is I am only on the hook for 1 more months rent....instead of 3 or more.

 

This is a real mess and I could use some advice....quick.

 

Michael, can you move this over to the legal forum if necessary?

 

Thanks!

Share this post


Link to post
Share on other sites

Holy nightmare, Mark! Somewhere in here there's an opportunity for you turn this into an even better deal and come out smelling like a rose. I don't know offhand what that is though. :(

 

In the meantime, I am telling my homeowner seller prospects that their deal is with me....vacancy or no, I'm responsible. However, I have *not* envisioned a scenario like you describe.

 

Is there anything you would have done differently when qualifying this guy? Are there qualifying traps the rest of us need to watch out for? Good luck!

 

Dan

Share this post


Link to post
Share on other sites

Mark,

These are only my opinions and NOT legal advice!

 

If I terminate my contract with the sellers, (using paragraphs 21 & 23 in the Lease with Option to Purchase Agreement) do they just inherit my problems with this dirtbag or am I still on the hook somehow?

 

This could put you into a world of hurt in front of the wrong judge.

 

Also, would they really be stuck with this guy? He would have no valid agreement under which he had a right to reside in the property. I guess the fact that he is still living in the house means that they'll have to evict him anyway to get him out?

 

He legally should have had every right to be there in the first place, except for the fact that he hasn't paid. The seller allowed you to sublet, so this would be their problem too.

 

The obvious downside is that the sellers inherit a squatter in their home that they now have to evict....something I am sure they will not be very pleased about. They might even decide to sue me. I'm sure they will badmouth me to everyone they know.

 

I agree.

 

The upside is I am only on the hook for 1 more months rent....instead of 3 or more.

 

Maybe, the eviction may take longer and I’m not in Missouri or an attorney. :(

 

The bottom line.

 

If your agreements have attorney fees and default, landlord remedy clauses, then if he loses in court you should be entitled not only the back rent payments, but also attorney fees. And ask yourself this, if he hasn't paid you, how can he have the money to pay an attorney?

 

Here's my opinion. For starters, I would have my attorney write his attorney a letter showing the signed documents about what I just referred to. I would then remind him of the consequences if he loses in court. He is obviously in default, but why doesn’t he agree to it? Is he just after his option money? If so, can you give some back to get this out of your hair? All of it maybe? The faster you can get him out, the fast you can get someone else in and get that cash-flow going again.

And FYI, I wouldn't let the homeowner know about this, but that’s just my opinion.

Hope that helps a little,

Adam

Share this post


Link to post
Share on other sites

Adam,

 

I am not financially in a position to pay on this property for 3 or more months.

 

So, regardless of what I do with the seller on paper, they will not be getting paid by me for more than this upcoming month.

 

Another thing I was thinking of is just assigning my agreement with the sellers directly to this scumbag...for no charge. It would lower his payment by $250 and his option price by $20,000.

 

Bottom line is I don't want to try and salvage this deal. I just want to cut my losses and move on.

 

It has been a shitty deal from the very beginning, and I just want to put it behind me.

 

The agreement with the seller is with an LLC and not with me. And the LLC has no assets. Sooo, there isn't really anything the sellers can get if they do decide to sue.

 

I hate to be this way but I am not going to be the fallguy in this scenario. I can't and won't continue to pay on a house that I don't even own. If that means I have to pass this a$%hole off on the sellers....so be it.

 

I can tell you one thing.....this has put an extremely bad taste in my mouth for sandwich deals. It will be a long long time before I ever do one again.

 

I have been doing nothing but CAs and Pure Options since this thing strated going bad, and I like them much, much better.

Share this post


Link to post
Share on other sites

An ugly situation, indeed! I know it doesn't matter a whit to you at this point, Mark, but this is certainly the exception rather than the rule.

I must agree with what Adam said. Attempting to dump this off on the homeowner and you will most likely end up in a second legal matter with this property. I don't care what those clauses say. I don't think they are going to give you the right to pass along this problem to the seller. It's one thing to break a lease and leave a property vacant. It's quite another to break a lease and leave a homeowner with a squatter.

I was under the impression from previous discussions that this deadbeat was already out of the property.

What legal arguments has he made to justify his remaining without paying rent? What did the Judge say? And what about your attorney? Did you sign for this deal under your name, or an LLC or corporation?

This is mind boggling to me. I happen to live in a very landlord friendly state. It's quite simple really. A tenant doesn't pay and the tenant is required to vacate. Process from start to finish is four to six weeks. I gather MO is a tenant friendly state?

Share this post


Link to post
Share on other sites

Mark,

You're not in that bad of a situation; it's just getting to you. There are a TON of solutions to this issue. You DO have the money to make payments because you obviously have the ability to ask. And you DO have the money to make payments if this is a deal.

There are options.

 

Another thing I was thinking of is just assigning my agreement with the sellers directly to this scumbag...for no charge. It would lower his payment by $250 and his option price by $20,000.

 

This is NOT a good idea to me. You can and should stick this out as a professional. Again, there ARE options. Give us some numbers on the house.

Adam

Share this post


Link to post
Share on other sites

Here's the thing. This guy is self-employed and his biz has taken a downturn.

 

Sure, I can wait this thing out 3 more months and get him out. But in the meantime I will be down approx $9000 on this deal...plus court costs and attorney fees.

 

What I'll eventually get is a judgement for all back rents, late fees, and attorney fees. BIG DEAL!

 

A judgement doesn't mean crap to me. The guy will never pay it. And him being self-employed, it will be next to impossible for me to ever collect on it. there is not way to garnish. also, the agreement is with him...not his business...so his business assets are not at risk.

 

So, knowing that, why would I continue pay rent each month, and attorney fees, that I know I will never get back? Answer...I wont.

 

If this means a suit from the seller....bring it on. Like I said...the agreement is with the LLC...not me. And the LLC has zero assets.

 

Did I make a mistake and use bad judgement in letting this guy in the house. YEP! But there is a limit on how long I am willing to pay for the mistake.

 

You DO have the money to make payments because you obviously have the ability to ask.

Adam...I'm not sure what you mean by this but trust me....I don't have the money. It's not a matter of if. The fact is the seller will get one more payment from me and thats it. Not out of spite or anger....there is just not enough money in the bank.

Share this post


Link to post
Share on other sites

Mark, I understand your feelings on this matter. Sometimes we have to end the bleeding and deal with the aftermath of our actions. We never knowingly enter these deals to break them. But, sometimes it happens and you can't allow one bad deal to break the bank and end your business. Do what you think you must.

In the meantime, operating under the protection of an LLC might be a saving grace. I assume you haven't comingled funds. In other words, you received money from the t/b payable to whom? And you made payments to the seller from whom?

Share this post


Link to post
Share on other sites

Mark,

You are not always sheltered by your LLC, but it could help you greatly. Giving this back to the seller would be a huge deal to them. There are ways to make this work.

 

When I said you have the money, what I meant was (And this is just talk because I don't know the numbers of the deal yet), that if there is enough money to be made on this, then there's someone to borrow or partner with for it.

 

I am doing several deals as a consultant right now to people in your position after and DURING the eviction/foreclosure process. These are people that haven't paid for six months or longer. There ARE ways, but my opinions are limited to my lack of knowledge about the deal. So again, what are the numbers on the deal?

Adam

Share this post


Link to post
Share on other sites

I understand your question Michael.

 

The LLC has it's own bank account.

 

All funds paid to and paid out were the same LLC and on the same bank account.

 

As a matter of fact, every sandwich deal I have done thus far (a whopping 3) has been in a separate LLC...each with it's own bank account.

 

I like these to each be their own island. Call me paranoid but it only costs $115 to set up an LLC.

 

I know for a fact that the sellers are going to be pissed. Heck, I would be too. And I really do hate to do this to them. But in this case I have to do what I have to do.

Share this post


Link to post
Share on other sites

Adam,

 

Here are the numbers:

 

Deal with Sellers

24 month term

$189,900 option price

$10 option fee

$1,485/mth rent

 

Deal with current T/B

12 month term

$209,900 option price

$6,000 option fee (he has only paid $3,000)

$1,685/mth rent

 

Current FMV is approx $200,000. We marked it up $9,900 for the 12 month lease.

 

Appreciation rates in the area average around 4.5% per year.

Share this post


Link to post
Share on other sites

OUCH....

 

This is one of the reasons why I won't do a sandwich L/O.

 

Not sure on the specifics of your court stipulations and how far along the eviction process is (I know you said the T/B is fighting it) but.....

 

You say he's paid $3,000 of what was supposed to be $6,000?

Just wondering...do you have any of that $3k left over?

If so, have you tried to offer him like, $500 or so to just move out?

I'd rather pay $500 or whatever it took, than to keep drudging along with this mess racking up alot more than $500.

 

Again, I'm not sure of your state's legal process toward eviction.

Or if what I suggested is even an option anymore, considering the stage you now find yourself in the legal processes...but it would be worth a shot, yes?

 

Jason

Share this post


Link to post
Share on other sites

Mark,

He’s clearly in default, but his true motivation is still eluding me. I would highly consider trying to find out his true motivation. If it’s to just get his option back even if he knows he’s in default, get it to him ASAP while making an agreement for him to leave at once and move on. This can be done outside of court and could be your big break to get someone else in the property. Also, do your contracts allow you to show the property while pursuing an eviction? If they do, you may have a buyer before he even leaves. This would be money in the bank for you.

 

What was his attorney’s reasons for appealing the eviction? There’s got to be something there we’re missing. What’s his side of the story?

 

Just some ideas of what I would try to do:

 

1. I would try to secure other investor’s interest in the property and do a LOA or keep them on as a partner. Another investor would be more likely to get involved knowing that there were two of you to make the payments if it were to happen again. And we're hopefully only talking about a few thousand. Not bad return for half of the cash flow or half of the equity or both.

2. I would check my agreements to see if I could show while evicting. I would take a deposit, but not cash it if the judge allows him to stay. This way you could borrow money to hold and pay it back with the consideration from the new tenant/buyers.

3. I would find some place to borrow the money, but not so much that it makes the deal lose sense.

4. I would (this is last ditch) ask the seller to help with the situation and give them back some equity at the end.

5. Ask the seller to make payments until you could sell the property, lease it again and pay them back with the new consideration, or LOA it to them and give them all of the money.

 

If all else fails, the seller may be your ace in the hole.

 

If you cannot honestly make this work, I would consider doing everything you could to save face with the sellers and go the extra mile. I totally understand your feelings, but this is the kind of stuff that tests us for the long run. Don't let this kill your career even if it does go south. Don’t lose hope, but once again if you do, do it with integrity and move on. There’s always greener grass on the other side.

Regards,

Adam

PS This is the best I can do with over 14 hours of REI. I’ll try to think of more stuff in the AM after a good meal and some rest!

Share this post


Link to post
Share on other sites

Just a recommendation on something to ask your attorney:

 

(Missouri Statutes)

Ch. 535 Landlord-Tenant Actions

Trials de novo and appeals--defendant to furnish bond to stay execution.

535.110. Applications for trials de novo and appeals shall be allowed and conducted in the manner provided in chapter 512, RSMo; but no application for a trial de novo or appeal shall stay execution unless the defendant give bond, with security sufficient to secure the payment of all damages, costs and rent then due, and with condition to stay waste and to pay all subsequently accruing rent, if any, into court within ten days after it becomes due, pending determination of the trial de novo or appeal. (emphasis added)

 

Did he post his bond?!?!?!?!?

I'd ask the attorney what happens if he pays up,in full, between now and the trial date. Would that just stop the eviction process entirely and you'd have to refile if/when he goes into default again? OR since he's asked for a trial could you still ask the judge to evict him?

 

What happened in court? Did his attorney say he was just hired and hadn't had time to prepare? Did he indicate, in court or in papers filed, there was a reason the rent hadn't been paid? At a glance through the Missouri statutes (I'm NOT an attorney and no legal advice is being given!) it looked like the court date had to be within 21 days of the filing date and the trial had to be first date available. Three months would mean an awful lot of trials over evictions assuming only one judge is hearing the cases, else the judge is having a vacation between now and then.

 

At any rate if he indicated a reason, maybe a solution could be found and worked out a little more expediently.

Share this post


Link to post
Share on other sites

I dont know about you guys but I am much more blunt to my tenant buyers than others seem to be. I tell them straight out that if they pay me like clockwork I am a gem to deal with. If they dont pay me 6'2 230 lbs gets very angry. I tell them we can either do this the right way during the day or we can take care of this at night. It is their decision.

 

Truly I tell them that if they are late I send them a notice of eviction and that says they have 3 days to either pay me in ful or I will be there on the third day moving their ass out. Its amazing when you are 6'2 230 I never get an argument. I remember when I had to get a guy out and it was the third day after my notice to him and I arrived at the property and said, ": Get your shit out!" He was out within 2 hrs. The key is being firm and intimidating.

 

Pete- I have only had to do that once with a renter and the rest have been absolutely super tenants.

Share this post


Link to post
Share on other sites

×
×
  • Create New...