Even if You’re an Expert Investor, Catastrophe Can STILL Happen: This Story Proves It

by | BiggerPockets.com

Recently, I was involved in a deal that appeared pretty straight forward. That is, until one unforeseen issue threw the whole thing into chaos.

I hope by writing this post, I can help others realize that real estate investing requires creativity, perseverance, and the ability to pivot regardless of experience level or how foolproof the plan is.

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The Fateful Story of Bob

Through a mutual connection, I met a person. Let’s call him Bob. Bob had heard I did real estate investing, so he told me about his first property purchase, which he was still working on. Bob explained to me that he had been living in a condo for 2-3 years as a tenant. His landlord came into hard times and was getting foreclosed on. Bob decided he did not want to move, so he went down to the foreclosure auction and bid on the condo he lived in. He won. I chatted with Bob about his plans for the property after he purchased it and didn’t think much of it. I left that evening telling Bob, “If you ever need advice on the property, feel free to reach out to me.”

Roughly a month later, Bob called told me he made a big mistake with this condo he was buying. Bob had bid and won at the sheriff’s sale, which requires 10% of the funds upon winning the bid and the remaining 90% within 30 days. What Bob did not understand was that most lenders would not be willing to lend on the remaining 90% due to the sheriff. He had procrastinated so long that it was now 120 days since he had won the bid, and the sheriff had given Bob 48 hours. Then they were going to keep his deposit, selling off the property and holding Bob in contempt. Bob asked me, “What can I do?”


Related: The 5 Biggest Mistakes I’ve Made in My Real Estate Investing Career

Our Solution

I thought about it for a couple hours and offered him a solution. Our company would assume Bob’s winning bid at the sheriff’s auction and pay off the remaining 90% balance, at which time our company would own the property. We would then parlay Bob’s initial 10% to the sheriff directly into a purchase and sale agreement between our company (seller) and Bob (buyer).

We would then rent the condo to Bob for 45 days while he secured conventional financing to purchase the property back from us at a sizable mark up for our risk in the transaction. I informed Bob before entering into any of this that we would need to run a credit and background check on him to ensure he could, in fact, qualify for financing, I would need to inspect the property, and would need to confirm the HOA would not prohibit this transaction in any way. He agreed and passed our checks just fine.

The deal seemed like a no brainer for us. Here are some of the numbers:

  • The condo was worth $130k
  • The winning bid we assumed was $87k
  • Bob initial deposit was $8k
  • Our company’s cash outlay to purchase was $79k ($87k – $8k)
  • Our sale price to Bob was $101k

This left Bob with plenty of equity, left us with a great return, and kept Bob out of being held in contempt. If Bob did not fulfill his part in our contract, we would keep his $8k and sell off the property.

We all agreed to move forward, and we had our attorney draft up all the documents needed to execute.

All Seemed Well Until…

The first 25 days after our company purchased the property, all seemed well. That is, until I received a call from Bob’s loan officer. He informed us that the underwriting was very confused because the deed was already in Bob’s name. I jumped on the county auditor’s website to check, and just as he stated, the property was in Bob’s name.

After some quick phone calls, we determined that the attorney who had filed the foreclosure missed the assumption of bid paperwork in the file. This meant she thought Bob had paid the $79k, so she put the property in his name.

Our solution was to just have Bob sign the deed over to our company, and we would get it all cleared up. Unfortunately, because the lender Bob was working with required the property to be owned by the seller for 90 or more days before it could be bought, this idea did not work. We determined with the help of our attorney that we needed to get the attorney who filed the foreclosure to submit paperwork to have a judge correct the deed.

Related: Dirt, Dead Mice & Cobwebs, Oh My: What I Learned From My Latest Tenant Horror Story

Here is where it all went south. The attorney who filed the foreclosure went MIA on us. Our company and our attorney tried everything to track her down to get her to complete the paperwork. She was out of the country, then not available. After 4 weeks, she signed the needed paperwork to correct the deed but forgot to send in a $30 processing fee with the paperwork to the county. The county requires that the $30 fee be paid directly from the filling attorney. So we waited another week to get that taken care of.

Relationships Became Strained

During all of this title craziness, Bob became frustrated and confused. He didn’t understand the process and began to think we were trying to take advantage of him. The more we tried to explain, the more he thought we were conning him in some way he could not understand.

What we did not realize was that during the period in which we were attempting to get the attorney to correct the foreclosure paperwork, Bob had decided to switch his loan from a purchase to a cash out refinance. Bob did this because someone at the bank saw that according to the county recorder’s office, Bob owned the property free and clear and advised him to do a cash out refi to get the money out. In his ignorance of the process, he agreed.

So at this point, our company had paid $79k cash for a property that Bob, the guy who has zero trust for us at this point, was now about to pull all the equity out of.

To prevent the cash out refi from going through, we actually had to record a document to the condo’s title that claimed our company as the owner, which would cloud the title and slow down the title search while we cleared everything up. This only made Bob more skeptical of our intentions.


The Resolution

Finally, the deed was corrected and the property was in our company’s name. Unfortunately, by this time much damage had been done. Bob didn’t understand what the heck had happened and was certain we were trying to steal his money.

Bob began threatening of legal action. Our attorney assured us we did nothing wrong, so we would never lose — BUT it could take up to 9 months and $15k in legal costs just to move past it if Bob persisted.

At that point, we decided to have a “do over.” We gave Bob 45 more days from that point to secure financing and stick to our agreement. After several conversations with our attorney, Bob agreed. After several extensions and almost a half a year, we recently closed this transaction with Bob.

This story only goes to show you real estate can be unpredictable. No matter how much you prepare, you have to be ready to problem solve and persevere.

Investors: When’s the last time catastrophe happened to you? How did you resolve it?

Let me know with a comment!

About Author

Jered Sturm

Jered Sturm is co-founder and director of sales and marketing at SNS Capital Group. Jered began in the real estate industry in 2006, working for a successful real estate investment company as a handyman. From 2009-2012, Jered co-founded the construction company Sturm Properties. Using his background in contracting and construction, he began investing in “Value Add” real estate. Now, after co-founding SNS Capital Group, Jered has conducted over 10 million dollars in real estate transactions. He currently co-owns and operates a portfolio worth over 3.7 million dollars in investment real estate.


  1. Earl minnis

    Classic example of people who think they know what their doing that in “reality” they really don’t know what they are doing. If there had been any loans or liens i.e. Judgements recorded prior to the lien that the sheriff sold this property under you all could have thrown your money away. I’m confident Bob didn’t get a prelim prior to him bidding and nowhere was there a mention of Jered doing an escrow or title insurance being issued. Sheriff sales in any state can be fraught with disasters for anybody particularly for people with little or no experience which it sounds like both of these people had. Earl Minnis

    • Jered Sturm

      Earl Minnis, thanks for the post. We did infact have our title company run title search prior to entering the deal and then issue a policy. If I had included every last detail of this transaction in this article it would have been a novel.

  2. Artie Mayhew

    Bought a house for cash at auction 4 mos ago but somehow the owner bank lost the title and instead of 5 days it took 8 weeks to close which meant I could’ve financed it but worse because they kept pushing the closing date I couldn’t retain my contractors I had lined up and have spent a huge amount of time this summer finding trades to finish my work – height of everyone’s busy season. I might be done in September instead of July. It’s been a good set of lessons as my financials have changed and I’m just glad it’s a small project.

  3. Earl minnis

    To Jerome and everybody else. Making these deals that most people talk about on this site seem easy, ordinary and with little risk is being deceptive and just plain wrong. Tell me the (good deed) that is being done by not telling people the ” whole story ” about these deals. Reading the article on the Sheriffs Sale I would think would motivate a bunch of people to start looking at those sales assuming what they pay at a Sheriffs sale is the total price. Far from the truth generally. So this type of portrayal of a Sheriffs Sale is not accurate generally and could cost somebody a bunch of money. Potentially their life savings. So your comment ” no good deed goes unpunished ” , which happens to be one of my favorites, is inaccurate here.
    There is so much misleading , ill advised,unrealistic, inaccurate and incomplete information being passed around on these posts it’s hard to believe. Again, I could go on and on. There is nothing easy about this business of buying and selling real estate. Another of my favorites is ” a fool and his money will soon be parted”. I guess you could add to that the uniformed, inexperienced, and uneducated.
    I speak from having bought well over 2,000 properties over 40 years and having lent 10’s of millions of my own funds on real estate (which I still currently do). Started with nothing.
    If somebody is going to talk about a deal, tell the whole entire story, not part of it and make it look easy and how much money you made. Take care, Earl Minnis

    • Jered Sturm

      Mr. Minnis,

      I was surprised to read your comments on here, after reading your comments on this and several other posts I thought how could he have taken an article titled “Even if you’re an expert investor catastrophe can still happen” as if I was trying to make the deal seeming easy, ordinary and with little risk. I was actually so intrigued I wanted to learn more about who you were.

      After looking at your profile / previous posts I realized critiquing investors who have been in real estate less time then yourself on their incompetence in writing blogs, and forums is something that you do more than just on this post. This is fine, and I’m sure your intentions are good. However I would suggest and alternative route. If you feel the articles, and writers of bigger pockets are doing a bad job, I would assume BP would love to have someone that has as much experience as yourself to show all of us “uniformed, inexperienced, and uneducated” how its done.

      Wishing you the best,

  4. Earl minnis

    Hey Jared, you are right. I have posted numerous critical comments on posts I have read and pretty much shaken my head about. I have never been one to hold back my opinion especially on a subject of something that has basically flowed thru my veins for 40 plus years.
    My main issue, if I have one with BP, is most all of these posts are done by fairly or very inexperienced people. People should be educated , if that is what they desire, by professional investors who have been in the business for 20-40 years and done many many hundreds of deals. If you’ve done well most investors in the business for that long have no desire to put themselves thru such a thing. Why would they? Check out John Schaub in Florida, he’s probably the best that is still alive and teaching. Great guy and hangs with the old group that ” has done it”.
    It would be cool to be able to transfer all of my experiences and knowledge in this business to others but that is not realistic. Plus maybe it would be worth a bunch of money. In addition I have no desire to educate anybody other than maybe a family member in this business. In my opinion this is a very unique business and not suited for the faint of heart at all, quite to the contrary. Being a great poker player and looking like a bouncer would be two great attributes along with great common sense math skills and a large dose of good old common sense. If started at a young age, 20-45 years old it can be very successful just by buying the right properties in the right areas, keeping the properties,putting them on 15-20 year loans, proper SELF management, and wait out the 15-20 years till the loans are paid off and you are done. They don’t need to go up 10 cents for this to work.
    All these so called “educators” today are not doing the business. They are busy selling an idea,seminar,coaching or a book usually a get rich quick scheme of some sort or retire in 3 years ect. There are only so many hours in a day. You can’t have a teaching business and be doing the business at the same time. The old saying ” those who know how to – do. Those who don’t – teach” seems approperiate here. Only in a super rare instance does this happen.
    I’m a slow typist so lm going to conclude hear. Take care and good luck, Earl Minnis

  5. Jered,
    I have never experienced anything like this before but have heard stories similar to this one. I think people are always weary when it come to such large purchases and their lack of knowledge just makes it all the more worse. I am glad to hear that things got settled but deals like this create such strain on relationships and can hurt reputations. As I start to dive into the real estate world I think stories like this are good ones, people need to be slapped with realities like this more often because then at the end of the day they can’t say they weren’t forewarned about the risks they are taking.
    Ashley Beekhof

  6. Earl minnis

    Kevin, I doubt there is any insurance that insures buyers of real estate of making a bad buy or missed repairs. The company would be out of business quickly. The best way to insure these things don’t happen is if for you to know what your doing in the business in the first place. If you don’t you shouldn’t be in the business. Making the correct purchase in the first place will insure that repairs unseen are covered. Doing your own analysis of the value will aliviate depending on realtor values. Not doing your own homework I guarantee will lead to unwanted disasters.
    Buying to resell or to hold is not a business to depend on others. If it was easy everybody would be doing it. Earl Minnis

  7. Earl minnis

    Kevin, one other comment. Theres no company or insurance that is going to protect your reputation and if you need insurance to protect your self from anything other than fire, theft and liability claims than you are in the wrong business. Earl Minnis

  8. Gregory Howard

    Thank you for your article.
    I have taken away a few lessons from this article.
    1. Helping others can lead to opportunities for yourself.
    2. Protecting yourself can help you to avoid potential disasters.
    3. Keeping a close eye on every aspect of a deal is essential to self preservation.
    4. Keep communication open to avoid problems with the deal principals.
    5. Don’t give up – a solution can be found to every hurdle that you hit along the way to completion.
    The perseverance through all your obstacles is what gives you experience and this is how you get to last 20, 30 even 40 years in the business. I think articles like this one are great at balancing all of the seemingly EASY investment articles that are posted.

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