How my rental was sold out from under me

I had been investing slowly for years. I started with a duplex in Oklahoma that I was renting out, then I bought a condo in Maryland that I lived in for a couple years before renting that out. I upgraded to a restored townhouse that a friend and I bought in the trendy part of town, and later rented that out. I was reading every book on real estate that I could get my hands on. I had been through Carlton Sheets' course, a Rich Dad mentor, and just picked up Armondo Montalongo's course. I was feeling very confident to say the least. A little savings in the bank (very little), CEO of my own DoD Contractor company, great credit score, and friends were asking me advice on real estate. I was driving to Buffalo almost every week eyeing up some properties and was planning on buying around 10 of them over the course of the next year. I found a 4 unit that needed a little work and bought it for $40,000. Bank of America gave me a loan, and everything went smooth. My Dad had been working for a scrap metal company cutting up old factories and traveling 100% of the time. He worked for them for 17 years and was still only making $7 per hour while running a blow torch all day long. He also had two bum knees from torn ACL's in his past. It was horrible, and on my way to Buffalo one weekend I decided to meet him in Ohio on his job site just to say hi. His boss was yelling at him like he was a dog that just pee'd on the floor. I don't know how I got out of there without knocking that guy out. Instead, my brain started turning like it always does on long trips and by the time I got to Buffalo I called my Dad up and told him to quit and come live in one of my units in Buffalo for free. He could manage the other units and live off of the profit. He did just that. One of the units was almost gutted though and so he worked at fixing it up a little at a time until it could be rented. He took great pride in making it look good.

I had the house for a little over 2 years when my Dad called me and said that all of the tenants including him got letters in the mail saying they had to vacate the property in the next 30 days...signed by the new owner. I thought it was a mistake but found out that the city of Buffalo sold my house at their annual tax sale, and I had no recourse. Here's where the comedy of errors come into play. First, I told you that I had a loan through Bank of America. Well a couple of months into the loan they called me in to tell me about some new loan they had that would save me money. I had them run the numbers and sure enough my monthly payment went down significantly so I went with it. It turns out that the first loan I had took the money out for taxes, but the new loan did not. I didn't catch this difference, and it was never pointed out to me (in hindsight that was probably the only reason my payments were lower). Error 2: I grew up with a guy who became a lawyer in Buffalo so even though I hadn't seen him in 20 years I decided to use him to close on my property. Since I was in Maryland, he was taking care of everything for me and I just needed to sign the papers on closing day. Well it turns out that he grabbed my address of record from my credit report and it was using an address that I hadn't lived at in about 8 years. In Buffalo, if you don't pay your taxes they only have to send letters to your address of record and if you don't respond and taxes aren't paid for 2 years they sell it. My house was owned by someone else for 3 weeks before I even knew it. In fact, the week before I found out I replaced one of the hot water tanks and put down new carpet. My Dad had just finished the renovation in the 4th unit and we were about to put it up for rent. What's worse is that with all of the fix up this house was easily worth $60,000 and the guy who bought it picked it up for $14,000.

I spoke with the city, my lawyer in Buffalo, another lawyer in Maryland and they all said the same thing...it's terrible, but there's nothing I could do. With a mortgage still over my head on a home that I didn't own, two of my other units in Maryland not renting out for several months, my company going under water, and my trendy townhouse upside-down over $100,000 (during the bubble break), my lawyer told me to consider bankruptcy and foreclosure. It hit me pretty hard. Not only was I losing everything, but my Dad who was still two years shy of social security had no money and no place to live...and I was the one who convinced him to quit his job. Good lessons hurt...bad.

It all worked out over time. My Dad was able to get his knees looked at and was awarded permanent disability for the remaining months until his social security kicked in, and he was able to move in with a friend of his. I was able to start fresh and have been working at bringing by credit up out of the basement. I also found Bigger Pockets last week, and am very excited about learning from other people in the community so that I have a better chance at success this time around.

It's very easy to not pay attention to the little things when everything is going great with your investing. You are finding deals easily, every lender wants to give you money, tenants are treating your property like it's their own, and you just go on auto-pilot. You stop paying attention to filing important documents (or reading them for that matter). You just let things go while you plan your next vacation. I caution you to put systems in place and stick to them especially when things are going easy. Keep the machine oiled. Happy investing.