I’m under contract and just found out the seller is being sued.

Multi-Family and Apartment Investing
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I’m under contract and just found out the seller is being sued.

William Thorn
Rental Property Investor · San Diego, CA · Member since 2018 · 37 posts · 37 votes

I’m under contract on a 22 unit apartment building in Phoenix. I have my inspection tomorrow and met with the broker today and he said they were just sent a letter from a lawyer saying the seller going to be sued relating to a separate business he’s involved in. He stated the apartment building is part of the lawsuit so I’m not sure if it’s listed as an asset and that’s why it was in the letter. I have very limited information obviously. I let escrow know and they said there aren’t any liens related to the building however I should seek legal advise which I’m planning on. Has anyone had a similar situation or have additional advise? Thank you.

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Bob Floss II
Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
7y

All depends on the lawsuit.

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  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @William Thorn:

    I’m under contract on a 22 unit apartment building in Phoenix. I have my inspection tomorrow and met with the broker today and he said they were just sent a letter from a lawyer saying the seller going to be sued relating to a separate business he’s involved in. He stated the apartment building is part of the lawsuit so I’m not sure if it’s listed as an asset and that’s why it was in the letter. I have very limited information obviously. I let escrow know and they said there aren’t any liens related to the building however I should seek legal advise which I’m planning on. Has anyone had a similar situation or have additional advise? Thank you.

     Until the lawsuit is filed and the lawsuit is won, it won't have a lien. It does however cloud the title if the lawsuit is filed. If the lawsuit is "frivolous" or if the court dismisses the lawsuit there isn't a problem. It could take 6 months to a year to get to that point tho'. Lawsuits are unpredictable and tricky to navigate. I would pay for an attorney's advice on this one. The attorney can contact the people involved, find out what the dispute is about and inform you on your options. It is possible this is a "red flag" about the seller's business practices but maybe not. Personally I wouldn't pay for an inspection until I knew that the seller could close with a clean title.

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  • David Miller
    Developer · Magnolia, DE · Member since 2017 · 75 posts · 28 votes
    7y

    @William Thorn just happened to me 10 days ago, 3 days before I was ready to close on a piece of apartment land the neighbor filed a lis pendes and law suit claiming adverse possession rights. It’s bad. I could lose over $300k if I don’t close on the deal, the seller is ready to back out so I may have to sue him for specific performance. Got to love real estate where anything can happen :)

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Account Closed:
    Originally posted by @William Thorn:

    I’m under contract on a 22 unit apartment building in Phoenix. I have my inspection tomorrow and met with the broker today and he said they were just sent a letter from a lawyer saying the seller going to be sued relating to a separate business he’s involved in. He stated the apartment building is part of the lawsuit so I’m not sure if it’s listed as an asset and that’s why it was in the letter. I have very limited information obviously. I let escrow know and they said there aren’t any liens related to the building however I should seek legal advise which I’m planning on. Has anyone had a similar situation or have additional advise? Thank you.

     Until the lawsuit is filed and the lawsuit is won, it won't have a lien. It does however cloud the title if the lawsuit is filed. If the lawsuit is "frivolous" or if the court dismisses the lawsuit there isn't a problem. It could take 6 months to a year to get to that point tho'. Lawsuits are unpredictable and tricky to navigate. I would pay for an attorney's advice on this one. The attorney can contact the people involved, find out what the dispute is about and inform you on your options. It is possible this is a "red flag" about the seller's business practices but maybe not. Personally I wouldn't pay for an inspection until I knew that the seller could close with a clean title.

    yup agree Mike have attorney write letter to seller or seller broker and inquire.. if there is going to be a lis pen then they will need to file complaint and name the property or LLC assets I suppose. but usually they name the actual asset.. if its un related to this property then maybe it never becomes an issue vis a vi getting title insurance. A good escrow officer might be able to get to the bottom of this also with a few calls.

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  • Rob Massopust
    Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    7y

    Sticky wicket.

    As of now there is no cloud on title? but could be any moment, tread cautiously. I too would get an extension on the escrow and my contingencies and hold off on inspection until you have green light.

    If the seller is getting sued and it is moving forward there is a good chance of him filing BK.

    If the property is directly involved that suing party may file a lis pendens and could tie you up.

    What are your damages if seller can not perform, you can file a lis pendens and ties it up on your end.

    Get title info if you can and seek counsel of attorney or be ready too.

    Can you close before all this pans out, maybe and if title is clear and you cover your bases might be something to consider.

    Or might be advisable to let it go and save yourself the headache but that is dependent on the deal itself

    Keep us posted

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  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @David Miller:

    @William Thorn just happened to me 10 days ago, 3 days before I was ready to close on a piece of apartment land the neighbor filed a lis pendes and law suit claiming adverse possession rights. It’s bad. I could lose over $300k if I don’t close on the deal, the seller is ready to back out so I may have to sue him for specific performance. Got to love real estate where anything can happen :)

     Ouch! Sorry to hear that.

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  • Greg Scully
    Rental Property Investor · Johnson City TN · Member since 2016 · 386 posts · 271 votes
    7y

    @William Thorn - We recently had a similar situation. The LLC that owns a property we were pursuing had a lawsuit pending, although there was no lis pendes. Our attorney advised us to check title early and often and we added language to the PSA that specifically protected us should the title be affected while we were still under contract.

    We backed out of the deal for other reasons.

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  • William Thorn
    OP
    Rental Property Investor · San Diego, CA · Member since 2018 · 37 posts · 37 votes
    7y

    Thank you for all the information!

    0Reply
  • Bob Floss II
    Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
    7y

    All depends on the lawsuit.

    1Reply
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