Deal gone bad, need advice please

142 Replies

Hi,

I came into contact with an Atlanta rehab/investor named Andy on BP in Feb or Mar of this year (2014). He had a house for sale in Altanta that needed some major rehab work (about $15k). The house was not in a great neighborhood but was on an owner-occupied block, near bus stop, train, and some new construction so seems to be in a neighborhood that is improving. 

I bought the house for $20,781 which included $8000 financed by the seller and a payoff of all outstanding tax liens and other liens for water bill etc on the house for about $8000.

Prior to the sale, Andy was very easy to reach - we had many phone conversations about the planned rehab and future sale of the house. We signed a JV that he'd rehab the house, take videos, keep good records, etc.

The sale closed on 3/27/14. Since that time Andy has responded only a few times to attempted communications. I would say that in the 5+ since close he has responded perhaps 3 or 4 times to my many texts and emails and phone calls (which always go to voicemail). He told me over the 5 and a half months that he's busy (obviously since as soon as I bought the house the long friendly conversations came to a screeching halt). He told me that the city inspector wants electrical re-wired to the curb and he has 2 bids to do it for $4k and $7k but the $4k electrician isn't available. Other than that I know nothing about the house other than its' address and a video of it made in perhaps Jan 2014.

Andy has the keys to the house. I asked him about insurance and he said "we have insurance" but when I asked him later who the insurance is with he hasn't responded - similar to almost every other attempt at communication with him.

I know that a property tax bill will be upcoming on the house for about $1200 in November. I also took a HELOC against my primary residence to buy the house and I'm paying interest on that to the tune of about $100 per month. So my total carrying costs are $200 per month. I'm worried about insurance on the house since at this point it's hard to trust that Andy has done anything about that even though he said he took care of it. And thinking about it now it doesn't make sense to me that he'd carry insurance on my place anyway.

I called a real estate agent in Atlanta who was familiar with the house (listed it in previously) and that agent felt that the house is in a neighborhood that is improving and in demand, and that the house could be rented out after decent rehab for about $800 - $900 per month or be sold pretty easily after rehab since there is good demand by buyers in that neighborhood.

I'm live in Denver so now that my partner on this deal, the seller Andy, has been basically unavailable for 5+ months I'm not sure how to proceed. I sent a text and email to him asking for the keys to the house but like every other attempt at communication I'm sure he'll ignore it. I do have the deed to the house.

What steps should I take? I've no idea how to get the keys to the house or any control over the property. If I'm able to actually get the keys then I could try to rehab the house and rent it using a property management company, or sell it without rehab. I feel quite lost without any eyes, ears, hands on the ground in Atlanta. It's still hard to believe that my JV partner who'd have long conversations with me before I sent money to buy the house and pay off the liens, has gone almost completely silent.

To do either a sale or a rehab-rent I need keys and to do rehab I'd need a trustworthy and reliable and honest general contractor to estimate rehab and do rehab in Atlanta I guess. I would have to pay off the $8000 to Andy in any case although without his response to any communication I'm not sure how to do that. He has never sent me a signed copy of our JV despite my requests (I signed and sent to him then silence began).

Advice?

Thanks

@John Pruner  

Have you checked to see if you are even on title? 

Did you sign escrow papers?

The fact you don't have a signed JV Agreement, executed by both of you is a huge RED FLAG! and you NEVER should have closed the deal without it.

How was money supposed to be handled for the repairs? 

Did you check any references on your "partner" before entering into a contract with him? 

It sounds like you are going to have to get an attorney and get this whole thing figured out, and sooner rather than later.

Let this be a lesson to others. Just because you meet someone here on BP and they tell you a story, don't believe it unless you CHECK THINGS OUT!!  Get references from others that have worked with them, etc. If they are licensed check licenses to be sure they are current, they're bonded, licensed, insured, etc. 

Thanks for the reply Karen. Yep, I trusted him and didn't take enough care obviously. This was my first real estate investment and he seemed like a great guy, constantly available to chat about the property prior to my purchase of it. I had no idea he'd disappear once I bought the house.

I signed closing docs with a title company. I have the deed signed and notarized.

I was supposed to send half of repair money to him after he finished his estimate then the rest as he made progress and sent me videos.

A locksmith doesn't need keys ...

@John Pruner  I'm happy to help in any way including giving you unsolicited advice. :-) 

My plan would be:

1.  Reassess the deal.   What are the real costs of rehab, resell, rent, clean brake from Andy, etc.?  

2.  Review your options for exiting the deal.  Does it makes sense to rehab/sell, sell, rehab/rent?

3. Break up with your partner. I'd let him know you no longer can work with him. JV is off. Rekey the house. Offer to settle the $8k under a new JV where he gets the money at exit or down the road. Most likely, another investor is missing $8k.

4.  Pick a new path and, as we like to say, get 'er done.  

You seem to have a sense of calm (no panic).  First deals are hard for this very reason.  Shake it off and get this deal to exit.  Keep trying, because now you've almost graduated from level 1 of investing (Bad Contracts and Contractors). 

Rick

John, you are already getting some good investor advice and I am sure there will be lots more to come. My son and I are Atlanta Home Inspectors and we seem to have run across a lot of out of town investor with similar issues and worse situations. I have volunteered to go to some of these properties to give an update on the condition of the property. What I have found in a many case is that property is not at all as described, more often than not have been vandalized and recently found that out of state investors are paying for repairs that never actually happen. I said all that to just to give you some ideas that might help going forward. First don't let this scenario prevent from future investments. As it has already been stated the first deal is usually the hardest. Second spend the money to hire a home inspector prior to purchase that way you know from a third party if the house has any major issues. Our Inspection company is a little different due to our construction background that we can also give detailed estimates for renovations. I am sure their are other home inspectors that can do the same.  That way you would have an idea of what you are about yo get in to. I also just finished The Book on Flipping House and The Book on Rehab Cost by J Scott. These are great reads for someone just starting out.

Thanks,

Monty 

@John Pruner Probably the advice that I read so often here that I thought was sophomoric is: ".... never buy anything until you go there and look at it ...." I was under the impression that anyone risking any amount of money would always see a deal first.

Soooo If I were in this deal, I'd go to Atlanta myself, right now, find your "partner" and work this out.

I like @Rick Bagenstoss advice "3. Break up with your partner. I'd let him know you no longer can work with him. JV is off. Rekey the house. Offer to settle the $8k under a new JV where he gets the money at exit or down the road. Most likely, another investor is missing $8k."

and looks like you've got an Ally in @Monty Alston ;-)

I'm sorry to hear your story but it looks like you're really getting f'ed! You can be sure of one thing - that it'll get worse the longer you hesitate, so when's your flight to Atlanta.

@John Pruner it could be that your JV partner, Andy is incapacitated or there are extenuating circumstances...

However, Would you like to shine the spotlight on this cockroach by posting his full name and the address of the property? For information only of course!

Originally posted by @Mike Hurney:

@John Pruner it could be that your JV partner, Andy is incapacitated or there are extenuating circumstances...

However, Would you like to shine the spotlight on this cockroach by posting his full name and the address of the property? For information only of course!

 Hi,

Well he did tell me he had pneumonia in one of his rare replies to a text a few months ago. But then he told me in a reply a month or so later that he was recovered. 

I'm hesitant to post his name because he hasn't actually done anything shockingly bad. He just won't communicate or move the deal forward at all. So I keep hoping he'll transform into the guy who was just great to work and chat with prior to purchasing the house. Heck I'd even be happy if he'd just have a phone call with me once per week, the silence for months is so disheartening and I know that property tax bill is coming up soon.

Anyway, I really appreciate the great advice here. 

About flying to Atlanta, I'm not sure that will do me any good because I don't think he'd meet with me.

I'm going to read all of the responses that I get today then try to formulate a plan. My biggest worry is that he might get upset and knowing that there is no insurance on the property try to vandalize it or take things from it or burn it down or something. I'm not saying he'd do that but at this point I have no idea what's going on so every sort of awful scenario is running through my head. The property was in bad shape when I bought it - I knew that it needed some serious rehab but I don't want to take a total loss on it. Maybe me saying all of this sounds silly but you know when you spend days and weeks wondering what's going on you dream up all sorts of awful scenarios. :)

Please keep us posted. Great advice already given. If it would help to have current pictures of the property and progress of work I am willing to do a drive by and send you current photos. Best of luck.

Originally posted by @Mike SAlisbury:

Please keep us posted. Great advice already given. If it would help to have current pictures of the property and progress of work I am willing to do a drive by and send you current photos. Best of luck.

 Thanks Mike. I suspect no work has been done, but I might take you up on that if I get access to the house. I appreciate you volunteering. I'd like to think I'd do the same for someone in Denver who faced this sort of situation at a long distance.

However, Would you like to shine the spotlight on this cockroach by posting his full name and the address of the property? For information only of course!

I'm hesitant to post his name because he hasn't actually done anything shockingly bad. He just won't communicate or move the deal forward at all. So I keep hoping he'll transform into the guy who was just great to work and chat with prior to purchasing the house. Heck I'd even be happy if he'd just have a phone call with me once per week, the silence for months is so disheartening and I know that property tax bill is coming up soon.

 I think that ship has sailed.  Silence for months? I would be pissed at silence for a week, never mind months.  It's a simple deal, either he wants to execute and make money or he doesn't. His shenanigans are getting in the way and you can't wait forever.  I would move on without him.  Either find a new partner or finish the deal solo.  The longer you wait or make excuses for " the cockroach" the worse it will get. Move on, just my .02

Originally posted by @John Pruner :
Originally posted by @Mike Hurney:

@John Pruner it could be that your JV partner, Andy is incapacitated or there are extenuating circumstances...

However, Would you like to shine the spotlight on this cockroach by posting his full name and the address of the property? For information only of course!

 Hi,

Well he did tell me he had pneumonia in one of his rare replies to a text a few months ago. But then he told me in a reply a month or so later that he was recovered. 

I'm hesitant to post his name because he hasn't actually done anything shockingly bad. He just won't communicate or move the deal forward at all.

 Disappearing and not moving the deal forward are pretty bad. That's not the type of person you want to partner with.  There really is no excuse for poor communication. 

Steven

Originally posted by @John Pruner :
Originally posted by @Mike Hurney:

@John Pruner it could be that your JV partner, Andy is incapacitated or there are extenuating circumstances...

However, Would you like to shine the spotlight on this cockroach by posting his full name and the address of the property? For information only of course!

 Hi,

Well he did tell me he had pneumonia in one of his rare replies to a text a few months ago. But then he told me in a reply a month or so later that he was recovered. 

I'm hesitant to post his name because he hasn't actually done anything shockingly bad. He just won't communicate or move the deal forward at all. So I keep hoping he'll transform into the guy who was just great to work and chat with prior to purchasing the house. Heck I'd even be happy if he'd just have a phone call with me once per week, the silence for months is so disheartening and I know that property tax bill is coming up soon.

...

Yes he has done something shockingly bad. He has put you into an investment property that you probably wanted as a rental, but the summer peak season for renters has passed now that school has started. If he was supposed to manage this, there is no evidence of management happening as far as you have explained.  Maybe not a shock, but certainly bad. 

Thank you for sharing your experience. For all of the good business relationships that have spawned from BP forums, it's important to realize that things can go wrong, too. It sounds like you took a lot of good precautions - deed through a title company, tried to execute a JV agreement, bought in a decent neighborhood for what sounds like a good price, etc.

It's in my nature, too, to try and give people the benefit of the doubt.  But 5 months is too long to wait, and as a previous poster said, the longer you wait the more painful it's going to get.  You've got your money tied up in a property that you don't have any control over, and tax bills and insurance (if you had it) are bleeding you dry.

It sounds like you are the sole owner of the property, but the seller holds a lien on it for $8k?  Are there terms on that loan that could enable the seller to foreclose on you?

If that's not a concern, I think it's time for you to take control of the property. Spend a week in Atlanta to get the locks changed, hire contractors, buy insurance, and speak to some property managers that could be your "feet on the ground". Research or get recommendation on a local real estate attorney who you might need to call on if your JV partner starts squawking. Maybe you can find someone else you can partner with in Atlanta - someone with a good reputation and good references.

I'm sure you'll get this experience behind you pretty quickly.  You'll still have a good story to tell.

You need to get rid of your "partner" right away.  Do not give him the time of day, do not give him another chance!  There is no excuse for being unreachable over the span of several months.  It is your responsibility to get insurance on the property.  It is titled in your name so that is on you!  Have the house re-keyed and re-assess at that point.  Do you want to keep going and find another contractor or sell the house and chalk this deal up to education??

Sorry to hear you had a bad experience on your very first purchase but keep going!  You have already learned a lot of valuable lessons.  In the future put the agreements in writing.  You didn't know any better because you are new so there is no reason to beat yourself up about that.  It may not be funny right now but you will be able to laugh about it in the future.

This reminds me of "battered wife" syndrome (but he was nice to me once.....)

Unless there's something we're missing, like Andy is John's brother-in-law or ex boyfriend?

Originally posted by @Mike Hurney:

This reminds me of "battered wife" syndrome (but he was nice to me once.....)

Unless there's something we're missing, like Andy is John's brother-in-law or ex boyfriend?

LOL - neither. But I'm pretty easy-going and I since he didn't actually steal anything from me - just get really busy and stop talking to me - I'm hesitant to judge the guy. But yes I need to figure out a path to move on with the property. I talked to the title company about the "2nd mortgage" and there is no 2nd mortgage document but it's referenced in the JV that Andy would finance $8000 of the purchase and in the closing doc Andy as the seller shows a $8000 debit listed as "Seller Held 2nd - per JV". No one including the attorney at the title company has seen a signed copy of the JV nor a 2nd mortgage doc (I never signed a 2nd). I'm happy to pay Andy his $8000 when I can turn the place as a sale or get it fixed up and rented for a few months to bring in some money. But I wonder if he'll try to charge me some interest on the $8000.

About going to Atlanta for a week. That's really not an option for me. I've worked over 100 hours per week for years at 2 or 3 jobs at the same time. I came out of a divorce 3 years ago with lots of debt (owed my ex $35k as a personal loan so that she'd let me keep my 401k, had to borrow $50k from my 401k and $25k from my mom to buy a house to live in) and no cash along with $3000 per month in child support so I've just been struggling to float, have taken roomates into my house to stay afloat etc - it's a hardscrabble life but I'm determined to keep putting some money into my 401k and do some real estate investments. I don't have time or money nor would my boss let me take a week off to go to Atlanta. I'm one of those investors that is barely afloat and working really hard just to keep floating. Time and money are not resources that I have available, and the vacation time that I do have available is already committed to spend on a family vacation in December. If I spend $1000 to go to Atlanta for a few days that $1000 more drawn against my HELOC and I need the money available there to rehab the house if I decide to do any rehab to rent it out or sell it. I'm not crying about it - just saying that realistically my options to travel to Atlanta are not good, and I feel pretty sure that Andy wouldn't meet me in Atlanta. So I'm probably going to try to do this from a distance (whatever it is that I decide to do).

@John Pruner  , you are most certainly a bigger man than me. I wasn't even going to respond until I read your last post;  but if I was in your shoes, I think I would've gone mental on Andy by now.  You are receiving good advice from all, and I can especially tell you how helpful and knowledgeable @Rick Baggenstoss  is - he probably doesn't remember me or know this, but he saved me from another unscrupulous guy on BP that preyed on Newbies and I'm sure he saved me a lot of $$.  Also, I've recently had the good opportunity to meet and talk to @Monty Alston  and although we weren't able to do business this time, I don't believe you'll find a more honest, high integrity person in this business than Monty.

All that to say, you have resources and colleagues on BP to fall back on.  Use them and get out of this mess!  My business partner is a real estate attorney and investor, and if there is anything we can help you with, please send me a PM.  Good Luck! 

David Begley, Real Estate Agent in GA (#357208)

@John Pruner  

Sorry that this happened, but thanks for sharing; Most human are so trustworthy & had been taking advantage by few bad apples.

You mentioned that you need serious rehab to put this property back to rent ready condition. You also mentioned that rehab will be 15K. I am assuming that your partner is a handy man that can put his labor on this JV.

If not, based on 15K; I do not think you can go too far with it.

1) Call the agent that listed the house before & see if he can share you some info & pictures to determine the condition &  requirement for the rehab.

2) If the house is vacant now for a long time, the normal landlord insurance will not cover it. Go get yourself a (vacant & rehab/construction) period type of insurance. I can not remember the name at this time. 

I strongly suggest that you take on both @Rick Baggenstoss & @David Begley offer & send them PM, so they can assist you to sort out the mess. I wish you all the best. 

Sort this road block out first; before it drain you out further more financially & mentally.

@David Begley  I do remember you and what we discussed.  I'll look forward to a coffee with you some day.  On you! :-)

@John Pruner  By the way, he did steal a few months from you.  In some cases, time is of the essence.  A multi-month delay will rack up a loss vs. a profit.  

Keep us informed, I'm sure we can all learn from how this unfolds.

Rick

Anyone else reading this type @Andy just to see who pops up?

No? 

Just me?

Alrighty then :)

Originally posted by @John Pruner :

Thanks for the reply Karen. Yep, I trusted him and didn't take enough care obviously. This was my first real estate investment and he seemed like a great guy, constantly available to chat about the property prior to my purchase of it. I had no idea he'd disappear once I bought the house.

I signed closing docs with a title company. I have the deed signed and notarized.

I was supposed to send half of repair money to him after he finished his estimate then the rest as he made progress and sent me videos.

Have you verified the deed has been registered/filed with the county?  Signed and notarized wont hold up if he sells your house to another 'investor' (re: sucker) and they register it before you.  If yours isn't yet filed, you need to verify current ownership.

If it is, you might try buying him out and flipping it to someone local who can get it back on the market.  Atlanta, like most major cities, has plenty of demand for rentals in this price range.  Its a shame to have a place that could be contributing to the community and it be held up like this.

Good luck and good hunting!

After one month of no contact i would have flown to atlanta and knocked on his front door to have a chat... ever see the movie Snatch? (https://www.youtube.com/watch?v=wyKBSy6rgdY)

 You need to get there ASAP and secure your house, I bet Andy is living in the house!

Best of luck!

Mike

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