Deal gone bad, need advice please

Deal gone bad, need advice please

New York City, NY · Member since 2014 · 52 posts · 4 votes

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

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Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
12y

@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

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  • Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes
    11y

    This thread should be the first thing ANYONE on BP reads if they are looking into a JV Partnership with someone they meet here.

  • Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    11y
    Originally posted by @Michael Moikeha:

    This thread should be the first thing ANYONE on BP reads if they are looking into a JV Partnership with someone they meet here.

    This thread should be read by everyone who is a psychology major to show the effects of STOCKHOLM SYNDROME. 

    OP, let it go man. You're getting assaulted by all angles for good reason. You need to get out, or get Andy out. Andy is either a hustler who is playing you like a fiddle OR he's incompetent and you guys are going nowhere fast (except broke). 

    Lastly, you keep HOPING that this guy is going to come through. Well, that's not investing my friend, that's gambling, and ANDY IS THE HOUSE. 

  • Flipper/Rehabber · York, UK · Member since 2013 · 895 posts · 453 votes
    11y

    I'm not even going to ask how bars on windows, or bolts on doors with unsecured window locks is going to help the situation, but paying a squatter to "watch the house"? I hope you have good insurance (do you even have insurance - as in have you seen a dec page with you as additional insured?) because that's a whole new lawsuit waiting to happen.  Listen to the advice you've been given, either show up and handle the situation or cut your losses. This is never getting any better.

  • Real Estate Investor · Harvey, LA · Member since 2015 · 119 posts · 80 votes
    11y

    This thread is amazing. Is this real? Who knows...

    I'll add this much. If you want to be successful in this business, you have to be a little bit of an ***. I'm a nice guy, very nice. I respect all people and life. But you have to have some ******* in you to make it through tough times and pull hard triggers, like firing someone. No one likes firing, but the best managers i know can identify these situations quickly and move without delay.

    the problem with real estate is the relatively high fixed cost. Also called operating leverage. You make a lot when it's rented and lose your shirt when it's vacant. You lose your marriage when it's losing you money.

    In this case, the OP appears to be too much of a nice guy, trying his best to trust someone to finish a job who had pneumonia and a stroke. I would have sent him a get well card and fired him immediately.

    respect for others is important, and sometimes you just have to be an ***.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Micki M.:

    I'm not even going to ask how bars on windows, or bolts on doors with unsecured window locks is going to help the situation, but paying a squatter to "watch the house"? I hope you have good insurance (do you even have insurance - as in have you seen a dec page with you as additional insured?) because that's a whole new lawsuit waiting to happen.  Listen to the advice you've been given, either show up and handle the situation or cut your losses. This is never getting any better.

    The OP is the sole owner of the property and should be the policy holder, not the additional insured. If he didn't buy a policy to protect his interest, there isn't one. The first picture in the "door lock" post isn't even his house.  Bizareness upon bizarreness.

  • Denver, CO · Member since 2015 · 251 posts · 123 votes
    11y

    At this point John, I wouldn't even be at all certain that you are actually the owner. Your only real  indication that you might be is the arrest citations you received. Do a title search through a title company. Make sure what liens are on the house. How did Andy get funding without you signing loan docs? That makes no sense if you are the only owner of the property. Again, get a title company involved.  Not sure about Georgia but every other state I have done real estate in requires the title company to be owned by a licensed attorney. They have more experience with transactions than anybody else. Talk to them and they can at least give you good info about your situation. Also Marie and Micki have valid points. If there is actually insurance, you (if the property is free and clear) will be on the declaration page. If there is a primary lien holder then they will be the primary payee. This will tell you a lot about where you stand.  P.S if there is/was actually insurance in place, why would this not have paid for the theft of the wiring etc? If there was not insurance in place and you have proof that Andy indicated there was, then he is guilty of fraud. Recover your funds by going after him. If he has assets, he owes them to you at this point. Sorry this is a bit of a rant but....... I did see that someone managed to get your court date extended a month or so. Hopefully that is a good sign that continues.

  • Investor · Woodbridge, VA · Member since 2015 · 476 posts · 197 votes
    11y

    for as much as you have invested I would take a couple of days off (or go on a weekend) and fly down there to see what my money is doing even if you cant take a whole week.

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y

    About two months later now - any updates?

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    11y

    Wow....just wow.  This thread should be read by everyone, particularly those new to investing.  This might be one of the best threads on the whole site, though for the wrong reasons.  NEWBIE INVESTORS...PLEASE READ.

  • Investor · Atlanta, GA · Member since 2014 · 415 posts · 299 votes
    11y
    Originally posted by @Steve Babiak:

    About two months later now - any updates?

     Here's an update. Kinda.  Same Crook, different BP victim:    https://www.biggerpockets.com/forums/522/topics/220604-first-substantial-loss

  • Investor · Mobile, AL · Member since 2015 · 66 posts · 21 votes
    10y

    Wow... this has certainly been an interesting read.

    I'm curious.  Does BP have a thread dedicated to KNOWN scammers or questionable behaviors or poor "whatever?" ... Or "questionable" individuals or business that others can go to .. A "Enter at your own risk" type of thread?

    That could be useful.. Yes?

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y
    Originally posted by @Virginia H.:

    Wow... this has certainly been an interesting read.

    I'm curious.  Does BP have a thread dedicated to KNOWN scammers or questionable behaviors or poor "whatever?" ... Or "questionable" individuals or business that others can go to .. A "Enter at your own risk" type of thread?

    That could be useful.. Yes?

    The investor/partner in question on this thread is back and posting.  Saw a thread by him yesterday.  There isn't a particular thread dedicated to bad actors, but anyone is free to start one to call out a bad deal or bad business practice.  The site owners have liability concerns and are not entirely neutral on the topic, so some threads that would be useful for warning others do get deleted.

  • Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    10y

    This thread continues to be interesting.  The house was sold -- 1371 Avon Ave. Atlanta, GA 30311.  I believe seller used a BP agent who then bought the property for $17,500.  Good deal for the buyer.

    Seller's original purchase price was ~$32,500.  Buyer also came out of pocket for much of the rehab.

    Groundfloor funding was $60,000.  

    @Andy Luick was the fundraiser on this project, GC, and contractor.  Perhaps he can shed some light on this.  Seems like Andy also owned/controlled the house when sold to the original seller.  $15k on initial sale, $20k rehab seems to be Andy's profit.  

    It would also be interesting to hear how the Groundfloor.us lien worked out and how that works.  How does Atlanta deal with code violations after property is sold?

  • Investor · Midlothian, VA · Member since 2015 · 980 posts · 823 votes
    10y

    Man, I just got through this whole thread. This is like a real life version of Leaving Las Vegas. I couldn't stop reading this or watching that, but they definitely don't leave you with a warm fuzzy.

    If you are ever down on life, watch that movie. It will make you feel better about your situation.

    If you are ever down on your investing, read this post. It will make you feel better about what you are doing.

    Now I have to go do something productive to shake off this funk.

  • Investor · Raleigh, NC · Member since 2015 · 17 posts · 3 votes
    10y

    I just spent about an hour reading this whole thread. Totally worth the time, coming from a newbie investor.

    Seems like this plan was doomed from the start with a risky investment and absolutely zero mitigation strategy in place.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y
    Originally posted by @Rick Baggenstoss:

    This thread continues to be interesting.  The house was sold -- 1371 Avon Ave. Atlanta, GA 30311.  I believe seller used a BP agent who then bought the property for $17,500.  Good deal for the buyer.

    Seller's original purchase price was ~$32,500.  Buyer also came out of pocket for much of the rehab.

    Groundfloor funding was $60,000.  

    @Andy Luick was the fundraiser on this project, GC, and contractor.  Perhaps he can shed some light on this.  Seems like Andy also owned/controlled the house when sold to the original seller.  $15k on initial sale, $20k rehab seems to be Andy's profit.  

    It would also be interesting to hear how the Groundfloor.us lien worked out and how that works.  How does Atlanta deal with code violations after property is sold?

    I saw that the house was sold in September.  Thanks for clarifying the buyer. After looking quickly at the data, I just assumed it was a buyout from yet another Handy Andy entity.  Hopefully everyone has moved on to greater good elsewhere. I was not aware of the $60K loan from Groundfloor, only the $18K initial loan.  Wondering if that's combined with another Groundfloor loan made to Luick.

    Regardless. it would be great to hear from Groundfloor if they were paid back and/or if they covered their investors out of pocket on this one.  There was a lot of drama on that house, partnership and loan.  Groundfloor posted a success story on that house as part of its marketing, saying it was rehabbed and already had tenant applicants.  None of that was true.  A crowdfunding/lending platform that marketed false testimonials......how is anyone ok with that? That means they either intentionally lied, or took the false word of one of their borrowers.  Either way, just bad. Lucky for Groundfloor all this damning info is buried at the bottom of this dead thread.  :)

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y

    I just received a voice message from Andy Luick asking me to call him if I want to hear his side of this story.  I have no skin in this deal or relationships with any of the players, so I'm not interested in talking to him.  He's free to tell his side of the story right here.  @John Pruner @Andy Luick @Rick Baggenstoss

  • Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes
    10y
    Originally posted by @Account Closed:

    I just received a voice message from Andy Luick asking me to call him if I want to hear his side of this story.  I have no skin in this deal or relationships with any of the players, so I'm not interested in talking to him.  He's free to tell his side of the story right here.  @John Pruner @Andy Luick @Rick Baggenstoss

     I agree. You're not the only person here with questions. The basis of this whole Bigger Pockets platform is to learn and grow and share information. The fact they do not want to share it here just adds to the negative cloud surrounding them. 

  • Investor · Atlanta, GA · Member since 2014 · 415 posts · 299 votes
    10y
    Originally posted by @Account Closed:

    I just received a voice message from Andy Luick asking me to call him if I want to hear his side of this story.  I have no skin in this deal or relationships with any of the players, so I'm not interested in talking to him.  He's free to tell his side of the story right here.  @John Pruner @Andy Luick @Rick Baggenstoss

     I received a similar voicemail.  I suggest Andy Luick disclose his side of the story here to see if his story is consistent and plausible.  Moreover, if he isn't willing to contradict and prove the allegations discussed, ad nauseum, on these forums are false; and that the Avon deal he spearheaded and sponsored on Groundfloor wasn't a fraudulent transaction, then BP should take measures to keep him and others preying on newbies off this board. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Account Closed  This was one messed up transaction.. i have seen my share but this one just about takes the cake.

    1. Newbie investor who was trusting

    2. C to D  class property that may or may not have been rehabbed when I personally looked at it it was a mess.. Pruner represented that it got rehabbed once but rehabber said it got vandalized and needed rehab again.  So they needed loan from ground floor since Pruner already put 20k into a rehab that who knows what really happened to.

    3. From my review of public records and records sent to me from Pruner ground floors debt instrument seemed to in my looking at it and in my opinion suspect.   .. and that turned out to be proved correct when Pruner just deeded the property to another person and reporting back that their closing attorney informed them there was no debt on the property it was actually free  and clear. So one can only conclude that the buyers closing attorney and title company did not recognize ground floors debt instrument as valid.   

    4. Newbie investor so shaken up that he just walks..  Newbie investor has ground floor telling him that he owes them this money when it looks like that was not true.. 

    bad deal all the way around.   Inept lender for sure.. freaked out   out of state investor 

    But the end game was the last person who ended up getting it for free sure got a nice pay day.. But agent was right place right time and I guess who would turn down some one deeding you a house because they were so freaked out and tired of the transaction

    And one must realize that Pruner was in this deal a simple rehab almost 18 months of stress he finally gave up

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    I started seeing some posts recently that reminded me of this thread. Thought it might be useful for this to get bumped back up to the recent posts, so those newer to the site might read it.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Russell Brazil  the power of BP  a lot of nice folks went out of their way to try to help Mr. Pruner through this. but at the end of the day he just could not take the stress. he stated to me he could not sleep.

    He was getting city violations and lien notices he was worried those would go against his personal credit  even though everyone who talked to him said it would not.

    Groundfloor playing hardball telling him he owes them money... when it looks like Groundfloor had a defective lien. 

    And the investor just says to the last person he is basically dealing with If I did this to you will you take it... When in fact this guy owned the home free and clear it appears.

    BP is a great resource but just because someone posts on BP or is a BP member does not elevate them to a position of blind trust and faith.. I think that is one take away. 

    The other take away is remote rehabbing takes a lot of due diligence on the front end from the Investor.   Also fully vetting who your doing business with. I suspect if Pruner would have dug deep into this person a little bit he may not have done business with him that was my mistake.. 

  • Investor · Atlanta, GA · Member since 2014 · 415 posts · 299 votes
    10y

    @Jay Hinrichs @Russell Brazil  What I find interesting and a bit scary - especially to someone who does invest in crowdfunding deals - is how this property (1371 Avon Ave, 30310) can still be listed as an on-going funded deal with a 1st lien on the property as collateral, when the house has long since been sold.  I doubt that the current owner of 1371 Avon Ave even has a clue that there are about 80 investors about to find out they've lost their investment (unless the crowdfund portal steps in to make them whole) and that he/she now owns the property these investors believed could be liquidated in the event the Operator was a crook.  

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @David Begley  AGreed on the GroundFloor and Crowdfunding. The crowdfunders who choose to go into rehab debt deals need to be experienced in the lending business. Because obviously that is what they are doing brokering rehab loans.. 

    I personally do not know the background of Groundfloor .. And even though I have been a HML in my day I still don't know it all.. After all I got sucked into this vortex as well.

    However with cursory review of the deed to secure debt on this particular property the Payor who signed was not the entity that owned the property at the time... basic lending requires those two to match up.. this property I believe if I recall correctly was in the investors personal name or his LLC.. I think it was LLC.. the closing attorney should have requested a copy of the LLC docs to see who the authorized signer is. Then the security instruments should have been to the owner personally or the LLC. Ground floor through their agents let someone else sign the debt instruments total incompetence from my point of view.

     Ground Floor may very well have a claim against the closing attorney in this case..  doc compliance review prior to funding should be done in house at Groundfloor I would think . 

    When I ran my HML company I had two partners one an attorney and the other a CPA plus a 15 year veteran funder.. Funder did doc checks then it went to attorney and finally to CPA ( who was the best at catching things she used to be a forensic auditor) Mistakes are made in these deals I find when your using attorney for closings you must review the docs much more thoroughly than a west coast title and escrow company not sure why but that was and is my experience. And even on the one I funded to this same guy when I finally had to take it over and dispose of it.. there was a mistake on the deed and the wholesaler that sold it was a little persnickety about being inconvenienced signing a correction deed.. Closing attorney missed the correct vesting.

    Nightmare all around with this model and ground team

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @David Begley  in this Case I would bet dollars to donuts.. Groundfloor if they have not paid off the investors will shortly.. From a Collateral damage point of view they should have done that long ago and removed this deal from their website.

    No Crowdfunder or Lender can be 100%  this stuff happens but not quite as careless as this one.. this should easily have been a loan failed to fund scenario for GroundFloor. 

    The top rehab debt crowdfunders are doing deals all over the country.. So its as I say statistically impossible not to deal with some sort of default.  I know I had my fair share of defaults.. Or more than fare share.. remember these guys are all lending POST 08 meltdowns.. us Pre 08 lenders got kicked in the teeth 

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