Help on a private money lending issue... Breach of Contract

[Albert Tristan]

Hello, I was involved in a private lending arrangement for a property rehab in Fort Worth where the funds I provided (53k) for the rehab cost, which were handled by the investor's project GC/agent. The property is now listed for sale, but repayment of my investment has been delayed and there’s concern that some of the funds may have been mismanaged as they almost went 100% over rehab budget and have yet to show transactions of where my money went. It was agreed that they would pay me back with the hard money loan draws but have only paid me 8k and still owe 45k+. 

The investors are claiming they gave all the reimburstment funds to the agent/P.M. and aren't getting answers from him as to where the money went. 

For anyone who’s dealt with this before,  what are the best steps to take in Texas to protect myself and ensure I’m repaid properly when the property sells? Should this be handled through title, a lien, or another legal agreement?

Appreciate any guidance or referrals to local real estate attorneys familiar with private money or JV disputes.

Thus far, i've mailed them a "Notice of breach" and "Demand for Remedy" letter to their biz address. 
What should my next steps be to recoup the 45k+ still owed & past due?

[Jay Hinrichs]

Quote from @Albert Tristan:

Quote from @Patrick Roberts:

Quote from @Albert Tristan:

Quote from @Patrick Roberts:

Sounds like the damage is done at this point. A couple questions/major concerns:

- did you give the borrowers all of the money up front, or was this paid out in draws as work was completed?

- you mentioned hard money draws; what position is this loan in, and is it even secured by a Deed of Trust on the property? Does the hard money lender know that they are using HML funds to repay your loan?

- you said you mailed demand letters; do you not have an attorney handling this for you? 

Good q's, so payment was made through my biz credit cards that the PM/Agent had during the 3mo renovation process. Various charges throughout the 90 days to GC's. 
HML is in 1st position. As of now I have a promissory note (notarized) laying out the deal structure and repayment structure that I would get reimbursed through the HML draws. (my capital was supposed to be just to get the project started until they received the draws. However now the PM/Agent is telling me he used my 53k in available credit to do the rehab, (told me a contractor ran off with 18k), and then that it cost him an additional 36k to finish the rehab. (mind you this is for a 980sqft house in a class B neighborhood...)

So no deed of trust or second position lien as of now. I don't think the HML is aware of the agreement.

I don't have an attorney representing me at this time. I was just informed on this situation last week when I told the Agent & Investors I needed to be paid back already. 

I know this wasn't handled the best way. (it's my first private money deal) and thus far all I have is the original agreement, the transactions on my credit cards. The investor has been cooperating as he believes the PM/Agent is hiding something as well, so they've sent me their HML draws & transactions of them sending it to the PM/Agent via zelle's. Along with text convo's and some recorded calls. 

This is an unsecured loan. Call an attorney asap to see if you can attach the property to the debt. Very strong probability that you dont recover these funds as the best case scenario is that youre in second position behind hard money on a flip that is blowing up. You also need to find out the status of the HML asap. It may be in default as well, which means arrearages, default interest, late fees, etc are piling up and consuming equity.

If Im understanding correctly, you paid for materials directly using credit cards, and then allegedly the contractor ran off. I would consider reaching out to local law enforcement about this after you discuss with an attorney. This sounds like there could be fraud involved. It's very common for contractors to charge materials to a job that are not for that job and then keep them for another job. Many states also have contractor fraud statutes that allow for prosecution of contractors who take payment for work but then dont complete the work or return the payment. 

Not gonna lie, you've made a mess of this. It's going to be an expensive lesson. Not kicking your when you're down, but rather being realistic about the likely outcome of this situation.

For sure, expensive lesson to learn. So right now the HML is in good standing, the investors are making the monthly payments and we've projected this to sit another 2 months or so and should be fine there. With the numbers as they are even with the extra rehab expenses, there should be enough meat on the bone to pay me back my 45k once it sells & after HML is paid off. So what im looking to do is make an amendment to the agreement that I will now be in second position (if thats even possible this late in the game) and have title instructed to pay me what is owed before Investor get's any return. The investors have been cooperating thus far and want to make things right and feel victimized by the Agent/PM as well. So as long as we can get that in place I should somewhat have some reassurance since theres still equity. It was just listed 2 weeks ago.

We are also considering reporting the Agent and opening a police investigation since they are refusing to provide any documentation or proof of transactions for the said "extra 36k in expenses, (not including the 18k they claim a GC ran off with) 

sounds like a Morby gater fund deal to me.. but yes if the borrower will agree to signing a DT and recording it you should do that post haste.. I am not positive but I suspect no one told the HML about you or your deal set up.. 

If you cant get security right away and you dont get paid your remedy is to sue on your note.