I got screwed. Can I do anything about it??

20 Replies

Greetings Bigger Pockets,

If you've read my previous posts, I was 30+ days under contract to buy a duplex (bank owned foreclosure) and was only waiting on the appraisal before closing. The VA appraiser discovered it is not actually a duplex, but it is zoned as single family. Therefore, this contract is null and void. The only options are for me to wait around for months and persuade the seller (the bank) to file a variance with the local zoning commission, and hope that it's approved, or, i'll need to find alternative financing since no conventional mortgage lender will finance this property.

Since the deal was dead, I personally contacted the listing agent to get her side of the story. She has stated that when she was "told" to sell this property, she could only find the first page of the appraisal, so she "didn't see why not" and listed it for sale as a duplex. The listing agent obviously did not do her due diligence before listing this property. After all the time and money spent, the only person to catch this zoning mistake was the VA appraiser. This property should have never even been listed for sale as a duplex.

I will obviously get my insurance deposit back, as well as my earnest money deposit. But as for my $450 home inspection, and 2-$200 plane tickets along with all the other travel expenses and days taken off work, am I just screwed?? Last week, I asked the listing agent to request some reimbursement from the bank. I still have not received word from anyone. Aside from taking this matter to court for about $1000 in compensation, is there anything I can do?

The short answer is no. Zoning is not something typical for an agent to check. Part of purchasing real estate is the possibility that you will be out of pocket some costs if you do not close the transaction. This is just a fact of life. Take your small loss and just move on to the next property.

Medium logo lf re cire box white bboxRussell Brazil, Associate Broker w/ Long & Foster | [email protected] | (301) 893‑4635 | http://www.RussellBrazil.com | MD Agent # 648402, DC Agent # SP98375353, VA Agent # 0225219736, MA Agent # 9052346 | Podcast Guest on Show #192

You could file a complaint with the real estate board. Also depending on location, I highly doubt you will ever get zoning to change a single family to a duplex. But in all reality unfortunately your gonna be out the $.

We are about to close our first deal in the next few week, it is our third deal that has made it this far. We have spent money on two inspections, both of which i am grateful that we did as in both cases the inspection brought up serious problems that would cost us over 10K to fix. To me i see it as a cost of doing business, be grateful you found out now than after you owned the property and could have faced legal fees to get it worked out. But hey what do i know i'm just as new to this as you.

Good luck....

Unfortunately, this is how things work out sometimes.  I don't think anyone forced you to buy the tickets and get on the plane and I would be surprised to learn that a judge thought you were owed any money for your home inspection either. 

Did you look up the zoning on line?  Could you have called the county assessor or local planning authority and found out?  

Not that one would naturally take those steps, but being removed from this kind of information is another downside of investing out of one's own area.  You took the right steps in terms of being careful, but taking those steps often involves spending money up front.  I would consider the experience an  'educational expense.'  It stinks, but if you get too psychologically/emotionally caught up in what happened, you won't move forward and find your first money making deal.  Hang in there.  

Incidentally, my first reaction when something like this comes up is not to ask the seller to apply for a variance, but rather to go back and beat them up on price. "You presented this as a legal duplex, but it isn't. That means the value is lower. I should be paying you (65% of what the negotiated price had been) and then we have a deal." Then go look for alternative funding, or buy it and try to turn it around to someone else (of course disclosing the non-conforming status of the home) or turn it back into a SFH and then sell it.

Thanks for all the replies and thank you if you've offered advice. However, i'm not sure why there is a bitter tone in some of the responses. Perhaps this "small loss" is a common occurrence among investors, in some form or another.

I do understand it is a risk putting money down for something that may or may not close. I also understand that zoning is not "typical for an agent to check". My problem lies with the manner in which this "small loss" was stumbled upon, at the last minute. It should be illegal to "falsely advertise" something for sale unless it is, in fact, %100 the thing that is being advertised. 

At the end of the day, this deal was false to begin with and no one bothered to make sure it was a sound deal. Period

This is a shady way to practice business in general. 

Originally posted by @William Donnelly :

Thanks for all the replies and thank you if you've offered advice. However, i'm not sure why there is a bitter tone in some of the responses. Perhaps this "small loss" is a common occurrence among investors, in some form or another.

I do understand it is a risk putting money down for something that may or may not close. I also understand that zoning is not "typical for an agent to check". My problem lies with the manner in which this "small loss" was stumbled upon, at the last minute. It should be illegal to "falsely advertise" something for sale unless it is, in fact, %100 the thing that is being advertised. 

At the end of the day, this deal was false to begin with and no one bothered to make sure it was a sound deal. Period

This is a shady way to practice business in general. 

You can "help" the agent understand that if he/she doesn't help you recover some of the cost from the bank you will expect to get that from her/his E&O insurance...

Medium logowhite sJoseph Gozlan, Eureka Business Group | [email protected] | http://www.EBGTexas.com

That's what I was lookin for Joe! I may not get reimbursed, but someone should be held accountable in any sense! 

William I think at best maybe you ask for a discount on your next house inspection. Sometimes inspectors will cut a deal because they know you lost money on the first property that didn't workout.

Generally in any listing agreement or the MLS it usually says " Information deemed to be reliable but not guaranteed ".

This means whatever it says may be factual but do your own research to discover for yourself. Courts have upheld that a " buyer has a right to their own inquiry ". Upon discovery by the appraiser you found out this isn't a duplex at the last second. You should have checked that immediately once the property went under contract. You always check for what we call in the business "deal killers" right away. When I am doing 10 million dollar deals the attorneys and I look at big issues upfront and make sure they can be overcome before spending any money. The small items can be worked through before closing.

Were you represented by a buyers broker?? If not were you represented by the listing broker? A listing broker can fill out a contract generally where they are transactional and do not represent either side, dual agency ( representing both sides but not allowed in all states ), representing one side as a client and then the other side as just a customer performing ministerial acts only. It varies by state and what document was signed.

The real estate commission oversees license law infractions and I do not see anything here approaching that. If they are a REALTOR then they are bound by a code of ethics. You might try to claim and ethics breach but it's a long shot.

"The listing agent obviously did not do her due diligence before listing this property."

The listing brokers are relaying information from the seller. They are not experts relative to the history of the property or it's zoning. I am sure if you read the paperwork you signed or disclosures in fine print it will say that.

If you did not have a buyers broker representing your side that was mistake number one. If zoning was not checked right away that was mistake number 2 among many others. You can't assume things in real estate as you know what they say about that.

Sounds like you really came out well losing only that amount. I know people that have gotten a real estate education much more expensive than that. Based on what you have said so far it does not appear you have a basis for compensation in this transaction. You could always run by an attorney and see what they say. Sometimes they will meet for free.

No legal advice given.    

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

Originally posted by @Joel Owens :

William I think at best maybe you ask for a discount on your next house inspection. Sometimes inspectors will cut a deal because they know you lost money on the first property that didn't workout.

Generally in any listing agreement or the MLS it usually says " Information deemed to be reliable but not guaranteed ".

This means whatever it says may be factual but do your own research to discover for yourself. Courts have upheld that a " buyer has a right to their own inquiry ". Upon discovery by the appraiser you found out this isn't a duplex at the last second. You should have checked that immediately once the property went under contract. You always check for what we call in the business "deal killers" right away. When I am doing 10 million dollar deals the attorneys and I look at big issues upfront and make sure they can be overcome before spending any money. The small items can be worked through before closing.

Were you represented by a buyers broker?? If not were you represented by the listing broker? A listing broker can fill out a contract generally where they are transactional and do not represent either side, dual agency ( representing both sides but not allowed in all states ), representing one side as a client and then the other side as just a customer performing ministerial acts only. It varies by state and what document was signed.

The real estate commission oversees license law infractions and I do not see anything here approaching that. If they are a REALTOR then they are bound by a code of ethics. You might try to claim and ethics breach but it's a long shot.

"The listing agent obviously did not do her due diligence before listing this property."

The listing brokers are relaying information from the seller. They are not experts relative to the history of the property or it's zoning. I am sure if you read the paperwork you signed or disclosures in fine print it will say that.

If you did not have a buyers broker representing your side that was mistake number one. If zoning was not checked right away that was mistake number 2 among many others. You can't assume things in real estate as you know what they say about that.

Sounds like you really came out well losing only that amount. I know people that have gotten a real estate education much more expensive than that. Based on what you have said so far it does not appear you have a basis for compensation in this transaction. You could always run by an attorney and see what they say. Sometimes they will meet for free.

No legal advice given.    

Thanks for the reply Joel. 

I understand your point. I'm not claiming that any law was broken or that there was any legal infraction.  My point is, it should not be up to the buyer to discover a mistake of this magnitude. Especially when there are so many real estate professionals working on this deal, buyer and sellers side. This deal was never thoroughly checked by anyone, until obviously the appraiser came. It is simply a sub-par way of doing a deal. 

I think this is a great opportunity to create a new discussion, "Deal Killers"...

Feel free to check it out in my new post.

Originally posted by @William Donnelly :

Thanks for the reply Joel. 

I understand your point. I'm not claiming that any law was broken or that there was any legal infraction.  My point is, it should not be up to the buyer to discover a mistake of this magnitude. Especially when there are so many real estate professionals working on this deal, buyer and sellers side. This deal was never thoroughly checked by anyone, until obviously the appraiser came. It is simply a sub-par way of doing a deal. 

 It is on the buyer, though.  At the end of the day, you have to do your due diligence.  Especially if you were not represented by a buyer's agent, which it sounds like you were not.

You could try to take the VA to small claims for not disclosing this, but I think that's almost certainly a fool's errand. Part of real estate is losing little bits of money like this here and there to make it big with large equity margins. It's really just the cost of doing business. I would probably just brush it off and move on to the next deal.

Medium apartment logoAndrew Syrios, Stewardship Investments | http://www.StewardshipProperties.com | Podcast Guest on Show #121

Just for the record, I was represented by a buyers agent and broker. I do understand that the buyer is ultimately responsible for due diligence, as the buyer will be the one screwed out of money. If this is a "cost of doing business" then so be it. I just feel like one of the "professionals" other than myself, should've caught this problem sooner. That's all.

Please feel free to check out my post "Deal Breakers" and maybe we can compile a comprehensive list.

@William Donnelly Thank you for sharing your experience. Hope you have better luck on the next project.

So you did have a buyers broker, and they didn't check this. If I were to cast blame in this situation I'd say it would be on them, rather than the listing agent. After all, they are the one whose job is to represent you. Have you talked to them about this?

BTW it's not uncommon to have misinformation with bank owned foreclosures. After all, it's usually a big organization that's dealing with the paperwork on a bunch of properties that they've never even seen. Stuff gets screwed up. Often there will be all kinds of disclaimers like "seller has never lived in property and has no knowledge of......"

Medium team zen logo vJean Bolger, 33 Zen Lane | http://www.solidrealestateadvice.com

Sorry u lost the money. Ask yourself what is or isnt worth your time....given a flight was involved. I would suggest a phone call to her boss from an attorney friend of yours, as a courtesy. Have attorney inform boss of what "his client" is considering....and ask if something might be worked out to "appease his pissed off client before things go to an unnecessary extreme"....might work out. This is the good cop bad cop as it pertains to you.

@William Donnelly - what I am about to say is meant to be absolutely serious, not a smart a__ remark.  If you stick with this business, years from now you'll understand that painful and annoying as this experience has been, you're getting off cheap.  

The key is to learn the very important lesson that this incident is screaming at you.   That, if you rely upon anyone other than yourself in this business, you are absolutely guaranteed to be disappointed or worse.  While you can usually rely more on fee based third parties (inspectors, appraisers, and attorneys), even they can make mistakes.  Over time, you'll learn how to double check their work.  Commissioned professionals (I know the scorn is going to rain down upon me) often put their wallet before your interest and to look for problems is counter to their interest.  Are there exceptions?  Of course, but YOU have to act as if there are none.  Even those who properly put your interest first are human and make mistakes and most of those mistakes will cost you money, not them.

It is a rare month that I don't get leads on properties that don't conform to the number of units the seller or agent touts.  It's common for sellers to forget (or purposely not mention) important details of various kinds.  It's common for agents (even buyer agents) to not be very proactive when it comes to due diligence.  Learn to do it yourself so that at a minimum you know how to check what others provide.  No one will care more about your success than you will.  That is one fact you can rely upon forever.  

The particular issue at hand - number of units that can legally be present - could have been determined in less than 15 minutes from anywhere in the U.S. and, perhaps, the world.  Most government agencies that keep this data are online and all have phone numbers.  I prefer online because clerks sometimes give wrong information over the phone.

Thanks again everyone. I'm just a United States Marine from the South. I hold myself and everyone around me to a very high standard...I'm quite often disappointed, but I am learning to adapt! 

Didn't read everyone's response but I say don't give up just yet. Call the zoning office, give them the address and ask if the current 2-family use is permitted or grandfathered in. Just because a property is zoned "Single Family Residential" doesn't mean duplexes are not allowed and or they could have been grandfathered in. For example: I own a duplex in a R-2 residential zoning that most appraisers say Single family residential. However, in R-2 zoning, 1-4 families are permitted for use if: then lists a case by case basis for a grandfathered variance. I've had no issues with the city nor did I have a problem obtaining a loan.