Partnership gone bad advice
I’m new to flipping in the Austin market and I found a great deal on a property and wanted to partner with a seasoned local flipper on my first one to learn the ropes. They also wanted me to fund all the cash to close on the hard money loan. I said no I don’t feel comfortable partnering if they have no skin in the game. So they agreed to cover half of the cash to close but said they don’t have the money but needed to move some things around to come up with it. On closing day I find out they don’t have the money to put up as agreed. They are on title and the loan. I didn’t want to lose the deal so I agreed to put up all the funds if they signed a joint partnership agreement to at they would reimburse me within 30 days of close. I have 80k of my own money invested at this point. They signed it. It’s now been 45 days and they haven’t paid a penny. I keep telling them they need to send my money and every time they say yes but then they don’t and have an excuse each time why they haven’t. Our agreement clearly states they have 30 days and if they don’t reimburse me I’m entitled to all the profits. They have done a lot of the work with me but so have I (I fly out frequently to check on things and I’m in contact with them and the contractor every day and making all the design decisions and handling the construction draws from the lender). I don’t want to take everything from them but at this point I feel I am being jerked around. I also want to avoid a legal battle if possible and just do what is fair. I was introduced to them through my flipping coach that I paid a lot of money to learn from. I asked for advice and he told me they’re good guys and he’s introduced them to many people and never had issues. At this point though I’m stuck and don’t know what to do because they are on title. If anyone here is a lawyer or has experience with this and could give me some advice I would really appreciate it.
Hannah, don’t feel bad about holding them to the legal agreement they consented to. Consult a lawyer. Colin Newberry at Hay Legal is my guy and he’s great. If you intend to hold them to it and play your cards too early, they may abandon the job. But ultimately, they have not acted in good faith and you are not the bad guy here. Sounds like maybe they weren’t an ideal party to partner with. You can absorb it, learn and move on, or hold them to it. Make sure you recoup all funds at closing, when the flip closes, no matter what, and then don’t work with them again.
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Real Estate Agent
- 512-964-8379
- http://www.brookeroeder.com
- [email protected]
Thank you Brooke, I agree I need to hold them to it but how to without a legal battle would be ideal. I don’t want to throw away all my profits into lawyers. They are on title which I never should have allowed happen but the timing made it difficult. They are not going to just agree to to not profit at this point even though they know what they signed.
Based on what you’ve previously posted there aren’t really grounds for a legal battle because they’ve already agreed to the terms of the deal which should be able to be enforced a closing of the sale of the flip. That’s my perspective based on years of flipping and working as a realtor but I’m not a lawyer so I would 100% recommend paying for an hour consultation with one. I think it will ease your worries quite a bit. Feel free to message me if you have more Q’s!
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Real Estate Agent
- 512-964-8379
- http://www.brookeroeder.com
- [email protected]
@Brooke Roeder I’ve contacted the title company already and unfortunately they said they do not enforce things like that. Because the partners are on title there is nothing they can do and they must either voluntary give you their share or it has to be settled in court. It’s messed up.
I realize none of us want to part with our hard earned cash to an attorney but you need to cover your mistake here and not compound it. Consider it an educational cost to your future advancement!
Honestly, it sounds like you were basically screwed/swindled. some red flags are the "paid flipping coach" who "introduced and vouched for them" and them not having the funds when closing came in. SOUNDS like you were preyed upon since you were so close to closing the deal.
Definitely consult a qualified professional or two, but it sounds like your legal recourse would be to file a lawsuit. Assuming you can get the judgement, then you need to figure out how to collect. Its all expensive.
Yeah, the Title company just does the Title search and maybe handles the Closing function.
If they aren't swindling you, then you need to just ride it out. let/get the reno done, and get the property sold. At least its a hard money loan. They are short term by definition so the property will need to be sold. You would need to sign beig that you are on Title for a refinance and I am guessing you won't be silly enough to willingly sign those documents.
What recourse was written into this Joint Partnership Agreement you guys signed?
Sorry this happened. Good luck.
Sorry to hear. Best thing to do is come to a compromise with them where you pay them X cash for their time or percent of profits and do this sitting with a lawyer together. Even though legally you get all the profits, your partner can just refuse to sign the closing docs and prevent the sale from ever happening. In my experience people who lie and cheat do not care about being sued. Its best to just work this out so everyone is happy and then cut all ties and also share your experience with names on here so others know to avoid this person.
There's a practical consideration here as well. They are providing value to you by managing the project, and seemingly they are doing that and doing it at least ok. So while maybe you're entitled to all the profits in your agreement, in practice that may not be worthwhile in achieving a successful project.
I think consulting with someone like Jerel to understand the 'legal' is helpful and you should 100% do that. But you also need to be prepared to act on the 'practical' of what ensures the project is completed and successfully sold.
@Matt Devincenzo I do agree with some of what you’re saying. I need the project to finish and be successful. But, that money they haven’t reimbursed me I could be using toward other projects and investments, to build my business but I can’t do that now because they have breached their contract. So they get to preserve their capital to use in other properties, while being in breach of their contract with me and robbing me of the opportunity to use my own money for my business. I deserve to be fairly compensated for that. I recently found another deal and I had to pull money out of another passive investment offering me very high returns to fund the deal, when I should’ve been able to use the money they owe me instead and keep my other investment. There is a quantifiable loss associated with what they are doing to me.
@Hannah Partovi I’m guessing your gut is telling you this is a bad partnership…and there is a loss of trust. It’ll likely only get worse, so I’d figure out a way to cut ties sooner than later. The further you go into this the more there will be at stake and, presumably, the relationship will have worsened.
The flipping coach....that's probably where it started. I won't ask what you paid the coach. I will offer my 20 plus years experience free as I have plenty of times on here...this is just wrong
Sorry you are dealing with this Hannah, it sounds like this might be how they operate.They say they’ll have the money, they wait until close, and then they stiff you and sign a new agreement. They probably had no intention of bringing money to close or they are truly scrambling to organize their business, either way their actions are not reputable. I assume they take advantage of investors this way because most likely people want to resolve without going the legal route. So when you sell, you’ll get your money back and you’ll split the profits 50/50. Hopefully you’ve checked into some legal recourse or professional opinion to see if they can provide any further insight.
I may have missed it, but what did/do they bring to the deal? Are they holding up their end of the bargain, aside from the down payment money?
Quote from @Hannah Partovi:
I’m new to flipping in the Austin market and I found a great deal on a property and wanted to partner with a seasoned local flipper on my first one to learn the ropes. They also wanted me to fund all the cash to close on the hard money loan. I said no I don’t feel comfortable partnering if they have no skin in the game. So they agreed to cover half of the cash to close but said they don’t have the money but needed to move some things around to come up with it. On closing day I find out they don’t have the money to put up as agreed. They are on title and the loan. I didn’t want to lose the deal so I agreed to put up all the funds if they signed a joint partnership agreement to at they would reimburse me within 30 days of close. I have 80k of my own money invested at this point. They signed it. It’s now been 45 days and they haven’t paid a penny. I keep telling them they need to send my money and every time they say yes but then they don’t and have an excuse each time why they haven’t. Our agreement clearly states they have 30 days and if they don’t reimburse me I’m entitled to all the profits. They have done a lot of the work with me but so have I (I fly out frequently to check on things and I’m in contact with them and the contractor every day and making all the design decisions and handling the construction draws from the lender). I don’t want to take everything from them but at this point I feel I am being jerked around. I also want to avoid a legal battle if possible and just do what is fair. I was introduced to them through my flipping coach that I paid a lot of money to learn from. I asked for advice and he told me they’re good guys and he’s introduced them to many people and never had issues. At this point though I’m stuck and don’t know what to do because they are on title. If anyone here is a lawyer or has experience with this and could give me some advice I would really appreciate it.
Thoughts/questions:
1. Since you're new to flipping, and new to the Austin market (am I reading this right, I assume both are right since you had a flipping coach?), what made you think the property was such a great deal?
2. Perhaps, since your flipping coach recommended them, and has a lot of your money already, S/he would be willing to buy out your partner and pay their portion? Suggest it to them and see what they say. :)
3. You made the fatal mistake when you closed. You should have let the deal fall apart *or* had it reworked with only your name on the title and the loan.
4. You are going to need legal representation to keep all of these profits. Because you're going to need their signature to sell the property and to close, and to cash the check which is going to be made out in both of your names, and I guarantee they're not going to put their John Hancock on any of those documents if they have even a whiff that you intend to come after them on the joint partnership agreement. I hate to even think how you wrote or came up with this agreement on day of closing, and how well it will hold up in a court of law (did either side's legal counsel review the document? Unlikely.). But your primary interest at this point is going to be coming out whole with what you have invested thus far.
In other words, you should consider this project a learning experience and fully expect to make nothing from the deal. If you come out of it having lost no money, you should count yourself fortunate. *If* there's a huge profit, your best route is probably: play your cards close, stay on nicety-nice with your "partner", get the thing finished, sold, and closed, cash and split the check, and have your lawyer ready to serve them with a breach of contract lawsuit, then aim for a quick settlement.
