All Forum Posts by: Vahe Ohannessian

Hello fellow BP-ers,

This is regarding a deal in Massachusetts, so any input from MA Attorneys familiar with Hard Money Lending and related laws would be greatly appreciated.

I recently closed on a property where I ended up closing WITHOUT the original hard-money lender I was dealing with. A few weeks before closing I signed a "Loan Estimate" with the subject lender for $475K with 3 points and 12% interest, and paid a $2500 non-refundable deposit, of which $1,000 went to the broker and $1,500 went to the lender. But because of a Commitment Letter I signed about 9 days before closing, he's claiming I owe 3 points equaling $14,750, and now even more costs as he claims he will be taking legal action.

Admittedly, the letter I signed has only one reference to “Points” which is in this paragraph, neatly disguised in the middle of the document (it did not even catch the attention of my closing attorney):

Termination of Commitment: In the event the Loan is not advanced and the Commitment is terminated the Deposit shall not be refundable to the Borrowers and may be retained by [LENDER, LLC] along with the Points that are earned upon execution of this letter as liquidated damages except in the event of [LENDER, LLC]'s default.

Then, somehow, the VERY LAST sentence of the letter is this:

"By accepting these approval terms, you do hereby agree to pay for all costs and expenses incurred in preparing to close the loan, whether or not the loan is closed, not to exceed One Thousand Dollars ($1,000.00)."

To make things even more interesting, I signed the Commitment Letter as Trustee of [TRUST A], and for a completely unrelated reason, I closed on the property as Trustee of [TRUST B]. Right now [TRUST A] owns nothing and is obsolete.

At no time in any of our conversations was there any mention of points to be earned even if I didn't close with them, including the last conversation when I called him to inform him that I was moving forward without them. I even mentioned I understood why they charge $2,500 upfront because of situations like this. He then congratulated me and wished me well, then sent my closing attorney the request for $14,750 payment, which left me utterly shocked.

Any advice here would be greatly appreciated. The last thing I want is to drag this in court for over a year, but if I have strong grounds I would prefer to let him proceed with his threats and legal action, or settle for something small.

Thank you!

Vahe Ohannessian

@Ben C. As I mentioned before, my hunch is that there's more to this than just the anchor bolt issue that led to the architect quitting. The bottom line is, if you want/need him to deal with what's beyond his scope of services as originally agreed upon, pay him for it. Also, talk to him and ask him just what it is that caused him to walk off, and, if need be, remind him that there's a code of ethics that he needs to serve by. I wouldn't threaten him unless you're convinced he has been unprofessional, or dishonest, or incompetent, or something else. I'm sure NJ has an avenue for consumers to file complaints against state-licensed architects like they do for many types of professionals and service providers.

@Ben C. This is a unique situation where something is being asked for "out of sequence". I'm a bit surprised to hear that your structural engineer is saying it doesn't make sense that the architect doesn't provide the anchor bolt sizing. Many (or even most) architects, including myself, would not feel comfortable specifying anchor bolts for this particular situation. I would push to just get a structural engineer to do the required calcs, and have the contractor install as @Brian Pulaski suggests.

As to the architect recusing himself, I don't have enough information on your contracts and the events surrounding the issue to share an opinion. I can say that if you're pressuring him to provide services that he's not being paid for (due to an error on the part of the contractor) then he can say no.

@Tom W. I don't known what you do for a living but you're right on with your comments about the roles of the architect, inspector and contractor. Sounds like you've been in the field for a while.

@Ben C. I read some of the earlier threads but I was hesitating to comment (and blame the architect as some have) because I didn't have a full picture of what was going on. I still don't, but when you explained that the contractor had to open up concrete to expose the footing for inspection, it made sense. I'm a licensed architect and a contractor myself, and I can assure you the contractor was the one who should have known better than to cover a footing before an inspection. To throw the responsibility to deal with this problem on the architect who didn't have anything to do with it would be frustrating to me too, so I understand why he pulled himself off the project - my guess is that this issue was not the only thing that put him over the edge.

MY SUGGESTION:

I hope you're not done paying the contractor. Take responsibility for finding a solution and deduct whatever it costs you from your final payment to the contractor. If you've already paid him in full then the cost will be out of your own pocket, unfortunately. You should never pay a GC in full until the permit is closed out.

If the original architect would be willing to provide what the inspector is looking for, offer to pay him hourly for the extra work, and hopefully deduct from final payment to GC. If the original architect is no longer an option, find another architect or a structural engineer, offer to pay them hourly, and again, deduct from GC's final payment if possible. If you're going to find someone new, I would suggest a structural engineer instead of an architect, because many architects don't do structural design, they will hire a structural engineer to work under their "umbrella". The footing, lally column and anchor bolt issue is more of a structural design than architectural. In any case, I would not trust the GC to find someone to provide what the inspector is looking for. And by the way, make sure that whoever you hire also inspects the contractor's final installation and approves it before you get it inspected, because the inspector will be looking for the design professional's seal of approval.

I hope this helps, keep us posted!

Good afternoon Pete,

If these lots are still available please shoot me an email at [email protected] with some details or call me at (339)222-8515 to discuss.

Thanks!

Vahe Ohannessian

Boston Architects and Builders, Inc.

@Robert P. and @MIchael Rickerd for some reason my previous post from a few minutes ago did not capture your names with the @ symbol, so I'm adding this post to bring your attention to my previous post.

@Robert P. I totally agree with @Michael Rickerd. There is absolutely a dollar value to you as the owner of this property, and as others have said, I would be all over it.

But I will go a step further: put yourself in your tenant's shoes. You're living in an uncomfortable home with brutal New England winters and no insulation in the walls, along with pretty big utility bills (if I had to guess). You have an organization that is willing to spend thousands of dollars to assist you by insulating the walls, since you don't have the means to do it yourself, and even if you did, it's not your house so you wouldn't spend the money. So you're thrilled that you'll be living more comfortably, AND paying less in utilities. The organization is also thoughtful enough to put all these insurance and license requirements on anyone who wants to do this work, and they're willing to pay the premium to make sure they only use qualified people. Makes you feel like they really care for you as a tenant as well as your landlord. So now the only thing standing in your way is your landlord, and you're not quite sure what his reasoning is...

Robert, you yourself described your tenants as "great tenants", so even if there was no financial benefit for you, it's very little effort to keep them happy.

Here are the benefits to YOU as I see them:

1. Less strain and longer life on your HVAC equipment, as others have mentioned.
2. Improvement of your property at no cost to you (except patching paint). It's obvious from the organization's requirements that you're benefiting from the work:
   • Why are you not allowed to raise the rent for the next year? Because your unit is now more valuable and can merit a higher rent with insulation and lower utility bills! (Plus you have the option, once you see how low the bills are, to rent to your next tenant with utilities included and higher rent, so YOU benefit from the insulation upgrades).
   • Why are you not allowed to sell your property in the next year? Because it now has greater value with the insulation in it!
3. Good and happy tenants are a luxury, not to be taken for granted. When they leave, it's a hit for the landlord, even if they get another good tenant.

I hope this helps with your decision. I know it involves SOME work for patching, but between you and the tenant I'm sure you can make it happen in short order.

Best of luck!

@Danny N. If I understand your post correctly, what you want to figure out is "Highest and best use", so that you can build something that has the greatest value out of all the options for what can be built on these sites according to zoning. What you want to do is pay an architect, and probably a very experienced real estate broker, for a "feasibility study" to determine the highest and best use. If you don't spend several thousand dollars to take this first step, you will always wonder how much more you could have earned if you had gone with a different type of development. Part of the equation for the feasibility study is whether you're planning on selling off the whole development after it's built, or leasing residential and/or commercial space long term, or a combination of both. There are lots to consider, even in the type of development - mixed use has gained a lot of momentum in recent years. Developing a raw piece of land is so much different than buying built property and holding for rental income. You really need someone who understands zoning, property types and short & long term income and can guide you towards the best development type.

Best of luck with the project!

@Joseph Lucido, it sounds like you've been diligent in all your research. In case you haven't already done so, make sure you ask the zoning officer 1) if this 3rd rental unit is allowed in your zone (not as an "accessory apartment" but as a full-blown rental unit based on the zone the property is located in, and 2) if you'll be able to sell it as a condo down the road. Every town/city in the Boston area has different zoning by-laws and there may be some hard-to-find clause somewhere in the ordinance that could spoil all your big plans, (for example, parking requirements).

And as far as the role of an architect, @Eric Teran and @Account Closed make some valid points. I would also add that the architect has no control over the construction budget, unless he has experience in construction and you have hired him for pricing and Construction Management as well (not to be confused with Construction Administration). My point is that hiring an architect does not relieve you from major potential risk when it comes to going way over the construction budget. You will need to do a lot of research on the contactor(s) and talk to their past clients and ask them about their experiences with regard to cost overruns, surprise extras, scheduling, etc. You should be able to get a "fixed price" with some clauses for unknowns that no one can see until you starting digging or tearing open walls. I'd also be very careful about getting the lowest bid - again, just make sure you do your due diligence on them.

Lastly, your $200K may very well make a better return somewhere else, but this is your property and you will do what you're most passionate about, and do something you can take pride in, even if it's a little less lucrative. Best of luck with the project!

@Katrina Razavi

Thanks for the clarification, that makes sense. And I think you're right about having to gut the place to make the unit meet building code. Sorry I'm on the other coast, otherwise I'd love to help.

Best of luck with the project.