Did We Just Get Ripped Off???
I need some advice, we bought a 22 unit apartment building in Arlington, TX. It closed a month ago. We had been given the rent rolls prior to closing and it showed that the building was 100% occupied. It was occupied, but some of the tenants don't pay rent or haven't in some time, like before Jaunuary of 2004. Well, the management company is now having to evict four tentants and that's just the beginning. Two left without any notice... it's a mess. Not to mention it needs a new roof it's down to the felt and that was never disclosed. Our realtor told us that the apprasier will find any serious problems. I know the roof is our fault because we should of had an inspection, but we listened to our agent. any legal advice or otherwise???
First you were unprepared to make such a large step. YOu should have spent some time studying up on the subject by book, postings, articles, seminars, etc..
Second, the rent rolls mean nothing or very little. You must ask for schedule "E", that will give you the income for the last year and the expenses.
Third, you must mind the store. That means that you need to know about all aspects of your business whether you choose to do them or not. If you don't know how to do a property inspection yourself you need to find someone who does. YOur realtor is not a professional either and will not be held accountable for something that you could/should have checked.
I have found that sometimes sellers leave deadbeat tenants in place because the property looks full and more attractiver to some buyers.
You weren't ripped off, you ripped yourself off by not preparing properly.
I would say, roll up your sleeves, get the deadbeats out, and turn your property around. If your young enough you can re do the roofing yourself possibly. I would also take over the property management (of at least some units) so that you can learn "your business". Learn how to do an eviction, collect rent from deadbeats, etc. At the least make your property manager show you how it is done and follow along closely.
When you have figured it out you will be able to sit back and be the boss and direct your business in a professional and knowledgeable manner.
Good luck.
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I'd certainly let you agent know you are unhappy and feel duped (they maintain insurance so don;t be surprised that they immediately send you to their attorneys).
I agree that as a buyer you have an obligation to thorough due diligence, but when you are intentionally mislead it is your obligation to pursue corrective action (yes, prepare to sue the seller, listing agent and your agent, you might also want to name the management company).
You'll need an experienced attorney who has done this type of work, I'm sure you'll have to bring suit in Arlington, so make sure you get an attorney that will be on your side given your distance.
Yes your right we did "rip ourselves off" we had a 1031 and have managed a single family residence for years. We felt so pressed for time with the 45 day time limit that we really didn't take the time we should have...and we put all our trust into a broker who was selling this place. He befriended us and explained a lot of things to us and we fully trusted him. Picked us up at the airport took us to lunch a couple times and just seemed like a great guy. He told us that that the investors he deals with never use an inspector they just have the apprasial. I have read that if you don't know what your doing always get an inspector...oh well lesson learned...the next time we will know. I will talk to our attorney in Texas and see what he has to say. I am surprised the apprasier didn't even mention the roof. Thanks for the advice
I can't believe that the broker didn't push for an inspection. Maybe you can get up there and do it yourself, if you don't mind getting your hands dirty.
The problem is that the broker did not know of the existing problems and the damage to the roof was something they could have inspected. YOu can generally take 180 days to d a 1031 by using a registered agent/holding company. A good accountant would have told you that. According to most states and the national guidelines for brokers they can are liable for lying, hiding material defects, direct misrepresentation. They didn't force you not to get an inspection, merely offered their opinion and past experience. I find it strange that they would have said, "don't bother with an inspection" If they said "I don't think you need one" then that is an opinion though not a good one.
Now there is a possibility. Was there a disclosure statement made for the property? If the owner new of the roofs condition and it was not readily apparent or accessable to you then that is "failure to disclose a material defect."
In this case you would probably be money ahead to settle with the owner for cost of repairs or split repair costs. As to the renters you are responsible for not verifying status.
[addsig]
Here are some 1031 guidelines using "safe harbor"
Identification deadline requirement: you must identify the replacement 1031 properties within 45 days from closing on the sale of a relinquished property.
Identification notice requirement: you must identify the replacement 1031 properties by signed written notice delivered to your qualified intermediary.
Identification property requirement: you may identify:
· up to three replacement 1031 properties without regard to their total fair market value.
· an unlimited number of replacement 1031 properties, if the total fair market value of all properties is not more than twice the value of the relinquished property.
· any number of replacement 1031 properties as long as you acquire 95% of the aggregate fair market value of all replacement 1031 properties identified.
Closing date requirement: you must close on the replacement 1031 properties by the earlier of 180th day after the closing date for the relinquished property or the due date (including extensions) for filing the tax return for the year in which the relinquished property was sold.
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Good luck:
I've never seen an investor not ask for a schedule "E", all banks would require this, but if your doing an exchange I guess there is no loan. A reasonable, prudent person would have researched this. Especially in a apparently run down facility that has 100% occupancy.
If the roof was "down to the felt" and you didn't knotice this during your visits? You don't need an inspection to tell you this. I've never had an inspection on any property, and never had a agent recommend one (I do them myself, although not that detailed). Seller was not hiding this, it was out there for anyone to see.
You can always ask for Schedule E but the seller is not obligated to give it to you.
Better approach is to have seller direct management company to provide income and expense reports for the past two years. If report is itemized by property, this would have alerted you to the problem tenants.
I agree with the earlier poster who noted that the rent roll is not very useful. The rent roll just tells you which units are occupied and the monthly lease amount. The rent roll does not tell you whether the tenants are paying their rent.[ Edited by NewKidinTown on Date 08/09/2004 ]
The seller may not be obligated to show the E and yet if they want to sell the property to a buyer that is not using all cash the lender will demand it form the borrower. it is a catch 22 for the privacy issue that most sellers are trying to protect.
i too have seen many E's that did disservice to the owner in a sales issue or refinance where they overstated or understated rents and expenses. NY requires the appartment operators file a schedule dhcr (rent control) this really helps borrowers/buyers evaluate the transaction prior to closing.
Quote: "You can always ask for Schedule E but the seller is not obligated to give it to you."
He is if you have put this requirement into the purchase contract! :-D
In some regards, this seems to be piling on. As for knowing about the rent rolls, that is a lesson learned for everyone. The lessons here can be rectified with a change in your practices and hard work.
However, you indicated you managed properties (albeit SFR's) for years. I am a relative newbie and the cost of an inspection can't be overlooked. To me, that was your biggest error, because short of litigation, tthe only way you are probably going to recover the loss of a new roof is hanging on for the long haul.
But thanks for this lesson on your dime. It will provide me with great food for thought as I venture into that market.
TO: toolittletime
You still may have recourse.
Look at any MLS print out and marketing info that the listing agent or your agent provided you about this property.
Look for agent's comments about rents occupancies % or mention of any vacancies, about tenants, etc.
Look for agent's comments about the property condition, roof and per seller comments.
Yes ... real estate companies do purchase an "error & ommission insurance" on closed transactions.
If your agent or the listing agent or company made false or misleading comments about the property condition or rent roll (vacancies, quality of tenants), did not disclose eviction or tenants, not disclose tenants had not paid rents since January 2004, etc ...
Then Yes you do have recourse againt the "error & ommission insurance".
Go thru your records, make documentations of false and misleading statements ... then contact the agent's broker and inform them that you will take action against the "errors & ommissions". The real estate office will refer you to their attorney.
Cheryl Lopez
I
schedule E does not show personal income etc. Just what is spent and earned on the property. Any serious seller will show it to you and unlike the above posts I have never heard of one being refused.
Especially if you make it a condition of your offer.
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