Do I Owe Investor Money When Deal Falls Thru??
I have been working for the last 5 months trying to identify properties to buy. I got lucky and someone called me who had a preforeclosure they wanted to sell to me. I was in the process of trying to get a contract signed, so I decided to try and find an investor who could put up the cash. I did all of the preliminary work and signed a contract with this seller under my name. I put up the money for the deposit. My investor came up to the area one time with a contractor to look at the property. Once I identified an investor to work with, I kept in constant contact with the investor, keeping him abreast of everything as it happened.
This investor did not put any of his money on the line, nor was he liable financially in any way. The seller, ultimately decided he did not want to go thru with closing the deal and offered me $20k to get out of the contract.
Now the investor believes he is entitled to half of that money, even though he did not put up any money of his own or sign his name to the contract, putting himself in any position to be liable for anything.
Do you think I owe this investor any money?
If you did not sign anything with that investor, AND if you solicited him via word of mouth, you don't owe him a thing.
He put up no risk, is not liable for anything, and took a few hours to look at an investment.
Quite frankly, that the seller wants to give you $20k to get out of the contract is bizarre. If they are in preforeclosure, how they can afford to pay you $20k? It is possible your investor friend went around your back and is trying to deal with this seller directly.
Please post the details of the deal here, as far as work to be done, purchase price, after repair value, etc.
If it is a GREAT deal, you may want to stall the seller and go file a memorandum of agreement at the county courthouse to cloud the title - just in case. If the guy just lets the house go to foreclosure or makes up the payments to keep his house, then down the road when you get a call from the attorney for the next buyer, you can simply clear that part of title.
However, if this cash investor is actually going around your back AND wants half of the money that is really coming from him (perhaps he offered to pay the guy $25k more), then you protect yourself from unscrupulous players.
sorry if I seem paranoid or devious - I used to be in equipment leasing and saw PLENTY of unethical biz go down, which is why I left.
But again, am I on the only reading this that thinks it is completely bizarre that someone who is in such financial trouble as a preforeclosure homeowner has $20k kicking around to "back out of a contract"?
I hope this thread gets big. I will bookmark it. Best, Dave
that depends on whether you want to do business with him again or not.
since there's no paperwork, he'd have a hard time proving anything. but if you stiff him this time, there may not be a next time. if you believe he didnt do as much work as you
did, you might want to offer a less than half.
how is not paying this investor stiffing him? If all players were legit, and the seller wanted to back out, had no relatioinship or collusion planned with the seller to back around our NY investor, and did not sign anything or put up any money, AND I was that cash investor, I wouldn't expect a thing.
He looked at an investment, he evaluated, never made a firm decision, and even if he did, never signed anything, and the seller wants out...now he wants $20k? If I were the investor, I wouldn't even have told the cash investor the seller wanted to pay me money to back out, I would have kept that to myself, because it is none of his business, BUT it sounds like the wholesaler/rehabber told the guy about the $20k. Otherwise, there would have been no way for the cash investor to know.
Though it is true you have to evaluate the future of the relationship. That is up to you to decide. But I think that guy is VERY bold to ask for $10k - NOW THAT IS A NO MONEY DOWN/NO RISK DEAL!
This is what happened: After I signed a contract with the seller, the seller decided he was unhappy with the deal he made with me, because he really wanted more money. In the state of New York, you need to have a lawyer to prepare the contract. After the terms of the deal were agreed to, I went to a lawyer and had him draft the contract. The seller was desperate, and asked to me to give him $500 in cash (the rest of the down payment went into the attorney's escrow account). The seller had no money for a lawyer. I advised him to get one, but he did not want to.
After the seller signed the contract with me, I received a call from the seller that his father in law (a state senator) did not want him to sell the house to me and he found another buyer (a family friend) who wanted me to assign the contract to him for $20k. When this happened, I posted here (in another section) and the advice I was given was to let the seller out of the contract, because it would have been a nightmare.
I had asked for $25k to assign the contract, but this new buyer only wanted to pay me $20k. This new buyer then accused me of taking advantage of the seller. He accused me of several things:
1. Basically, trying to force the seller into a contract with me because the seller did not have a lawyer and I did. The house was worth close to $400k and since the seller signed a contract for $200k, i was basically stealing the house from him.
2. When the seller wanted the $500 cash, I really didnt want to give it to him, because I felt if the deal fell through, I would lose the $500. The seller would never have paid that back, but the new buyer was accusing me of using the $500 to convince the seller to sign the contract.
There was only about $100k in debt on the property. So the seller would have had $100k profit for himself. I felt I negotiated a great deal and gave the seller enough money to start again. But I was being accused of doing something wrong.
I felt the best thing to do was to assign the contract. Ultimately I settled for $20k because I didn't know what kind of games these people would try to play and because I got the advice the best thing would be to let it go. I really didn't need this kind of aggravation.
But how could I avoid these types of accusations in the future?
How could I have avoided this mess?
Also, with regard to the investor, the investor did not do any of the work. I had my choice of several investors to work with. The only discussion that took place was that we were going to purchase the property and split the profits. Nothing was ever discussed about what would happen if the deal would fall through (this is my first deal). However, I never asked this investor for any money for the down payment or any of the other expenses I incurred - such as payment to the lawyer, home inspection, and other costs involved. Nor did this investor, although he knew I had these expenses ever offer any money to me to cover the cost of these expenses. So when the deal fell thru, and he expected half the money, i told him this and he claims he intended to pay for half the costs if the deal fell thru and I ended up losing money.
That investor's insane. Tell him to try to prove something in court. There's other investors out there that will treat you fairly on other deals. Take your 20k and go find some good deals with it, and turn it into 200k![ Edited by jam200 on Date 04/06/2004 ]
I do not feel you owe this investor any money. Offer this investor $2,000.00 as a consulting fee. You do not want to burn any bridges while you are trying to get started.
The investor is a nutjob, and that state senator is a nutjob too.
Oh, and he's not stealing the house by paying $25k more for it? And $500 is perfectly lawful earnest money.
That guy is full of crap
Take the $20,000, consider it a very fine ending to the story. Nut job senator and all, you did good. You made money, you never had your ass on the line and you moved on to the next deal.
As to the "investor" and whether you owe him anything I guess I have a question first. How did he find out about the $20K?
It seems you are free and clear of the Seller.
I am assuming you have nothing in writing with the Investor. Paying a consulting fee would imply there was some agreement between you and the Investor. This may give the Investor avenues to pursue further.
If this is how the Investor does business, do you really want to deal with him in the future?
This is my opinion, I am not a attorney.
please advise as to what avenues this investor could pursue further if i give him a consulting fee ..... i am really concerned about this.
in answer to the other question, the investor found out about the $20k because i told him about it. I was doing business fair and honestly and I was letting him know what what going on step by step. i didn't expect that he would think he was owed something if the deal fell thru and he put nothing on the line until that point. totally unexpected.
Avenues:
You don't know the investor's financial means for hiring a lawyer. Judgments need to be over $2,000 probably, to make going to court feasible, so this one could fit. Problem for the investor is it's defintely not cut-and-dry in favor of him. The invesor would have to work and spend more $ to prove the non-existent.
You do, however, know the investor's "means" when it comes to ethics. Willing to be persistent and possibly more.
This is why you should pay no consultation fee, though at first I liked the idea and spirit behind it. So the investor drove over. If much advice was offered by him, well that happens, where we don't always get paid for giving advice.
His hardball tactics could win more than he's earned if you decide split or pay. I believe he deserves no $ without legal paperwork evidence, or a good alternative way to give money to him (there isn't a good alternative way.)
Return the hardball with 90% the force received (Dolphin Strategy from Lynch and Kordis), "I'm sorry, but it's not possible on this deal, though I now have greater means to partner with you inside of a contract in the future. There you’ll find I'll defend and strengthen our position in a very reliable way."--BUT you probably will not want to, just get good word of mouth from him, by being a kind stickler of principles and speaking FAVORABLY of him in other ventures. Everyone gets breaks at times. This was yours. Do all possible to end on KIND and FIRM note.
Don't get rattled, or reverse it if you showed it already. He/she will catch on to the gentle strength of a decision stated politely and consistently (if necessary for you to do.)
Strength in Court Room (if it comes to it):
Do not permit or create a link of any kind (via consultation fee), neither for a like-minded lawyer to elaborate on (“There’s nothing more to it!” you cry), nor the investor to "develop" evidence of such. It would be a weak case in any event.
Ever argue with someone completely wrong? They grab every straw. It's personal. They refuse to quit (a maxim taken to the wrong extreme; "Don't be a quitter." They miss the maxim "Honesty", or "Find Your Own Four-Leaf Clover", if there was one.)
Help it not be personal. It's the issue exclusively. This time it was favorable for you. Don't sell your opinion of this but state it. Give an "out" to the investor in that it’s not bad to lose to a person with class (you).
Best wishes,
Alan
Well you learned one thing anyway-- keep your mouth shut about the money.
I don't think you have much liability here. Investors case is pretty weak (unless there's something you've not told us) and the amounts are too small to be worth suing over. You've probably figured out by now that the Investor is a jerk and don't want to deal with him in the future. Keep the money, buy a nice dinner to celebrate. Use the balance (all of it) on the next deals.
With respect to the sellers, you did the right thing. Even if you were absolutely in the right and had an enforceable contract, you'd easily spend all your profit and more in legal fees proving the point. And of course if you win, good luck collecting your attorney's fees from a homeowner in foreclosure. Consider yourself lucky, in most of these squables I walk away with nothing. Finally, as a rule of thumb you NEVER want to go to a jury trial against a distressed home owner to enforce a contract in which you are buying his/her property for less than market value.
With respect to the investor, legally and technically you owe him nothing. With that said you don't want to burn your bridges either. Investors tend to talk, and you could get a bad rap, fair or not, that could hurt your business. If it were me, I'd try to make him understand how much work you put in and how little he had to do, then offer him a smaller sum, say $2K. Also remind him that whatever expenses he "feels" he had above 2K may be tax deductable, and that you saved him from almost certain legal liability had you done the deal. Finally, offer him priority on the next deal you do. Then be sure the next deal you take him is one he will reject. Then gradually phase him out after that.