Tenancy In Common
Ok this one is unique. Have a deal that the seller is a tenancy in common for 50% of the properties. Seller has gone to court numerous times and won regarding the partner not paying any rents to them. The partner still has not paid.
Since there is no cash flow getting a loan on the properties will be tough. It is obvious I will have to sue the partner for the back rents , win and then put a lien on the properties while I am buying it. The amount of monies owed on these are huge. The partner hasnt paid in over 10 years, and the seller has not kept up with the suits.
Questions that I could use some advise on:
Can the court force liquidation of the assets to pay me off?
Can the current partner get a loan on the part of the property that is or will be mine?
Besides the non existant cash flow on the property, and the cost of the lawyers, what other pitfalls are there in a bad tenancy in common situation?
All help is greatly appreciated as I have never done a TIC before let alone a bad one like this.
Thanks,
Kyle[ Edited by KyleGatton on Date 09/14/2004 ]
If it is a true TIC then the partners interest my not be assignable. You must check the appropriate state law.
More likely they are joint tenants in which case you do not have as much trouble.
I was involved at the edges of one of these deals once-- so take my advice here with a grain of salt because it was not my transaction and one case does not an education make.
When the fellow who's position (half?) you are buying sued his partner what did he get? An order for the partner to pay or a judgement in the un-paid amount? Is there more than one judgment? Do some of the judgments contain the same claim presented more than once?
I assume that you have appropriately discounted the seller's price for the fact that you may have a world of grief suing your way out of this one.
What is your exit strategy here? Do you want to end up with the land? or would simply buying the interest at a discount and getting paid close to full value be enough? Some parts of the transaction should be handled differently depending on the answer. Having one exit strategy as the goal doesn't necessarily prevent you from taking the other one instead.
Turning to your questions:
Quote:Can the court force liquidation of the assets to pay me off?
Yes, the court can order a liquidation of assets. In fact that is probably the most likely outcome. The court could also allow you to attach the deadbeat partner's half of the property and you could end up in clear title without liquidating the asset. Some of this depends on the intricacies of your state law and some on the way you plead.
Quote: Can the current partner get a loan on the part of the property that is or will be mine?
It depends. One of the first things I would do is record some of those judgements against the title to the property so that if he attempts to do so the lender would ask about it before filing a mortgage.
On the one hand, in a partnership any partner can act on behalf of the partnership and can encumber the partnership as if all the partners had acted in unison.
On the other hand a lender would probably ask for the consent of both partners before actually making a loan.
However there is nothing to stop the partner from encumbering the property with some person not sufficiently above board as to get your consent. Then you have the additional problem of clearing their lien.
Quote:Besides the non existant cash flow on the property, and the cost of the lawyers, what other pitfalls are there in a bad tenancy in common situation?
Yeah there is one other thing that makes the whole thing a crap-shoot. You never really know what that guy in the black robe will do. I've seen cases where the law was pretty clear where the judge went the other way because he felt like one side was a bad guy and needed to be punished.
The deal where I watched this done my friend was given a one-quarter interest in a partnership because the partner who assigned wanted to make the ex-partners life a misery and he knew my friend would do that. My buddy ended up with the whole bulding through a series of machinations that would have made the Borgia's look like a girl scout troup. I don't think anybody actually got poisoned but it had every other intrigue.
That said it sounds like an interesting transaction. Keep in touch.
Unless you know a lot more about the funeral home business than it looks like from your post I'd advise you to walk. FH's are a highly regulated business and although there is frequently real estate component to their purchase they are not really real estate transactions at all but are the purchase and sale of a business (one you must have a license to operate, by the way).