I purchased a few rental properties last year through a property management company that brought the deals to me. They put tenants in the properties and managed the properties. Part of the agreement was they would use my credit to purchase these homes and I would have no money out of pocket. They chose the properties and decided which ones I would be placed into as an investor. They agreed to pay all mortgage payments each month and pay for all maintenance expenses. Each of the properties leased for enough to cover the PITI of each loan. In fact, I had a positive net cash flow in my portfolio of approximately $7000 at the end of the year. Everything was going great for the first 12 months. The homes were all leased and all my mortgage payments were made on time each month. The loans were all in my name only. There was no formal property management agreement. Everything was on a handshake.
After the 1st year, I had a very unfortunate family illness that caused me to become responsible for hundreds of thousands of dollars in medical bills that insurance wouldn’t cover. I had no choice but to file Chapter 7 bankruptcy to avoid judgments from the creditors coming after me. It was no doubt the worst experience of my life.
The bankruptcy trustee and my attorney advised that all rental income on my rental properties had to be held with no payments made to the lenders unless the trustee gave permission. I advised my property manager of the situation and they agreed to hold the rent money while I was going through bankruptcy. Four months later, my bankruptcy case was successfully discharged. The trustee and my attorney advised that it was now OK to use the held rent money to pay the mortgages and bring them current.
Now, when I go back to my property manager, he’s now telling me that his attorney has advised him to keep my rents for the past 4 months and that I should only receive the rents from this date moving forward. I couldn’t believe it!!! I have over $35,000 in mortgages that need to be made to bring these loans current. The property manager has collected $36,000 in rents during this time period. I’ve demanded an accounting of my rental income the past 4 months and where it went. I trusted him to hold my rents and instead he commingled them to pay for other expenses in his business. They’re also now claiming that they had substanital maintenance and rehab expenses to these homes that they never told me about and they needed to be repaid for those costs. I find the whole thing disgusting because I was never told that they rehabbed any of my homes until now. The way I see it, they never billed me for those repairs and they never consulted with me about those rehab repairs. I knew absolutely nothing about them until now. My position is that they commingled my rent funds and they had no right to those funds whatsoever. As far as the rehab costs they’re now trying to stick me with, my position is they took that risk on their own.
I live in Texas.
Before I consult with my attorney, I’d like to get some feedback from the experts here on whether I have a valid case.
Thanks