Stuck!! Need legal help!

General Real Estate Investing
1

Hello,

I contracted a home in California for the sale price of 370k and a credit back in escrow of 20k, contingent on buyer obtaining financing. I agreed to take the property as-is condition. I asked the owner (A Lawyer) several times if the property had any foundation or sub floor damage. He replied “NO”. We filled out the contract and checked the as-is box. At the end of the contract it had: other___ and the layer wrote down as-is condition again. I started to get a little suspicious, but he had a clear termite inspection stating he had completed all the repairs, and stated it had no sub floor or foundation damage. I had two copies of the contract to fill out so we each would have a copy. The lawyer insisted we make one and copy it. I didn’t have a copier and it was late at night, so he said he would drop it off at my title company in the morning (it was close to his office) and they could fax me a copy. I agreed. We opened escrow and I contacted my lender to get a loan. He said he couldn’t get me a loan with a credit back of 20k (to high of a credit) So I contacted the lawyer and told him what I had found out and asked If we could write up another contract, so I did and also with my suspicions about the as-is, as-is in the first contract I asked to view the property again. And every thing looked ok. I walked in the garage and the center of the floor was raised about 6” in the center, the entire length of the garage. I went back home and wrote up the new contract at a sale price of 355k and the seller to credit back 6k for escrow fees and added contingent on buyer’s written approval of a property inspection, and wrote a contract canceling the first contract. He signed the cancel contract but added contingent on signing a new contract. When I gave him the new contract and told him about my suspicions and I wanted that in the contract he refused. He said I could inspect the property and then we will sign the contract and remove the contingency. That afternoon I crawled under the house and found termite damage and a supporting floor joist that had termite damage and was just covered up by a 2x6 and three nails. I grabbed a hand full of the eaten wood and crawled out. Called the owner a told him what I found. Asked if he would lower the price for the repairs He refused and I canceled the sale. He is now asking for my 1,000 earnest deposit because of breach of the first contract. I picked up the first contract at the title company and the “will be” refunded was scribbled over, and the words “will not” written above it. I do not have a copy of a contract without the added writing WHAT CAN I DO?? Do lawyers have to diclose that they are lawyers befor entring in a contract? Please Help

Any advice will be greatful I have intell the 31 of Oct. with a 15 day extention for lender if needed. and the property is still in escrow so I could close if needed
Thanks
qwerty

2

Hey,
It is my understanding, not being a lawyer, however, that all “scribble outs” and changes of that sort in the contract have to be initialed by both parties to be valid as a protection, I suppose, for what happened to you. It appears as if you need a lawyer, no humorous intent.
Peace,
Richard

3

I am not a lawyer, but I have done a lot of deals in Calif and know the law pretty well.

first off, it appears the first contract is cancelled based upon your inability ot get funding. You should (if you have not already done so), send a letter to the seller and escrow stating that fact. You did not explicitly states that you had a contingency in the contract that you must be able to obtain financing, but I am assuming it is.

As for the 2nd contract it sounds like it was never agreed to by both parties. Thus it is not in force.

With respect to the as-is clause, people frequently misunderstand this. Selling a property “as-is” does NOT relieve the seller to make proper and truthful disclosures. It looks pretty clear that he made a fraudelent disclosure (the “repair” under the house was almost certainly a do-it-yourself job and no reputable termite company would give clearance.

Lastly, you should inform your laywer friend about Calif Civil Code 1057.3. I have included alink to it

(http://www.foreclosureforum.com/mb/messages/14216.html)

and I think it pretty clear. Given you can not get financing, he MUST release your escrow funds. All this business about termite repair, etc has no impact on this.

BTW, do not attempt to continue to strike a new deal with this person despite how much you might like the house. You might also want to consider to contact the State Bar about the conduct of this individual. They probably would be real interested in one of their members doing such unethical and illegal things.

Best of luck. Mike

4

Good post, Mike…

NooBies: Take note – this is great stuff to know!

Keith

5

one more thing…

if he fails to release the $1000 then sue him in small claims court.

after he fails to pay the judgement, then you attach a lien to his house.

its all a matter of how much effort you want to thru to get your $1000.

6

I talked with my lawyer again today. (A landscaper burned me for $1500 about 6 months ago. “I paid” “He left”) He just laughed at me too. He said I had two choices; “loose the thousand and walk”, “or buy the house”. So I’m going to buy the house. It’s not as bad as it looks. The termite damage is only about two boards and one foot on a floor joist. I could have it repaired in a weekend, with the cost around $100 or less. I’m getting the property 20k under market in a cooling market at 19%, With a one year lease option I will walk away with 60k or so, pre taxes, I will about double my 35k I will have too pay out of pocket.

I started investing January of this year, I had nothing, and now I own 2 homes with a combined gross of 710k, and 187k net, and 40k in the bank. After closing on this one I will have a gross of $1,080,000 at 5.4% interest rate, and in a market with 19% return. That’s a 13.6% margin = $149,880.00 per year and my tenants pay the bill. Seems like it works to me. What do you think?
or am I doing it all wrong?

Thanks for all the help!!!

qwerty

7

Thanks aak5454!!!
Thats just what I was looking for.
He changed the contract prior to signing I didn’t notice the small change,

I’ll show the Civil code to my lawyer this weekend and post what he replys

Thanks for any replys
qwerty

8

Any updates on your situation?

9

up date

I decided to purchase the property anyway, on the first contract because the seconded was not agreed opon and the cancelation agreement was never signed.  On the terms of the first contract I would be buying the property as-is unless stated else ware stated in the contract, which it was not. I informed my lender and escrow agents of my intentions of the purchase. I also emailed the ca civil code to the seller this is his responce:

Thanks for the code section. I do have a good faith
belief that I am entitled to the earnest money due to
your breach.

As you should recall, on the night of 10/4/05, you
inspected the crawl space of the house on XXXX Paragon
Ave. I met you at the property, when you informed me
that you are backing out of the deal because the house
has termite damage in the crawl space and because you
felt the workmanship was shoddy. This was despite the
fact that you agreed to purchase the property AS-IS
and despite the fact that I provided you with a
completed termite inspection. At no time did you
mention that you were backing out of the deal because
you were not able to get financing for the property.
In fact, you have not shown me any evidence that you
even made a good faith attempt to do so.

You breached the contract on the night of 10/4/05. As
such, I am entitled to the earnest money as liquidated
damages per the language in YOUR contract (not
withstanding the changes I made to the contract). I
have made additional efforts to locate a new buyer
since your breach. You cannot now say you are closing
on the same terms of the contract in order to preserve
your right to the earnest money by claiming that you
made a “good faith” effort to obtain financing. Your
intentions are obvious to me and will be obvious to a
judge as well.

Very Truly Yours,
XXXXX XXXXXX

10

I am ready to close escrow now, I just need an appresal on the property. My lender would not except the seller’s. So I contacted the seller and asked if he would allow the lender access to the property? He said “no” and that he had found a new buyer. I went and seen my attorney today and let him know what happened. He gave me this letter to send to the seller:

Dear XXXX XXXXX,

I am writing in hopes of avoiding any further confusion, bad feeling, and involvement of attorneys. I understand you are an attorney. As you know I was disappointed to find damage underneath the floor after you stated there was no damage and after signing our agreement of September 27, 2005. We descussed cancelling the contract and you and I exchanged documents regarding possibly cancelling it. However, neither document was signed by both of us with the same language. You changed the document I sent to you on October 3, 2005 and I did not agree to the language you added.

    During this time I was simultaneously working to close the “deal.”  As of today I am still prepaird to close the “deal.” However, my lending insttiution will not accept the appraisal you provided. I stand ready, willing and able to close Escrow; however, you have refused my lender access to the property to make an appraisal. Time is of the essence and I request access for my lender.

     In hopes of avoiding any futher confusion, and to fullfill the contractual terms, I thought it best that I point it out to you my understanding of  the CONTRACT FOR SALE AND PURCHASE OF REAL ESTATE (NO BROKER). It was a form filled in by you. As I understand it you are an attorney and obviouly more knowledgeable in these matters than I am. As an aside I do not know your legal obligations nor rules of ethics. I would point out to you simply that on page 6 of 7 you filled in deadlines for various things to be completed with the date of “8/31/05”.  However, the contract was signed on “the 27th day of September, 2005 (THE EFFECTIVE DATE)”. How can that be?

     In addition paragraph 7 concerns seller’s disclosure of lead-based paint and lead-based paint hazards. It requires an addendum and a mark as to wether a disclosure, is attached or is not applicable. Neither box is checked even though the property was built in 1969. Futhermore, in the third paragraph of page 7 you provided “0 days” after execution of the agreement for buyer to conduct a risk assessment or inspection for the presence of lead-based paint and/or hazards. The alternative was for you to provide me a waiver, wich you did not, and which I would not have signed.

   I truly hope this letter will put on track our contract and my purchase of the property. Unfortunately, days have been lost for me to obtain an appraisal and funding. However, I will use my best efforts to close within 30 days at the sale price of $350,00 but my lender must have immediate access to the property for an appraisal.

sincerly,
qwerty

11

If he has a new buyer, will he be returning your deposit?

Sounds like you are better off walking away. As an investor you need to learn from Kenny Rogers (The Gambler song) and know when to fold them and when to walk away.

In REI one of the hardest things might be to pass on a deal when you know WANT or LIKE the deal, despite the fact it is not a good deal overall.

Believe me, your problems through this deal makes it a BAD deal, despite the money you could make.

Good Luck!

12

Devil’s advocate says:

You really should walk away from this deal and learn from it. Don’t let the fear of loss of $1,000 drive you to other bad decisions.

Forget the appriasal issue. The seller is under no obligation to allow your appriasers access to the property. It’s been a few years since I’ve seen the CAR contract (now living in FL), but I don’t recall if the financing contingency compells the seller to provide access to an appriaser. Practically speaking, most sellers want their buyers to complete the purchase and allow access. You’ve got an appraisal. And, even if you didn’t, there are ways to finance real estate without one.

However, this is all moot. You’ve go a bigger deal-breaking issue:

intent

You intended to cancel the contract. You admit to this, and the letter your lawyer just put together for the seller only serves to further evidence that intent. In fact, I’m not sure you lawyer’s letter to the seller serves any purpose other than to antagonize him further and support his claim against your earnest money deposit.

The letter really doen’t make any compelling legal points as to why the seller must sell to you. Only the contract and it’s provisions dictate performance. Also, the whole LBP issue doesn’t have any traction. You did agree to a zero day inspection period for LBP hazards. Saying that you won’t accept his waiver is evidence that you’re not willing close the transaction under the terms of the contract.

Practically speaking, if a buyer expresses intent to back out out of a contract, then what is a seller to do–wait and see if the buyer changes his mind sometime in the unforseen future? Is he not free to sell his house to another buyer. An wise seller has a buyer immediately sign a document cancelling the original purchase contract. With the original contract cancelled in writing, the escrow company is in a much better position to settle and disburse earneset money deposits.

The contract doesn’t (and shouldn’t) have any provisions for people changing their mind, and then changing their mind back. I don’t know what California case law says regarding cancelling a purchase contract for real property. Does the cancellation need to be in writing? What does your attorney say? Since he didn’t press this issue in the letter, I can only assume that your oral cancellation was good enough. There is no need for some signature fest of all the parties on some other agreement if one party wants to back out.

So where does that leave you?

  1. The only real question in my mind is whether or not the original purchase contract is in force. If so, perform under the contract and expect the seller to do the same. If not, then walk away.

  2. However, you did cancelled the contract orally. If oral is good enough for CA, then you have no contract to complete the purchase on–game over. If the cancellation must be in writing, then you could press the legal issue with the seller. However, you’d be pressing a legal issue with an attorney who doesn’t want to sell to you. You’d probably have to win this in front of a judge.

  3. Whether or not you had the right to cancel is key to determining if you are entitled to your deposit. If you didn’t write in the contingency, then you lose. If you did, you should be able to get your deposit back. You said the contract was for the house “as-is.” That means “as-is” at the time you signed the purchase agreement! If you didn’t do your due diligence by inspecting the property throughly before signing, then that’s your bad.

  4. If you cancelled the contract, then you cannot now claim to be released from performance because of another contingency (e.g. financing). If you cancelled, then you cancelled. All the contingencies went away with the contract. You can’t ask for your desposit back based on the inability to get financing if if the contract is dead.

  5. If the contract is in force, and you can persuade the seller of that fact, you’ll need to find other financing to complete the deal. But think about this: you’re going to ask a lender to finance this property “as-is” from a hostile seller with the appraisal he gave you, without any further inspections, with known termite damage, incomplete disclosures and sloppy termite inspections. Further, you want this lender to process, underwrite, and close your loan in under 30 days with no wiggle room. Good luck! Any lenders out there want to take this one?

Besides, is this deal really worth it? You’ll pour more time and money into a deal that has a low probability of closing, eating up whatever profits you may make while distracting you from finding better deals. You’ll be fighting a lawyer with resources to keep you at bay for a long time while making your life difficult. It’s bad strategy. Cut your losses and move on.

I can’t agree with aak’s adivce here. It a huge leap to even suggest fraud for failing to disclose termite damage that even a licensed termite company missed on their report. And, I don’t even know if a case in small claims court is even an option, since you’re dealing with real property here. Even if it were, you can forget about getting a judgement and attaching to his property. The judge would simply order the escrow company to return the $1,000 they are holding back to you. But, you’ll be out the time and expense of bringing the action. At the same time, you may stir up a hornets nest of legal trouble for yourself if your case impedes or delays the sale of his house to another buyer in a softening market. Just think about it.

Look at the bright side of things. You paid $1,000 for a invaluable education in what will hopefully be a long term career in real estate investing.

My advice, move on.

13

Hello,

Thanks for all the replies!!! After reading the posts this morning, I decided to just move on!
your wright; why wast time on this when I should spend more time finding deals. I have all ways lerned the hard way! This was a $1,000 lesson. I would rather perform all the misstakes at low dollar amounts than if I had a 3% deposit on a million dollar apartment, and be in this situation. After sending the signed cancelation letter to the seller he replied with a susticious letter:

I am in receipt of the four page fax you sent today.
I appreciate the fact that we were finally able to
reach an amicable resolution to this matter. Thank
you for signing the escrow and purchase contract
mutual cancellation form. Now that we have mutually
canceled the contract, we should not have to worry
about that document in the future.

In addition, I do appreciate the fact that we are able
to mutually hold each other harmless in the future in
regards to the entire transaction. Litigation should
always be a last resort in situations like this. I
appreciate you signing and faxing that waiver to me.

I took the document to Fidelity and was able to
receive the $1,000 check. This should be the end to
this entire ordeal. I wish things could have turned
out better. Good luck in the future.

Why do you think he would have stated that (the parts I underlined)
I will be contacting the California BAR assosation to ask about his code of ethics and report any misconduct

Thank you all for the advice and help!!!

14

Hey,
You learned your lesson cheap. My lesson cost me $84,000. I learned the following lesson: In ANY dealings with lawyers, the only winners are the lawyers. The only reason that it cost me only $84,000 was that I ran out of money! Oh, and by the way, I “won.” (LOL)
Peace,
Richard

15

Termite damaged house FSBLaywer: $370K

Costs of litigation against a lawyer: $84K?

Lost depost $1K

Experience gained and hassles avoided: “Priceless”

Best regards,

Jimbo

16

No No No

I gave up the $1,000

This lesson cost $1000 But you guys can have it for free

qwerty

17

Oops. My bad. I read your last post incorrectly.

Updated mine. Hope the humor helps.

Jimbo

18
This lesson cost $1000 But you guys can have it for free

And we thank you for it!

19

I would like to thank you all for the advice!!!

I moved on and lost $1,000. And put my effort in finding something else. WELL IT WORKED!!! I have been trying to contact this little old lady that called on one of my postcards(I use direct mail) She was cautious and every time I called she would not meet with me. So I used a technique I read in some course on lease options. It went like this: I called her up today and asked her where she would she be comfortable to meet me. IT WORKED!! She replied she would meet me at MacDonalds in one hour. I chatted with her for about an hour, then we went for a drive so she could show me her property. I had a look. It was a good deal, after that I asked where she would like to go next? She took me to another property, then another, then another, then another!!! 22 properties in all!!!

Stay tooned and I will show you how to land 22 properties in one month. Plus I will need some more advice

Please leave any advice or comants!

QWERTY

20

Also If any one knows where I can post the upcoming events (under what fourm group) or should I just contenue on this one?

THIS WILL BE USEFULL INFORMATION!! 22 properties in CALIFORNIA with one
70 cent postcard. And some are multi units, one is a 10 unit on one acer lot, all two bedrooms!! But the county rezoned the area for singal family, and the tenents had to be evicted,

Any advice on what to do with this property?

qwerty