I’m finding out the hard way that honesty and morality don’t shield an investor from losing money to the legal system when a lawyer has a financial incentive to sue. I’m being sued for a sub2 deal, which cost me $14,500 to reinstate the mortgage and save from foreclosure. The agreement included that the seller could buy the house back anytime w/in 18 months at a $30K profit to me. Additionally, I was to receive monthly payments from the seller. These payments would cease at the time of buy back.
The suit hangs one thing and one thing only - that the transaction was a loan and that in structuring the deal the way I did, I violated a variety of lending laws.
My problem is that it may cost more to successfully defend my self against the attack of this unethical lawyer than to settle out of court.
Anyone care to offer some advice to help me reduce losses to this unethical lawyer? I’d rather hear from those who have been there or have a pretty high level understanding of the legal system.
You thought you were being the nice guy giving the seller a repurchase agreement deal. As a practical matter, the deal looks, feels, and smells like a loan. The lawyer has grounds. What is the settlement offer?
My advice, contact your own attorney immediately. Let us know how it comes out.
What you describe looks like a loan to me, but I would have to see all your documents to be sure. I suggest you settle. You have a strike against you as an investor and like you said, it will be expensive to fight.
The doc’s included: a ratified sub2 purchase contract and a notarized deed transferring a property to me.
The contract detailed our agreement and penalties for breach of contract. The seller, requested that I let her continue to collect rent on this property and pay the monthly mortgage payment. I requested that she pay me an amount each month equal to the collected rent. The reason I needed this payment was that I had borrowed the funds (almost $15K) to reinstate her loan and needed to pay that money back. I could save her home and the roughly $75k in equity from the auction that was to take place the next day, but I couldn’t do it if I had to make payments on a $15K loan for up to 18 months. My profit was to come from the sale of the real estate, which would happen when she bought it back from me. She could exercise her right to purchase anytime within 18 months.
All of the above was done with absolute honesty and full disclosure. What I’m learning is that having all the benevolent motives in the world doesn’t prevent someone from using the legal system to shake you down.
Until the laws are changed to protect investors from lawyers like the one who is this case against me, keep yourself out of legal trouble by adhering to the following:
never permit a seller to live in the property and pay rent (not what I did).
never permit the seller to buy back the property in the future.
never structure a deal where in you are receiving a monthly payment.
stop selling property on a rent to own basis.
If a law suit can be brought against me, it can happen to anyone who has a deal which includes any one or more of the above. It doesn’t matter if neither one of you were thinking about a loan at the time the agreement was made. It doesn’t matter if there is no loan document. It doesn’t matter if you only have purchase and sale contracts. It doesn’t matter if the seller asks to buy the property back. It doesn’t matter if the seller is extremely grateful that you saved the home from foreclosure.
And what could really drive you nuts is that someone can bring a suit, requiring you to defend yourself at a huge cost. You either pay big bucks to fight back, or you pay big bucks to settle out of court and reward the unethical practice of the lawyer and his client.
Has a suit been filed against you or has it simply been threatened on some lawyer’s stationary? What are the details of the suit, what is being claimed and demanded?
You don’t tell us what state you are in, suggest you update your profile. If we knew which state you are in, your particular state’s statutes might change an otherwise generic response.
Some states have amended their foreclosure laws recently. The changes address “repurchase agreements” and give the “seller” specific rights to a portion of the equity in their property. Some courts have ruled that these repurchase agreements are nothing more than loans.
I’m sorry for your misfortune. But welcome to the real world. If you are doing anything other than lying on the couch, you can get sued.
I have been there. Sued twice by tenants–Slip and Fall on Stairs, Slip and Fall on Wet Grass. Yep, both of them in Californiao, that sue-happy state. Insurance company defended, and then canceled the insurance.
Also sued once by a real estate buyer when I was a RE broker. That one sued for a leaking roof. I had sold the house to him, he had had an inspection, etc. None of that mattered. He sued all the brokers and the seller.
Get a lawyer. Defend yourself. At least your attorney fees are a tax write-off. Good luck and keep us informed.
It appears that I’m in for an expensive education. Given the potential for law suits and other risks, one thing I have learned is that I have been willing to operate on too narrow a margin on most of my deals. I did well on the one I’m being sued for, but only b/c the seller in the transaction died suddenly of health issues, leaving me holding title to a property with lots of equity.
I have intentionally not given many details on my case b/c I am concerned that the :evil lawyer bringing the suit might watch this site. I have learned from two credible sources that he searches for these kinds of suits. He goes after creative real estate investors, regardless of their ethics and intentions. He doesn’t charge his client b/c he argues that a creative purchase was a loan. If the :evil wins the case, he can have his legal fees paid by the defendant b/c lending laws provide for this. So, whether he get’s someone to settle, or whether they fight it, the :evil can get money just for bringing the suit. He has nothing to lose. It’s his business model. Sue enough of 'em and I’m sure to collect on about half. I’m telling you the truth, this guy is a predator.
I’d love to say more, but for now it’s suffice to say that I’ve had three conversations with a recommended lawyer and put him on retainer. I will keep you posted. :bobble
I view lawyers as maybe like surgeons. You don’t even want to think about them or why you need them.
When you need them, you really need them and so just be grateful to have expert help. And that expert helps costs. And it can save your (financial) life.