Hello and Happy Holidays everyone. I’d like to get some guidance on a situation that’s been brewing here for a while now. I’ll try to break it down as clearly as I can with as much objectivity as possible. Disclaimer - This was my first deal since joining BP. If any of you feel compelled to remind me how stupid I was for getting myself involved in this scenario, have at it. I guarantee it’s nothing I haven’t told myself repeatedly in the last few months.

Background: In April of 2018, after speaking with my potential partner, his reference, and doing some cursory online research I decided to enter into a JV with this gentleman we'll call "Joe". Being inexperienced in working with partners on this kind of operation I failed to secure an operating agreement between us. The understanding was that we would purchase, rehab and flip a house in Florida. Purchase price was $84k with a rehab budget of $15k for a total of $99k. I’d finance the whole project and we would split the profit in the end at 50/50. The deal was legally structured as a mortgage note. I am the lender and he is the borrower. He would get the $15k cash at closing to handle the rehab. This mortgage is the only legal agreement between us. Furthermore, the note states that A) his monthly payment to me should be $825/month and B) it is a balloon note payable in full at maturity (April 1, 2019). Obviously there is default language in the note relative to the $825/mo payment and the balloon maturity. We never discussed the monthly payments and I think it was assumed by us both that as long as the flip proceeded according to plan we would not worry about them.

Situation: Fast forward to June 2018 and the house which needed minimal cosmetic repairs is still not on the market. At this point I was informed that we could sign a tenant to a yearlong lease, put the house up for sale on Roofstock as an investment property and split the rental income 50/50 in the meantime until it sells. By September 17th he was behind by a month on my half of the rent payments and he had already bounced a check to me for a different months rent. He then emails me this statement out of the blue: “I forgot that we're taking the rent money for (the property) for the next 4 months or when the property sells and paying the AC guy”. I replied that I was not comfortable with him making such a unilateral decision and that my agreement was to provide $99k funding for this project. Not $99k + a new A/C unit. In total, all I have received in terms of invoices and receipts relative to the rehab are a receipt for a $195 toilet repair and a short email chain from over 3 months ago discussing an unspecified A/C repair that needed an estimate. No receipt for A/C unit, no receipts for any work that was supposedly done on the house. Fast forward to December 2018 and the house is still not on the market, still no receipts or invoices and my partner is now four months behind on my share of the rent.

Subjective: It doesn’t take a genius to figure out what’s going on here and that I’m being taken for a ride. Throughout the process his email response has been sluggish to nonexistent. He’s been telling me things like “Just waiting for inspection” and “I’ve got some people interested in it” since June and at this point it appears to be stall tactics. The bounced check was especially disconcerting and I’m worried that when the current tenants lease is up in June that the whole song and dance will start over from the beginning while he continues to generate monthly cashflow instead of putting the house on the market - even more so since he has been utterly unreliable in remitting my half of the rent. My options appear to be:

1. Foreclosing on the house immediately based on the mortgage agreement. This is what my Florida attorney is recommending. The thought is - If he isn’t paying me back now, he likely won’t hold up his part of the deal going forward - even with an operating agreement. I tend to agree with him and I think letting him string me along for this long with a bounced check and 4 months of back rent due is justification.
2. Do nothing and hope he does a 180 with respect to his business practices.
3. Have my attorney draft a proper operating agreement (or a forbearance agreement in this case) stating that foreclosure proceedings will move forward immediately on any default.
4. Give him, say, 2 weeks to come up with receipts for the $15k of renovation that he was given at closing as well as all 4 months of back rent. If he cannot satisfy these terms, I foreclose immediately.

So my basic question is - from an investors point of view, am I jumping the gun with foreclosure? Is 4 months of missing rent, no invoices and serial evasiveness enough to pull the plug on the project? If not, how much is too much? What would you do if your partner acted in this manner? I’ve been giving the guy slack for 6 months now and my patience has eroded.

Thanks for your input!