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Updated almost 5 years ago, 02/20/2020
Seller attempting to sue me for not buying property.
Hiya all. Well here's my situation.
I wanted to buy a second rental property after we moved to Hawaii for work and became bankable again. I was planning on using the HELOC money from our first rental as the downpayment. I found an agent here on BP from Wisconsin because I wouldn't buy in Hawaii and I wanted to get out of Illinois because the taxes were too high.
So I found a gut rehabbed 2 flat in Milwaukee Wisconsin. I put an offer and it was accepted. I sent the earnest money in time and scheduled the inspection. During the inspection, we found out much of the work was done poorly, including plumbing that didn't lead anywhere. We weren't able to inspect the electrical system because it was turned off from the main. There were other little things, but once I saw the basement walls I knew I didn't want it. Signs of water intrusion, shear wall cracks and a horizontal crack on all 4 walls. So I told my agent to let them know that unfortunately there were too many things wrong with the property and I have to use my inspection contingency to get out of the contract.
The agent told me the sellers don't want to cancel and have a right to make repairs. So I asked him to make a list with all the mistakes on the inspection. He did and we sent that over. Apparently, the sellers had three days to get back to us about these repairs but didn't until 8 or 9 days later. At that point, they said we need a structural engineer to inspect the property if we wanted them to address the structural issues. They said they'll fix the rest. I'm not sure if they did or didn't because they took too long to even reply. When my agent told them that the contract is void because they didn't have the standard 10 days to reply, but 3 according to our contract, they said they are going to sue us.
They dragged out the threats for two months. In the meantime, I ended up buying a rental in Chicago. I found out that the sellers and the selling agent's firm didn't have a contract signed so the agency sent me my earnest check back. I thought it was all done until I got a call from the agent today asking if he can give the lawyer my number.
I really don't have money to hire a lawyer right now and am unsure what to do. I always thought that if you operated fairly and honestly you wouldn't need to lawyer up and try to protect yourself. What do you think I should do? Should I hire a lawyer to speak with this lawyer on my behalf? I am honestly thinking about representing myself if this turns out to be a real lawsuit. If you have a good lawyer for Wisconsin, please let me know.
All in all, our next step into real estate wasn't as good as I thought it would be. Bad things can and do happen. I will keep you updated on how this turns out because this can honestly happen to anyone.
Thank you.
Originally posted by @Ben I.:
Originally posted by @Joe Splitrock:
@Ben I. tell your agent they cannot share your phone number or any of your contact information with the attorney. If they want to find you, make them work for it. You may be able to avoid this simply by not talking to them.
I would also encourage you to read your contract carefully. I found this standard contract on the WI website, but it doesn't match what Brie shared, so I don't know if this is the right contract. Assuming this is the right contract, there are two sections to look carefully at:
217 Right to Cure
This section gives you the option in your offer of choosing if the seller has rights to cure and you can fill in the number of days. If left blank it defaults to 10 days. This is probably the critical point as whether they failed to perform on the contract.
490 Default
This section explains what happens if the contract goes into default. The seller or buyer have rights to the earnest money, depending on who breaches. The fact they returned the money to you already helps your case, because they need to prove it was returned in error. The sellers agent seems to acknowledge your rights to the money by returning it.
My comments are based on this contract from the WI state website. Read your specific contract:
https://dsps.wi.gov/Documents/BoardCouncils/REB/Forms/WB11202001.pdf
I would avoid contact until such time you are served court papers. At that time, hire an attorney. Do not represent yourself. My guess is it will go away and I would not spend money defending myself until necessary.
You got to it before I did. We wrote in three days in that section.
What do you think? Is this clear now or is there an angle they can chip at?
I am not a lawyer, so this is not legal advice. But it looks like you are good. My guess is the seller is suing you because he did not realize that this change occurred with the new contracts and the agent wrote in 3 days. I would have your agent call the lawyer that wants to contact you and politely tell them to review line 219 of the contract and provide the lawyer with a copy of the contract
- Brie Schmidt
- Podcast Guest on Show #132
Wait. Did they give you YOUR original check back or did they cash it and give you a check from the Broker's Trust Account? If you have your original check, then there's all kinds of wrong with that. Then for sure you have no worries whatsoever....although I don't think you have a worry either way.
Originally posted by @Karen Margrave:
@Ben I. Here in CA you have the inspection period for all inspections and if anything shows up you don't like, you can cancel, OR ask for repairs. If they refuse to do repairs, then you can cancel.
It seems as though you were within your bounds, and they couldn't perform. However; we don't have a copy of your contract and can only guess
Your broker needs to deal with this. They were the ones that should have made all requests, filled out contingency releases if necessary, etc. Email them.
I don't know your laws, or contracts. There's usually a clause for arbitration, and if so, hopefully you can do that. But talk to your broker first, then attorney if he can't handle it.
They are working with me, but until the lawyer actually makes an official lawsuit there is nothing they can really do more.
Originally posted by @Brie Schmidt:
Originally posted by @Ben I.:
Originally posted by @Joe Splitrock:
@Ben I. tell your agent they cannot share your phone number or any of your contact information with the attorney. If they want to find you, make them work for it. You may be able to avoid this simply by not talking to them.
I would also encourage you to read your contract carefully. I found this standard contract on the WI website, but it doesn't match what Brie shared, so I don't know if this is the right contract. Assuming this is the right contract, there are two sections to look carefully at:
217 Right to Cure
This section gives you the option in your offer of choosing if the seller has rights to cure and you can fill in the number of days. If left blank it defaults to 10 days. This is probably the critical point as whether they failed to perform on the contract.
490 Default
This section explains what happens if the contract goes into default. The seller or buyer have rights to the earnest money, depending on who breaches. The fact they returned the money to you already helps your case, because they need to prove it was returned in error. The sellers agent seems to acknowledge your rights to the money by returning it.
My comments are based on this contract from the WI state website. Read your specific contract:
https://dsps.wi.gov/Documents/BoardCouncils/REB/Forms/WB11202001.pdf
I would avoid contact until such time you are served court papers. At that time, hire an attorney. Do not represent yourself. My guess is it will go away and I would not spend money defending myself until necessary.
You got to it before I did. We wrote in three days in that section.
What do you think? Is this clear now or is there an angle they can chip at?
I am not a lawyer, so this is not legal advice. But it looks like you are good. My guess is the seller is suing you because he did not realize that this change occurred with the new contracts and the agent wrote in 3 days. I would have your agent call the lawyer that wants to contact you and politely tell them to review line 219 of the contract and provide the lawyer with a copy of the contract
I know I'm not supposed to talk to the lawyer when he calls, but I want to tell him exactly that. I am aware he didn't even have a copy of the contract when he first starting calling to sue.
Originally posted by @Jacci Konkle:
Wait. Did they give you YOUR original check back or did they cash it and give you a check from the Broker's Trust Account? If you have your original check, then there's all kinds of wrong with that. Then for sure you have no worries whatsoever....although I don't think you have a worry either way.
I have my original check. It was never cashed. I can provide bank statements showing nothing ever left my bank and the actual check.
Done. There's no legally binding contract. Consideration (money) is a necessary element of a binding contract. That's why nobody signed a CAMR (cancellation and mutual release) because there was nothing to cancel. The broker never had agency to legally represent the seller and couldn't legally deposit the funds into their trust account. Wow, how do these people even operate? You could report them to the WI DSPS (Dept of Safety and Professional Services), but if I were you, I'd just put it in my rear view mirror. This entire chain of events is NOT normal practice and should end up as a one time occurence in your investing career. Sleep well tonight. You'll be fine. Again, not an attorney, but been in the biz a long time.
Admittedly I did not read the entire past three pages of threads and responses. However from your question I severely doubt you have anything to worry about. What are they going to do, ask a court to force you to buy the house? Very silly. Plus you have the home inspection with issues. They cannot just come back and force you to hire an expert (structural person) to tell them what they need to do to fix their own property. That would be madness. They have to hire the experts themselves. That is the whole point of a cure provision, and certainly the cure provisions in the standard WI real estate contracts. If I were you I would contact a lawyer, of course, to get high quality information if needed. But I would probably just call them and tell them they need to leave you alone and they should not contact you again. If they have a lawyer however, then presumably their lawyer sees something in it willing to take his/her time. So I would be more careful. Even so, their lawyer may be unaware of the facts or something. I personally would probably ignore them after informing them they have nothing. The caveat is I have not seen all the documents, etc. Any lawyer you contact you need to also give them the documents. Do not just ask them hypotheticals. I hope it works out!
Originally posted by @Jacci Konkle:
Done. There's no legally binding contract. Consideration (money) is a necessary element of a binding contract. That's why nobody signed a CAMR (cancellation and mutual release) because there was nothing to cancel. The broker never had agency to legally represent the seller and couldn't legally deposit the funds into their trust account. Wow, how do these people even operate? You could report them to the WI DSPS (Dept of Safety and Professional Services), but if I were you, I'd just put it in my rear view mirror. This entire chain of events is NOT normal practice and should end up as a one time occurence in your investing career. Sleep well tonight. You'll be fine. Again, not an attorney, but been in the biz a long time.
Thank you. I have nothing against the seller's brokerage. I agree they didn't follow the proper procedures, but I'm not trying to screw anyone over for making a mistake. Life is too short. I got into real estate so I can be free to pursue helping orphans and the oppressed, not to deal with these kinds of issues. Sadly, this seems to come with the territory and we need to learn to pass over these like we do over clogged toilets and broken dishwashers.
Originally posted by @Ryan Seib:
Admittedly I did not read the entire past three pages of threads and responses. However from your question I severely doubt you have anything to worry about. What are they going to do, ask a court to force you to buy the house? Very silly. Plus you have the home inspection with issues. They cannot just come back and force you to hire an expert (structural person) to tell them what they need to do to fix their own property. That would be madness. They have to hire the experts themselves. That is the whole point of a cure provision, and certainly the cure provisions in the standard WI real estate contracts. If I were you I would contact a lawyer, of course, to get high quality information if needed. But I would probably just call them and tell them they need to leave you alone and they should not contact you again. If they have a lawyer however, then presumably their lawyer sees something in it willing to take his/her time. So I would be more careful. Even so, their lawyer may be unaware of the facts or something. I personally would probably ignore them after informing them they have nothing. The caveat is I have not seen all the documents, etc. Any lawyer you contact you need to also give them the documents. Do not just ask them hypotheticals. I hope it works out!
I know the attorney didn't actually see the contract before he started pursuing this. I am unsure if he has even seen it yet. If he calls, I will tell him to look at that line specifically in the contract and that's it. I will also let him know what my lawyer said 'If we are sued we will pursue any legal ramifications available to us" and leave it at that.
Didn't read all of this.
Next time have a contract where FOR ANY reason during inspection period, due diligence, etc. you can cancel and get back your full earnest money. Have in the contract that the contract does not require the sellers consent. This way the neutral third party title company or attorney holding the EM ( do not let sellers attorney hold it) can reasonably determine based on the contract who is owned earnest money.
I have seen sellers before almost blackmail the buyers saying unless you take 3k out of 15k earnest money deposit then we will fight this in court. If the contract says both parties have to agree on release of EM or it gets interpleaded into court then usually not good. The sellers know they likely lose in court but until then it's a way of keeping the whole earnest money tied up. The seller in this cases is trying to get their attorney fees paid instead of coming out of pocket for the cancelled contract.
When anyone says a full gut has been performed ask for pictures of the WHOLE process. This tends to cut down on shoddy work and hiding stuff behind walls.
No legal advice given.
- Joel Owens
- Podcast Guest on Show #47
Originally posted by @Joel Owens:
Didn't read all of this.
Next time have a contract where FOR ANY reason during inspection period, due diligence, etc. you can cancel and get back your full earnest money. Have in the contract that the contract does not require the sellers consent. This way the neutral third party title company or attorney holding the EM ( do not let sellers attorney hold it) can reasonably determine based on the contract who is owned earnest money.
I have seen sellers before almost blackmail the buyers saying unless you take 3k out of 15k earnest money deposit then we will fight this in court. If the contract says both parties have to agree on release of EM or it gets interpleaded into court then usually not good. The sellers know they likely lose in court but until then it's a way of keeping the whole earnest money tied up. The seller in this cases is trying to get their attorney fees paid instead of coming out of pocket for the cancelled contract.
When anyone says a full gut has been performed ask for pictures of the WHOLE process. This tends to cut down on shoddy work and hiding stuff behind walls.
No legal advice given.
I can only imagine the issues we'd find if we actually take this to court and look up what permits were taken. I can't imagine an inspector would have passed the plumbing rough-in with the tub drain leading nowhere. Since I used the standard contract for Wisconsin, I didn't even think of making changes like you mentioned, but maybe that would have been a good idea.
Scare tactics....
I would tell MY agent to send the lawyer the contract and any relevant paperwork on dates and earnest money transactions and NOTHING else.
Otherwise NO CONTACT in any way until some legal lawsuit is filed..... then and only then call an attorney and respond.
This will go nowhere..... they are trying to scare you into shelling out some $$......
Originally posted by @Ned J.:
Scare tactics....
I would tell MY agent to send the lawyer the contract and any relevant paperwork on dates and earnest money transactions and NOTHING else.
Otherwise NO CONTACT in any way until some legal lawsuit is filed..... then and only then call an attorney and respond.
This will go nowhere..... they are trying to scare you into shelling out some $$......
That's exactly what I figured. Honestly, without such good input from you guys and my lawyer, maybe they would have succeeded in scaring me.
If work has been done an idea might for the future could include asking for a book of pictures in advance. Some high quality rehabbers will document their work from start to finish to give comfort to the buyer purchasing their remodel. On the commercial real estate side I have a confidentiality component in the Letter of Intent. This way I try to get materials upfront as much as possible before going under purchase and sale.
- Joel Owens
- Podcast Guest on Show #47
Originally posted by @Joel Owens:
If work has been done an idea might for the future could include asking for a book of pictures in advance. Some high quality rehabbers will document their work from start to finish to give comfort to the buyer purchasing their remodel. On the commercial real estate side I have a confidentiality component in the Letter of Intent. This way I try to get materials upfront as much as possible before going under purchase and sale.
I wasn't even sure if I could ask them to pay for a new inspection with the electricity turned on. I don't know who that would fall under.
@Merritt S. No, in Wisconsin a verbal contract can be binding, but just like everywhere else, no when it comes to real estate.
https://www.wra.org/WREM/July13/Writing/
@Sue K. Verbal agreements aren’t “illegal”. They are usually just unenforceable, especially when it comes to real estate.
Originally posted by @Steve B.:
@Sue K. Verbal agreements aren’t “illegal”. They are usually just unenforceable, especially when it comes to real estate.
Semantics. They are not legal. Real estate transactions must be in writing to be legal. So, if they aren't wouldn't they be illegal? Does it matter which word you use? It's not a crime, per se, I'll give you that. Either way, no contract is formed if it's verbal when it comes to real estate transactions.
This is why I use an attorney when I purchase a property. The agent is not the person I wand to advise me about the terms of the contract. Most standard contracts, preprinted ones from local association of realtors, offer inspection clauses that allow you to cancel the contracts during the inspection periods. And without having to answer to the seller.
My response would have been a simple no they may not have my number.
If they want to sue me they can file it. granted I already have multiple attorneys who represent me in different matters so I might make a call to them. I don't know how you guys run businesses without an attorney relationship. I'm buying in a state I've never bought in before right now. My first call before signing the contract was to my new attorney in that state. I've never had one charge me for calling and asking a question I make it clear they're hired. In this case to write my operating agreement and handle closing.
i had 2 phone calls, 1 email, and a text message with them so far. They've answered about a dozen questions about how things are done in that state.
i'm now under contract, that attorney has my earnest money and the contract.
Your attorney should literally be your first call when opening a business (i.e. buying a property) in a new state. The second call I make is my accountant. This time I actually stopped in to say hello and ask my accountant a few questions while dropping off some 2019 records...
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@Ben I. Nothing to worry about. All bark, no bite. Empty threats and bullying. Don’t be controlled by fear. Especially if you did no wrong!
Now send me $1000 for my advice or I’m going to sue you!
My bs threat should scare you as much as theirs...none.
@Brian Ploszay I guess it doesn't matter what the contract says when it comes to them threatening to sue. It will only matter once we go to court.
@Shane H. This is exactly what I will do if I ever decide to go out of state again. I wish I knew this before
@Jay Hinrichs the lawyer called me today but my phone never rang, it went straight to voicemail. In the voicemail he said he has his marching orders to start on this Monday and was giving me a courtesy call to talk it over beforehand. I called him right back but he didn't reply. I highly suspect he wants me to stress about it over the weekend which is exactly what I won't be doing.