Advice for wholesale/joint venture deal goin south

[Tim Bergstrom]

Hey BP,

Hoping to hear some thoughts/advice from some folks who have more experience than I do in this area. Here’s the scenario:

I own a property in Memphis I originally bought as a flip. I sat on it for a bit and decided later that I may just wholesale it someone else to flip since I was looking to move my attention out of Memphis and into a couple other markets. An investor who I had developed a relationship with here in Nashville does a large portion of their deals in Memphis and knows the area well. I told this person about my property and after this investor went and saw it for themself we discussed a deal and came to an agreement. Originally we called it “Joint Venture” but I essentially wholesaled it to this investor as a no interest/no payment deal for 10 months while they rehabbed the property with a balloon payment for the full amount we agreed on at the end of the 10 months. We closed and I have a Deed of Trust on the property and the lien will be released once I’m paid in full. They are carrying insurance on the property with myself listed as the beneficiary for the full amount due in the event something catastrophic happened.

This investor is experience from everything we’ve talked about and this investor does dozens of deals every year. So they are not new to the space and no stranger to renovation.

The 10 months comes and goes. Due date was July 31. No payment. This investor is claiming that the bank they are using for the construction loan is only wanting to pay out for the construction draws once each work phase is complete (understandable/normal), but are not willing to pay for the property acquisition itself. When I pressed about this the investor made the claim that many banks are pulling back on lending on construction projects that are not owner occupied due to pandemic/economic reasons. I brought up the hard money option but have not gotten a response back addressing that.

So my question is what would you do this situation? Bring down the hammer and foreclose? Or try to dig out another solution? This investor has shown they have actively worked on getting the financing in order, but has definitely under performed/failed to meet the terms of our deal. I also view the reason of not getting proper financing at this point invalid since this investor had 10 months, 3-4 of which were before any Covid stuff was even on the radar.

Thanks in advance for any thoughts or advice.