Stuck in a Jam on Financing...

[Ulrich Faircloth]

Hi Everyone,

So...my business partner and I are in a jam. I decided to partner with my buddy. He and I went to go check out properties yesterday. We found one that immediately caught our eyes. 

Here are the issues... 

1) my buddy/partner has good income, but poor credit. He and his wife got screwed on a house a few years back and the mortgage company REFUSED to foreclose even though my buddy and his wife kept telling them to. His credit has been hammered since that time. I was hoping that my good credit would help even things out. I need his help in order for us to get qualified for the $30K more in financing we need to bid on the duplex we want. 

2) This is probably the worst...one reason my buddy is getting a duplex with me is that he is planning on moving out of the apartment that he and his wife currently live in. He wants to get away completely. The issue we're having is that the mortgage specialist is that the underwriters won't approve of a mortgage because they won't believe that my friend is going to leave his wife to come owner-occupy a property with me due to the possibility of "occupancy fraud". The only way it would go through is if he legally separated or divorced...they need verifiable proof. But the issue is that we're strapped for time (properties don't wait on formalities) and that if he were to do this he would be out of a place to stay in the interim...my studio apartment can't fit two people. 

So what do we do? I can only qualify for $130K on my own (need $160K), so I can't get the property myself and add him on later. And I can't add him as a guarantor because of his terrible credit. We're in a big mess, basically. 

Thanks,

Ulrich

[Roy N.]

@Ulrich Faircloth

Your "partner" is in a disintegrating marriage (another partnership); already has bad credit (which is not likely to get better in the near term if he is headed for divorce); your talking about "bidding" on a duplex as your first investment, with your partner occupying half (making your investment returns poor, unless he plans to pay market rent).

Personally, I'd steer clear of a partnership with this individual until he has his life in order.  

If you plan to go ahead, then spend a few hundred dollars with a good attorney to draw-up a partnership/shareholders agreement {depending if you elect to use a partnership or LLC} which defines the obligations & expectations of the partnership and specifies what happens at dissolution and how the process shall occur {all partnerships end}.

If you can get the property based solely on your credit, then perhaps your "partner" signs a long-term lease with the company (LLC, partnership) and, if allowed under Minnesota law) pays 1-3 years rent up-front (your missing piece of the downpayment).

Creativeness aside, this smells like trouble and your desire to help your friend could lead to making a poor purchase and a bumpy ride for the friendship.