Need help. Partnership gone South.

Real Estate Deal Analysis & Advice
16yFollow

Need help. Partnership gone South.

Chris Da
Real Estate Investor · Phoenixville, PA · Member since 2008 · 105 posts · 38 votes

Here goes...

Approx 3 years ago I really dove into the realesate business. Since then I have aquired 7 houses and 2 plots of land. Have all the houses up and running, and have 2 approvals on my sub divisions. All is going well for me except.....

3 years ago I did my first deal with, at the time, a friend of mine. In my opinion at the time, he was an expert. What I have since found out is that he is not an expert, but a living on the coat tails of his expert father, who has since disowned him.

The whole thing started when he and I were going to "FLIP" a house. He was the money man, and I was the repair man. We would search for houses together, and goto the sherrif sales and finally one came through.

Joe went to a sherrif sale and was after a house we had found, but it sold for too much, but he bought another, as he liked the location. Fine. At the time he payed $170k for the house, which needed very little work, approx 2 weeks and 3k, and we planned to sell it for 205k.

He purchased the house in his name. Done.. We went over, got the people out, and I started work. Then, he went off the deep end with his personal problems, and went into rehab (14th rehab). Anyway, I continued to repair what was needed as we planned to sell it. We got offers, as I had put a "For Sale By Owner" sign out front while I was doing work, but it wasn't really my house, as he took an equity loan against his house to pay cash for it, and his name is only on the deed.
Anyway, I knew it was not going well then, and the market was just starting to come apart. When he got out of rehab, I suggested we rent it out for awhile. He said fine. I ran an ad in the paper, and found a tenant who was on section 8. For some reason I liked her, and knew she would be okay, so I suggested Joe rent it to her. She has been a model tenant. Now remember, Joe"s name is on the house only, so the lease via the Housing Auth. is in his name only. Now mind you, buy this time, I had about 3k of my money in repairs, and about 60 hours of time, and since we didn't know how long we were gonna get stuck with the house, I told him I wanted my name on the deed. On Jan 3rd, 2008 he added my name to the deed. So, now it is owned by Joe and myself as teants in common. No leans against the house, free and clear.

Well, I am happy now, as I would think most people would be in that situation.

Anyway, my buddie Joe is still having his personal problems, and I really avoid talking to him anymore, as he is a ticking time bomb.

I got a call this week from the tenant, who has been there for almost 3 years now letting me know that Joe wants her out, that he is moving some stripper in that he is in love with, and cut off her electric!!!

This woman has 3 kids, still in school, with no electric, and she is very upset. June 18th school is out, but now she is being forced to move, pull her kids from school, and has NO electric!!

This is the really bad part. He has been charging her $300 month on top of what the Housing voucher pays him, AND, her tell the housing Auth that he is paying the electric, but in fact SHE is paying it, and has receipts to prove it!! And, the dumb *** gave her receipts for the rent he took as well!!!

Anyway, I am thankful that I am not involved with any of that nonsense, as his greed is really gonna get him into trouble. My problem is this..

He wants the tenant to sign some papers he drew up that state he did repairs on the house, and that I never do anything, and he made up some phony bills that he had to pay. She called me and told me this, and she told him to goto hell as well. She let me know that he is planning on screwing me somehow, but she is not sure how, and to be honest, I don't know what he is up to either, as I really don't want to speak to him.(He is nuts anymore.) (Drugs).

What I would like him to do is buy me out. I figure, I want my 3k and what ever is fair for labor. Plain and simple. He says I get NOTHING.

If I am not mistaken, I own 1/2 the house. Am I wrong? He added me to a deed. Could I be a prick and demand 1/2? I would think so. Would I do that? No, I only want what I deserve, but now I am concerned that he is up to something. Does anyone have any input on this??

Oh, and tonight I called the Housing Auth. and let them know what he has done. Like I said, I am not on the lease as a landlord, never received one rent check, nothing, I am just on the deed, and was added after the tenant moved in. The tenant would also verify that I had nothing to do with all his scemes, as she is very upset.

How do I get out of this deal????? I don't need this ****... I don't want his money, I just want to get out. He is one of these 45yr spoiled little rich kids who's parents are worth in excess of 30 million, and he thinks he can just do what ever he likes to who ever he likes, and mommy and daddy write a check, and he usually does get away with it.

I was told that he really doesn't have a leg to stand on, that the dumb *** should have never added me to a deed, and that I should just ignore him till he becomes civil.

Any input would be lovely, as I am stresses out.

The good part is that all my other deals are just fine. All my other properties are good. tenants are all happy, no problems, but this situation with my partner has to end. He has not called me in almost a year, and the last time he called me, he was high as a kite, and let me know that he was gonna screw me worse than I ever thought, and I am not getting one dime out of him. That he would sue me, and that he doesn't have a problem spending a million dollars out of princible just to show me the power that he has over people. (Can you see why I avoid this guy.)

And his wife just left him as well. His father disowned him, and most of his freinds avoid him as well also because of this behavior

0Reply
19 views

Most Popular Reply

Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y

Hi, I have seen hundreds of partnership arrangements fall apart, none of what has been described is surprising to me!

You're intimidated (IMO) and I've seen this before with one partner having a greater capacity than another partner and the guy without the greatest means walks away. You have two choices, run away from it or stand and fight. Just like in grade school with the playground bully, but as I recall, standing up to them is something they don't expect and they usually back down. So, you can take care of this on your own toughness or get an attorney, but you need to act...as Jon pointed out this is a liability and you need to protect yourself.

What I would do is lease my undivided one half interest to the current tenant. That will give her the right to remain in the house. I would also write a letter to your partner explaining what you are doing. Now, this letter needs to be well constructed pointing outh everything that has transpired, his leasing it through the PHA, your acceptance of the deed in consideration of amount owed (but don't say how much, because as this goes on, your interests will increase for attoney fees and hassel factor...leave that for court if necessary). Be sure to include his addiction, treatment and change of personality together with his fraud with HUD (The PHA is a HUD agency). Explain why you leased your interest to the current tenant stating that she has been a good tenant with children and that you intent to protect her interest in this matter. Showing her the letter and explaining all this toi her will greatly limit your liability, she won't be so willing to go after you! her conduct as a tenant. Also, mention that your tenant has been instructed to contact law enforcement in the event her "quiet enjoyment" is interrupted ( if the stripper or anyone else shows up). Tell your partner too that you want the property sold and that you will be listing your interest for sale and that he can do the same with the broker...or, that you or he can seek legal action to force sale.

Now, contact an attorney an tell him that you are sending him a copy of this letter as you may need to hire him in this matter....that's all, no appointment is really needed. Tell the attorney he doesn't even have to read it! Put his name and address on your letter as a copy being sent to him as well. Send your letters certified mail, return receipt requested. Now, you are wearing the white hat here and you're following the correct path to cure this problem.

Then turn the power on in your name with a "landlord letter" to guarantee payments for utilities and put the bill in the tenant's name. There should not be any requirement for any consent to be given by your partner, simply show them a copy of your deed.

Now, plat your feet! You know how ticked-off your partner will be.

He really won't want to show that letter to anyone because he knows how he has acted, including the fraud. He may get on the phone to his family and they will likely tell him "just sell it"! Your letter to him will be brought up in court if it ever goes there and that won't be good for him.

After he cools off, you might have a civil seperation of interests and sell the property and it will be up to you to state the amount you are owed for your interest. Based on his conduct, your hassel, your time, work and materials, you having to protect your interests and limit your potential liability, half is not out of the question in my mind! But that's up to you.

Just to sum it up, you'll find that people with money are use to getting their way and most often, if they act properly, they do. You have to take the higher ground when dealing with people like that, let them show their tail end, that will always be to your advantage. But how they usually get their way is through intimidation. If you allow people to walk over you....they will. Money does not give them the right to do the wrong thing. In this case, because of the utility bill and fraud, you have him by the hair of his head! Good luck, Bill

As mentioned above you will need a lawyer, maybe....maybe not as many don't end up in court too.

First of all, I understand the thought that you are not entitled to equity in the property except for materials and labor...but unless there is a written agreement stating so, by the virtue of you being on title as yoiu are, you are without any question entitled to half the proceeds! At least at this point.

4Reply
See this reply in the discussion

12 Replies

Jump to latestLatest
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    You need a lawyer!

    1Reply
  • Peter Giardini
    Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes
    16y

    Chris... Jon said it all.

    There is little that could be said here on BP that a lawyer wouldn't be better equipped to guide you.

    Best of luck... and let us know how this situation turns out.

    Pete

    0Reply
  • Chris Da
    OP
    Real Estate Investor · Phoenixville, PA · Member since 2008 · 105 posts · 38 votes
    16y

    I sort of thought that. I just don't know what a lawyer is going to do for me other than charge $250/hour. I mean, the way I se it is this.

    The guy put my name on a payed off house. It is pretty much that simple. He has a tenant via section 8 that he is 100% responsible for, and he is breaking all the rules according to the section 8 program. I have nothing to do with that. The tenant even signed a paper for me tonight that I drew up myself stating that I was just an owner of the house, that I have nothing to do with a lease, never collected a dime from her, just plain nothing.
    I am not really even concerned about the section 8 thing, as I am 100% innocent.
    What I am concerned with is the situation with the ownership of the house. That is the important part. Do I or Do I not own 50% of that house? Does it matter who payed for it or how they did so? All that should really matter is that it has a free and clear title, and that my name way added, and that is that. What else can a lawyer tell me that we don't already know?

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    A lawyer can help you resolve the situation.

    What outcome do you want? To have the property sold and collect half of the net from the sale? You know your friend isn't going to allow that, nor are you really entitled to half of the proceeds.

    Assuming the transaction to add you to the title was done correctly, you both have an interest. Neither can sell without the others agreement. So, while you are owed something, you can't collect without his agreement. From your story, it sounds like that's not forthcoming. That's why you need a lawyer. Not to tell you something, but to press your case in the legal system and try to collect something.

    The simplest outcome would be for you to sell your interest to this guy for the amount you want. He pays you, and the two of you make a new deed that gives the property to him.

    You're looking at your ownership of the house as an asset, and wanting to collect something. I also see it as a liability. You say you've done nothing wrong. Other than owning a house that was improperly managed under section 8 rules, and where, it appears, a tenant was illegally evicted. Cutting off the tenants electricity is highly illegal, and a judge will look on that very badly.

    There is a legal concept of "joint and several liability". Even though your friend was the bad actor here, since you owned the house, too, you have liability. If push comes to shove ("when" is probably a better word), a judge may decide to rule against you as the owner of the property. The tenant, the section 8 agency, or both have a legitimate case against YOU for your friends actions.

    Honestly, given what you say, I'd get a lawyer to write up an agreement with this guy where you hand over your ownership in the property in exchange for him taking over all liability for what's been done. You walk away with nothing, but you also walk away from the mess. Write it off as a bad investment and a lesson in the school of hard knocks.

    3Reply
  • Steve L.
    Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
    16y

    What are you trying to protect by hiring a lawyer? $3000 + 60 hrs of labor? What is the current market value of the property? I would probably just do nothing... until your previous partner suggests something that you think is fair, which doesn't sound like it will be anytime soon.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, I have seen hundreds of partnership arrangements fall apart, none of what has been described is surprising to me!

    You're intimidated (IMO) and I've seen this before with one partner having a greater capacity than another partner and the guy without the greatest means walks away. You have two choices, run away from it or stand and fight. Just like in grade school with the playground bully, but as I recall, standing up to them is something they don't expect and they usually back down. So, you can take care of this on your own toughness or get an attorney, but you need to act...as Jon pointed out this is a liability and you need to protect yourself.

    What I would do is lease my undivided one half interest to the current tenant. That will give her the right to remain in the house. I would also write a letter to your partner explaining what you are doing. Now, this letter needs to be well constructed pointing outh everything that has transpired, his leasing it through the PHA, your acceptance of the deed in consideration of amount owed (but don't say how much, because as this goes on, your interests will increase for attoney fees and hassel factor...leave that for court if necessary). Be sure to include his addiction, treatment and change of personality together with his fraud with HUD (The PHA is a HUD agency). Explain why you leased your interest to the current tenant stating that she has been a good tenant with children and that you intent to protect her interest in this matter. Showing her the letter and explaining all this toi her will greatly limit your liability, she won't be so willing to go after you! her conduct as a tenant. Also, mention that your tenant has been instructed to contact law enforcement in the event her "quiet enjoyment" is interrupted ( if the stripper or anyone else shows up). Tell your partner too that you want the property sold and that you will be listing your interest for sale and that he can do the same with the broker...or, that you or he can seek legal action to force sale.

    Now, contact an attorney an tell him that you are sending him a copy of this letter as you may need to hire him in this matter....that's all, no appointment is really needed. Tell the attorney he doesn't even have to read it! Put his name and address on your letter as a copy being sent to him as well. Send your letters certified mail, return receipt requested. Now, you are wearing the white hat here and you're following the correct path to cure this problem.

    Then turn the power on in your name with a "landlord letter" to guarantee payments for utilities and put the bill in the tenant's name. There should not be any requirement for any consent to be given by your partner, simply show them a copy of your deed.

    Now, plat your feet! You know how ticked-off your partner will be.

    He really won't want to show that letter to anyone because he knows how he has acted, including the fraud. He may get on the phone to his family and they will likely tell him "just sell it"! Your letter to him will be brought up in court if it ever goes there and that won't be good for him.

    After he cools off, you might have a civil seperation of interests and sell the property and it will be up to you to state the amount you are owed for your interest. Based on his conduct, your hassel, your time, work and materials, you having to protect your interests and limit your potential liability, half is not out of the question in my mind! But that's up to you.

    Just to sum it up, you'll find that people with money are use to getting their way and most often, if they act properly, they do. You have to take the higher ground when dealing with people like that, let them show their tail end, that will always be to your advantage. But how they usually get their way is through intimidation. If you allow people to walk over you....they will. Money does not give them the right to do the wrong thing. In this case, because of the utility bill and fraud, you have him by the hair of his head! Good luck, Bill

    As mentioned above you will need a lawyer, maybe....maybe not as many don't end up in court too.

    First of all, I understand the thought that you are not entitled to equity in the property except for materials and labor...but unless there is a written agreement stating so, by the virtue of you being on title as yoiu are, you are without any question entitled to half the proceeds! At least at this point.

    4Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    16y

    Perhaps this is too much "tough love," but there are a couple things that need to be pointed out here:

    - You made a really big mistake getting involved with this guy in the first place. He had been to rehab 13 times before this situation...what made you think he wasn't going to try for #14 at some point soon?

    - You don't seem to want to accept any responsibility for the situation. You are playing the victim here. But, you're not the victim! You made a conscious decision to partner with this guy, buy a house, fix it up, and rent it. You are just as culpable as he is when it comes to what was done with the house. If you didn't want to go along with his illegal schemes, why did you? You are 50% owner of this house...accept it, and step up and be responsible.

    - My best suggestion at this point: Quit claim from deed and walk away. You lose $3K and a some time/effort...that's a small price to pay for the lesson you've learned, and to (hopefully) stay out of legal trouble.

    - Even if you do plan to walk away from your interest in the house, consult a lawyer. Make sure that you exit in a way where you have no legal responsibility for what happened (if that's possible).

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    1Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    J. Scott has some good points there, you got in this with your eyes open?? By the way, you can quit claim it to anyone you like! You might even sell your ineterest for the 3K to somone on here who would be willing to straighten out the mess and allow them to profit from this mishap in judgement. Careful who who choose for a partner...Bill

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y

    Seems like there never was any real partnership agreement between the two of you on this. Rather than you getting on the deed as a part owner, you probably should have filed a mechanic's lien against the property, so that you'd be paid off if sold - but that would avoid any liability exposure to you since you wouldn't be an owner then.

    3Reply
  • Chris Da
    OP
    Real Estate Investor · Phoenixville, PA · Member since 2008 · 105 posts · 38 votes
    16y

    I have to say I agree with you Steve. The honest truth is that I really wanted to trust this gut, as I knew he had some issues, but I didn't think it would come to this. Remember, it was to be a flip, and was sold about a week later, but my hands were tied, as he was in rehab. (Can't sell a house I don't own.)

    Also, at one point I was intimidated but this guy, as I know people with his kind of money do usually get what they want, as they can just stroke a check and things get done, legal or not.

    I am however not intimidated buy him anymore, as I feel I have him by the balls, and he knows it. Payed off house, clear title, and my name on the deed.

    I spoke to the lawyer today, and he happens to be a very good lawyer who concentrates on realestate law. From what I told him on the phone, he feels that I did nothing wrong, but if I am aware of fraud, I have to cover my bases, as I want to be on the straight and narrow. We have an appointment this week, where he wants to go over things with me.

    He also knows my partner, and off the record thinks very little of him. We thinks I could easily "Force" the sale of the house, or at leaste my 50% on paper. When my partner is served with this, he will realize that he is screwed and most likely just agree to end the relationship and give me my money back. If he wants to be an ******* about it, then I guess I will be forced to jump in the ring with one of the big boys and "force" the sale, and not look back.

    I guess sometimes the "power" guys have to be brought down, and I am not going to place nice with him, and he isn't being very nice to me.

    1Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    At a boy! You need to chew on some raw meat before meeting with your attorney! LOL.....glad to hear you have a change of attitude and have an attorney. Don't ever let hine sight guide you forward. Next time it will be different. Good luck, Bill

    0Reply
  • Chris Da
    OP
    Real Estate Investor · Phoenixville, PA · Member since 2008 · 105 posts · 38 votes
    16y

    Update:

    The tenant and I spoke the other day. She reported him to HUD housing, and she went right to the top. Contacted a congressman, and the DIRECTOR of HUD is involved. I am cleared of everything, as the tenant let them know that I have been tring to help her out in anyway I can. Section 8 demanded an inspection of the place, and they inspected it with 3 kids there and NO electric or Hot water. (And for the record, this is a VERY NICE house, not a typical section 8 property.) I comped it yesterday, and in that community the average house is on the market for less than 90dyas, and comps are from 192k-217k as of 3 weeks ago for the exact same house.)

    Anyway, I don't know if section 8 has been in contact with my partner or not, but if they were, he doesn't seem to care, as he showed up there with 2 guys, went into the house, cornered the tenant and told her she will be the F*** out of his house buy Sunday or he will remove her. Called her a F*** Bit** a few other nice words and left.
    I told her to call the police and get a protection for abuse order from him, as he is a loose cannon. She is afraid of him.
    I am going to the islands for a week, so I won't be in contact with her, but that is where it is as of now.

    I feel bad for the lady. Since she is poor, she can't find a lawyer, and the only place I could suggest is Leagal Aid.
    It is a real shame, if I had the ability, I would post pictures of this house, and how beautiful she keeps it. You guys would all think this partner of mine is nuts for getting rid of this tenant. This place is decorated like the Trump Palace. I mean it is perfect, better than my own house. (Sometimes I think I should be on Section 8) ha ha

    Anyway, my partner has not made any effor to contact me during this episode, so I guess that is a good thing.

    I have a feeling he is gonna get himself into some hot water, but I am sure it is nothing his mother can't write a check for and make it go away.

    Stay tuned for my next update on the drama.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free