Quote from @Jeff S.:
It’s not just a personal guarantee that would help, @Brian Garrett. Were there lender instructions included in the loan documents? These would typically specify the position of your loan and how it was to be recorded. For example, ours say, “The deed of trust must record in 1st lien position on or prior to the disbursement date noted above.” This really says four things:
1) There must be a deed of trust (or mortgage in your case).
2) It must be recorded.
3) It must be recorded in the position you agreed to (1st position in this case).
4) This must happen before the date shown.
Lender instructions will be signed by the borrower and escrow, or I suspect the closing attorney in IL, placing them on the hook as well as your broker. For this reason, I would recommend a lending attorney. This is not the same as a real estate attorney, who might do evictions today, closings tomorrow, and easements the day after.
A lending attorney will know what documents should have been included to protect you and what to look for in those that were. A larger firm will have all sorts of specialists including someone who specializes in debt collection. I can recommend a large lending law firm that works nationwide but local is better. With you in CO, the property in IL, and you didn’t mention the location of the borrower, I wouldn’t even guess on jurisdiction but start in the state the property is located. Loan docs are generally state specific.
Call some of the larger HMLs in IL area and ask which lending law firm they use. I bet you’ll hear the same few names over and over. An initial consultation shouldn’t cost you anything.
Not trying to beat you up but I’m interested in lessons learned. How did you get into this? Did the flipper recommend the broker? My head swirls with thoughts of fraud and conspiracy. If they are active, rest assured you are not alone. You might contact some of their other lenders to see how they are handling the issues. For all you know, there is another law firm already helping with the same problem.
Also, since this borrower is/was active on BP and you’re using your full name, be careful what you share here. He or she and their attorney will absolutely read this.
Indeed. This sucks.
Hi Jeff,
re: the borrower. Yeah - that's been part of the tightrope I've been trying to walk here. Obviously it's a dumb mistake on my part so there's the embarrassment of that all - it is after all a doozy of one. But I believe in taking the high road even if someone chooses to not live up to their end of the agreement. Now if he chimed in here - totally different animal, but I don't know what his situation is and it does me no good to out him other than to create more problems for both of us.
As for lessons learned:
- As much as the hard lending looked pretty straight forward on the surface, there are more details I should have spent time fussing over and learned about.
- It would have been good to have had someone experienced assist and/or look over the process to make sure we were protected, even if I had to pay a lawyer to help cover things.
- It's definitely a different process/vehicle for investing than regular rental property. And while we do own a rental property, we have made some mistakes there, but fortunately we still own the asset and are making gains on it. Not as much as we'd like, but it's working... slowly.
Currently we have a litigator involved and they are actively working on things. We'll have to share a portion of the recovered funds if there are any. If they are unable to recover any then we aren't out anything with that effort. But in the short time we've been working on it the litigator has found the individuals real estate license and where they are currently working. From the sounds of it they have handled these types of cases before.
Is it the perfect solution to this? Probably not, but had I done a bit more research and/or partnered with someone I would have been better protected. If anything it's been a good learning experience and I do hope when we get the funds recovered that I can revisit some of the other RE plans we have had on the drawing board - but this time with a little more caution. :)
