All Forum Posts by: Danny Duran

BP Community--Happy Thanksgiving!

I am about to close on a property in Chicago (in two weeks). I just asked my lender if there are any issues with purchasing the property via land trust. He researched guidelines for conventional financing it and sent me the following:

Freddie Mac:

Effective for Mortgages with Settlement Dates on or after September 1, 2013 Freddie Mac will no longer purchase Mortgages secured by properties in which the legal and equitable title is held by a land trust (Land Trust Mortgages)

Fannie Mae:

Transactions involving Land Trusts and Illinois Land Trusts are not eligible

As such, he told me that I cannot use a land trust in in combination with the loan product I'm currently locked in with (Freddie Mac backed). I realize that I can move it to a land trust after closing, but, I would miss out on the benefit of anonymity by doing so.

It seems like I am stuck buying this in my own name and then moving to a land trust after close. Can anyone comment on this situation and give counsel on how I could have planned better to make this work? 

I'd like to at least learn the lesson now so that I can use financing in combination with a land trust on my next acquisition. Thanks!

@Account Closed are you focusing marketing efforts on the southside area, or, do you focus on other areas in Chicago as well?

@Account Closed did you end up closing this with the seller and wholesaling it? What are the details? Hope you knocked your first one down. 

@Gary Clark nice success! I'd love to see some more details on your deals. How is your CoC, Cap rate? How did you screen your tenants? Did you decide to do a non-refundable move-in fee instead of a deposit? Did you find your properties on the MLS or another way?

follow the hipsters! I'm a buy and hold investor in Chicago. I'm about to close on my first 4 unit to owner occupy. Hipsters pave the path in tough neighborhoods and are a leading indicator of improvement, a bullish rental market, and imminent appreciation. You have to look at an owner occupant property differently than a strict income property. Very hard to find one that works for all your needs. @Brie Schmidt and I looked for one for almost 6 months!

@Emanuel Toma connect with @William Robison . He offers turn Key properties in Kansas city Missouri. This is a great real estate market and you can pick up bargain properties there. I just had the chance to meet William in person last weekend at a San Francisco meet up group. I like what he's doing out there in KC. 

Investing out-of-state or, out of country requires in excellent property manager. Make sure you find someone that you trust and can rely on.

@Jonathan E.  . She is my broker and did an amazing job searching for cash flow possible properties and coaching me as a first timer. Biggest advice I can give is be patient and be open to renovations. 

I did not want to renovate, but, ended up considering doing so because of lack of options. 

Now that this one came along, I'm meeting my initial intention for entry as a  rent-ready buy and hold multifamily house hacking investor. Yes!!

BP Community—a big thanks to everyone who commented and gave guidance on this matter. Unfortunately, the seller would not allow access to my mold experts to generate remediation estimates. Last night I cancelled the contract and requested my earnest money deposit back. Now, it’s back to the drawing board.

I feel really bad about the tenants who are living in airborne toxic black mold. I’ve found out through talking with various attorneys that I could expose myself to serious economic loss damages (from the Seller) if I were to inform the tenants. Unfortunately, I must just move on. Thanks for your comment @Brandon Turner  

BP Community—to summarize where we are to date: we were scheduled to have two mold experts walk-through the property on 10/3 in order to provide me with estimates for remediation. On Thursday, 10/2, around 7 pm, the seller’s agent called @Brie Schmidt  and questioned the validity of the 3rd party mold inspection and lab analysis report. The seller’s agent stated, [paraphrasing] “how do we know where that sample came from? It could have been taken externally and used in this report. I’ve been in this unit dozens of times and I’m fine. If there were toxic mold in there, the tenants would be dead. Be advised that the buyer will not issue a credit for anything.” To make it painstakingly clear, the seller is accusing me of manufacturing a positive Stachybotrys airborne test as leverage for a credit on the sale. In the 18th century, such an allegation would trigger a challenge (white gloves flapping) and a duel to defend my name and achieve satisfaction. Alas, it is 2014 and such rituals have been replaced by less grisly formalities: the attorneys unsheathed their cell phones, unleashed their silver tongues, and spared toward a civil solution.

To add more detail, the seller’s agent told @Brie Schmidt  that the tenants are not to be informed or “tipped off” by us as to the (alleged in their eyes) toxic mold presence in the unit. If the mold experts were going to bring with them any equipment that would alarm the tenants, the seller would not allow the walk through. Frantically, I touched base with both remediators that Thursday evening and they both confirmed they would use a flashlight and a breathing mask (personal protective equipment) when walking through the unit in question. The mask was not acceptable to the seller as he feared this would alarm the tenants. The remediators would not conduct the walk through without masks as they both reviewed the lab results and asserted that this concentration of airborne Stachybotrys is dangerous and must be taken seriously. Frustratingly, the seller denied the 10/3 walk through and I called it off with the two remediators.

On Friday evening the seller communicated (through his attorney): “he has made his position clear - no credits, no more inspections - buy it or terminate now.”

I am uncomfortable proceeding without an estimate for the remediation. How am I to know if I can absorb the cost and risk of remediation without a professional opinion (I’ve not dealt with mold issues before).

After giving time over the weekend to cool off, I’ve asked @Brie Schmidt  to contact the seller’s agent to ask one last time to allow a mold remediator walk-through. We are going to suggest that the seller ask his tenants not to be present for this walk-through so they don’t see the men wearing breathing masks.

Hopefully, emotions have settled and cooler heads will prevail.

We are under attorney review and inspection until 10/8/14. I’d welcome your comments and suggestions on this situation. Thank you!

@Brandon Turner what do you think?

BP Community—after talking with mold experts we have found that airborne Stachybotrys is rare (usually not airborne unless disturbed) and that even an airborne spore count of 1 will fail a test. The air test detected 61 spores in the sample, comprising 65% of the spores counted. The seller's agent told @Brie Schmidt  today that the seller is fine with granting access for remediation companies to conduct walk-throughs and make estimates; however, he is unwilling to grant a credit to me for any such remediation work and will back out of the deal if it is requested.

• What are the landlord-tenant laws in Chicago related to mold disclosure to tenants and remediation requirements?
• Now that the current owner has documented evidence (my attorney sent the seller’s attorney the mold inspection report) of mold in the property, does he need to disclose to his tenants?
• Does the owner need to pay to have the issue professionally remediated for tenant well-being?

@Brie Schmidt  (being the rock star that she is!) communicated with the Chicago Metropolitan Tenant Organization, the Community Investment Corporation, and the Chicago Department of Public Health (CDPH). The CDPH informed that the tenants may sue the landlord (or me if I acquire the property) for negligence if he has knowledge and no remediation action is taken. Currently, the tenants are not aware that they are living in a toxic environment (1st floor unit only).

If Brie and I inform them and they sue the landlord, would the current owner have cause to sue me for the resulting economic hardship? Brie’s contact at the CDPH is concerned about this risk and is investigating it.

@Brie Schmidt 's concerns:

• Were this deal to fall out of contract, it’s doubtful the seller will inform the tenants, knowingly exposing them to harmful mold. We think there is a moral obligation for us to notify the tenants no matter what happens.
• If I do close on the property and the tenants in the 1st floor unit are still occupying it, even if I give them 30 days notice to vacate (they are M/M), they’ll be living in that toxic environment under my ownership. Between a rock and a hard place: If I do not disclose it to the tenants, I may be sued for negligence. If I disclose, I’ll likely be obligated to put them up elsewhere for the 30 day period until the mold is remediated. Of course, disclosure is the right and moral thing to do.

At the beginning of this post, I mention that the seller will not give a credit to me for remediation work. At this time, I have no idea what it’ll cost to remediate this property so I don’t know if I can absorb it. I’m going to proceed with a walk-through to generate remediation estimates (occurs on 10/3/14). Once I get the estimates back I will need factor that in to the other costs I’ll be faced with (this property is sold as-is).

@Brie Schmidt and I assess that the seller is naïve to the seriousness of this mold issue (legal, health, etc.) and the financial implications of professional remediation. The plan is to inform the seller of the costs as well as the requirements to disclose the presence of mold if reactivated on the MLS. Mold turns many buyers away as mentioned in this article, http://www.biggerpockets.com/renewsblog/2008/02/15/a-mothers-nature-a-force-to-reckon-with-when-it-comes-to-mold-and-the-home/, shrinking the pool of buyers to a small set of investors who will want a smoking deal on the property. If he decides to kill the contract with me and re-list, he’s going to wait a long time for the investor who is undaunted by the mold disclosure to make what will be a low ball offer. While he waits to get under contract again, he will knowingly expose his tenants to toxic mold and risk a negligence law suit (if he doesn’t pay to remediate the issue). The seller’s agent claims that the seller is highly motivated due to some medical reasons, so, dragging this out with the drama mentioned above seems unbearable. The seller needs to “wallow in his own sweat” to understand the adversity ahead. @Brie Schmidt  and I intend to help him do just that.

What would you do in this scenario? Please comment and offer guidance as we are trying to evaluate from various angles to establish a power position in the negotiation. Thanks!

@Joshua Dorkin , would you please suggest some people who can weigh in on this topic?