Dealing with Untruthful Sellers

When purchasing a property, the Sellers of the property should fill out a Seller Disclosure which tells you about the condition of the property, any repairs made since the date of purchase and any problems that they are aware of on the home.  As an Investor, there are many times I will purchase the home without receiving a Seller Disclosure, and without a home inspection other than my own personal inspection.  However, I highly recommend that Investors obtain a Seller Disclosure and have a formal home inspection even though you are replacing a lot of things inside and outside of the home. 

Recently, a Partner and I were working on purchasing a property from a 4-member limited liability company who had purchased the property at a Tax Sale.  Their Attorney informed us that the members would like to just sell the property and had purchased the property as a Tax Deed.  They started the rehab on the property with the assistance of the Attorney but had not completed it.  Our only contact was with the Attorney, who was a silent partner, and informed us of the following:  That they wanted $48,000 for the property, that they have all new windows for the property that they would give us included in the purchase price, that there was an open roof permit on the property that just needed the facia to be painted to close out the permit and that all the material in the property was also included with the purchase of the property.  We submitted the offer to the Attorney on October 31, 2016 and we still had not heard from him about our offer.  We had called a couple of times reminding the Attorney that our offer was only valid for 2 days and now it was 7 days and still waiting on a response. 

I was on my way to Clearwater for a few days to work with another partner that purchased a home in Clearwater, go shopping with partners at Home Depot for supplies, meet with an air conditioning guy, and meet with my 3-man rehab crew when finally, the Attorney texted me back and said they have another offer on the property and was going with another buyer.  I called him and asked what is up?  He was the one that told us that they wanted $48,000 for the property and said we had a deal, that he would have the Sellers sign the purchase agreement and return.  We had already inspected the property and knew that even if we paid $60,000 for the property it would be a good deal since the property only needed about $10,000 worth of work and the values were around $110,000.  He said that the other buyer offered $59,000 and I told him our highest and best was $60,000. 

He informed me to resend the purchase agreement at that amount.  I was tired of the games of waiting and I had already signed an offer for $48,000, so I just told him to cross out the price and the fact that the Seller would take care of the open permit and return it back to us signed by the Seller.  Well, I got it while I was in Clearwater, initialed the changes of the counter offer and returned it to the attorney making this a legal and binding deal. 

This is where the fun and frustration starts.  When purchasing a property, it is important that you obtain a Title Policy to ensure that there are no other liens or encumbrances on the property.  When purchasing a Tax Deed property, you will need to obtain a Title Search so you will know of all liens on the property.  The attorney that was representing the Sellers said that he would conduct a Quiet Title Action for us free of charge, but we had to pay the filing fees and processor fees.  A Quiet Title Action takes 90 days on average.  Since we were not getting Title work from the Sellers, that meant that we needed to protect ourselves and we ordered a title commitment from our own title company so we can make sure that we have all the necessary information for proper transfer.  When looking at their title work, it stated we needed to make sure we have a copy of the Operating Agreement of the LLC and an Affidavit from the Members stating that the party signing the documents has full authority to transfer the property.  In addition, we needed an Affidavit stating the company was in good standing, there were no contractors who have not been paid and none of the parties of the LLC are in bankruptcy.  The Attorney that was doing the closing had not done any of this and in addition, he was trying to give us a Quit Claim Deed from the Sellers and not a Warranty Deed.  Based on the lack of correct paperwork, I started to get concerned about the entire deal.  The Attorney was going to do a Quiet Title Action for us and now we were not comfortable with his experience.

During our inspection period, we found out that the Sellers had not even ordered or paid for the windows yet, the open permit for the roof was not just for the facia to be painted but had to do with the shingles that were not installed properly.  We then did research on the Roof Company who had filed the Notice of Commencement and found out that their company dissolved and the transferrable warranty for the Roof that the Attorney said we would receive was not available.  The permit should have been closed out several months ago, was the contractor even paid for his services?  What happened that caused him to not finish the job?  After finding out that the Attorney provided us with wrong information about the windows and the roof, lack of correct paperwork, and poor communication, we decided to do the following:  We prepared an addendum that lowered our offer back to the $48,000 but included the tax proration of $1,500 that we would pay (instead of the sellers paying), we excluded the windows all together (they didn’t have to pay for them), we agreed to do our own Quiet Title Action (let the Attorney off the hook), we would fix the roof (which was new, but now we have no warranty and no contractor to correct issues and pay for re-inspection), we would file our own Deed and close within 3 days.  More than fair!!

The Attorney responded back to us and said that they will not accept $48,000 and they had another offer for $59,000, nothing was misrepresented and wanted to know if we wanted to send this Addendum to the Seller.  Both my partner and I laughed when we read the email and replied please send to the Seller and they can either accept or cancel giving them a deadline until Sunday at 6:00 p.m. 

Many Investors would still accept this deal knowing about all the untrue statements that were provided to us by the Attorney.  Since the Attorney was involved in the deal as a silent partner, we truly believe the Sellers are unaware of the untrue statements provided to us.  Honestly, we don’t even know for a fact if there was another offer on the property and if there was, they too would be told the same information as us.  As Christians, we always deal honestly and fairly and really believe that we were taken advantage of and should not rush into a deal with so much misrepresentation.  We still had to do a Quiet Title Action which could bring a claim from someone stating they were not properly notified, but we kind of doubt it; however, we need to protect ourselves.

We are waiting on a response and believe whatever it will be, whether we get the deal or we don’t, we did the right thing.  Remember, there are lots of deals out there and if you are misinformed on one thing, just think what else you will find after you buy it.  Therefore, always reduce your price to reflect the amount of protection should someone claim an interest in the property and/or there are additional fees needed to do the rehab, the $12,000 difference in the price will cover us.

Please keep sending me your questions and topics that you would like to hear about, so I can be sure to keep feeding you with the information that you need in order to move confidently through 2016 and bring your Real Estate Dreams to Life!