I’ve never lost sleep about a deal I didn’t do. That’s always been true, even if someone else came behind me, bought it, and made a ton of dough. After all, what’s peace of mind worth to you?
On the other hand, we don’t make money if we don’t make offers and do deals. Here’s what I experienced during the last few days:
An attorney friend of mine called a week or so ago and told me a story about his client who was trying to sell a rental house in the San Gabriel Valley area of L.A. but could not close escrow due to a title problem. On top of that, the property was in foreclosure on the 1st and 2nd, also had a delinquent 3rd, and the trustee sale was set for next Tuesday.
OK, I can deal with this. I cut my teeth solving title problems and tend to think of probate issues as title problems (preventing me from getting marketable title). So, I started the dance with the seller.
Now, from the get-go, I had some difficulty verifying value. My assistant found comps that supported $375K+ and the seller had a buyer in escrow for $330K. When I first spoke to the seller he only told me about two of the three loans. I only discovered the 3rd during our first pass research work-up. Liens totalled about $235K including about $20K to cure if took the property subject-to all three loans.
Then, the horse-trader in me came out. I have a certain property (land w/mobile) that is a little too far for me to manage and I wanted to somehow use that as my contribution to purchase the equity in the seller’s house. I have about $30K in that property (which I took back as a result of a 1st TD that I owned on it.)
My goal was trade the mobile for something I didn’t particularly want, but that I could use, that was marketable, and hence get my money and a little profit out of the mobile. This is a very basic Peter Fortunato strategy: “Use what you have, to get what you need, to get what you want.”
Then I started focusing on the title problem, which related to how he acquired the property via a less-than-arms-length transaction with his Mother while she was in a nursing home, prior to her passing. A conservatorship proceding was started for his Mother by the other siblings who didn’t like how that deal went down some six plus years ago. They got a court order preventing the Son (my seller) from selling the property.
Although the Mother has since passed away, the title company of my Seller’s prior escrow didn’t like the court order, no matter what. My title company (aka Earl’s House of Title – motto: “You can pay more and you wish you had”) said “no problem” about the order, so that was not in the way for me.
We haggled over the phone Tuesday, seller called early Wed. to say he accepted my offer, then got cold feet by noon. Then his feet warmed up, he called my field assistant to set signing app’t, but kept pushing that out. Meanwhile, the foreclosure clock keeps ticking…
I learn very late Wed. night that docs were signed and we were ready to go, until…I went to check out the property. I generally don’t go look at a property until I have it under contract because, well, I’m lazy, that’s my system, and it seems to work (for me, anyway). I virtually NEVER meet sellers or borrowers in person and have developed a phone persona that’s very effective in making deals.
I drove to the property, which was a much easier drive than I expected, only to discover that this was a much worse situation than I anticipated. Also, the ‘friend’ who was staying at the property was no ‘friend’ of the seller at all, and was a very upset, supposedly paying tenant who was determine to test any and all tenant’s rights laws. I’ve seen messy places filled with junk before, and this one was no different, but it was also a heavy fixer. Nope, this one wasn’t for me. I’ll keep looking, thank you very much!
So, I called the Seller and gave him the good news. He started trying to sell me on this house’s features like a man about to go to the electric chair.
The major mistake that I made was that I got caught up in the problem solving mode and forgot about the basics of the deal. I really question the value and it’s likely the prior escrow’s buyer got cold feet for any number of other reasons. I think that property might be worth $300K+ with about $50K of work. Deduct 10% cost to sell, hodling costs, intrinsic cost of my capital, hassle factors, and I would have had to buy this for about $125K to feel like it made sense. Was I crazy? It looks like I sure got distracted with fixing problems and forgot about the profit part.
Like my old WWII (Austrian) flight instructor (who taught me to fly) used to remind me about priorities: Aviate – navigate – communicate.
