Paperwork is a memorial
Peter Fortunato, one of the greatest real estate creative deal structures I know, always says that your paperwork is a memorial of the meeting of the minds. What he means by that statement is that when you make a deal with someone, you are both making a set of promises. And your contracts, notes, leases and other paperwork are meant to memorialize what the two of you agreed to so that if someone came along after both of you died, they could clearly understand to what was agreed.
Well, we just completed a long and drawn-out deal where the importance of Pete’s premise became abundantly clear.
The deal started back in 2019 where we were contacted by a seller who had a four bedroom, two bath doublewide on over an acre. The seller’s situation was that their parents, who owned the property, had recently passed. They had family members living in the home “care taking,” except they weren’t taking care of the property. They were also not paying any of the costs associated with utilities or the mortgage payment. As a matter of fact, they couldn’t even be bothered to cut the grass.
Our sellers were exhausted physically, financially and emotionally. Not only were they grieving their parents, but they were dealing with the emotional burden of having their immediate family taking advantage of them.
These were good people by the way. Even though they were blowing through their savings making two house payments, their own and now their parents, the thought of just letting the house go back to the bank never entered their mind. They were determined to make sure the obligation their parents had created was fulfilled and the mortgage would be paid.
They also didn’t want to destroy the relationship with their freeloading family by filing for eviction. So instead, they did what they had to until they could get through the probate process.
When I went to meet with them, you could hear the exhaustion and the frustration in their voices. They were so ready to be done and they were hoping that I could help.
At the time, there was not much in the way of equity on the property, especially when the seller received back the money that they had invested in the house keeping it afloat. But the mortgage payment on the property was low enough that we could rent it and receive a positive cash flow.
In addition to that, there was only 10 years left on the mortgage. What this meant was the bulk of the interest had already been paid on the 30-year mortgage and now most of the monthly payment was going to pay down the principal.
With that knowledge, we offered to buy the house from them with a deal structure called a subject-to deal. What we would do is buy the house but leave the seller’s mortgage in place after the sale. We would then make payments on that mortgage until either we sold the house or paid the mortgage off in the next 10 years. We also agreed to repay the investment the seller’s had into the home, and give each of the heirs a few thousand dollars apiece if they vacated on time and left the house clean.
The sellers happily agreed, and we wrote a purchase agreement with the above stipulation and sent it over to our attorney.
Once our attorney did a title search on the property, however, he found an issue that would prevent title insurance from being issued. What he found was that three owners ago, the property had passed back and forth between two family members and there was a deed missing. This messed the chain of title up.
We let the sellers know about this and that it could take a long time to fix. They were very desperate to get the house done so they didn’t have to pay the second mortgage. So, what we decided to do was to go ahead and closed on the house with the faulty title and pay them half of their proceeds.
They agreed to cooperate with our attorney in filing whatever paperwork was needed once the title was corrected. And to make sure they would live up to that promise, we would hold the other half of their proceeds until that time, whenever that might be. We made sure to spell all this out in plain language in our purchase agreement.
It has been four years now and we just got the deal completed. But here is the thing: both the seller and I had a copy of our purchase agreement and the special stipulations page. (As a matter of fact, I had to re-read the docs myself because I had forgotten what we owed them.)
We read through the documents again together, and both parties felt confident that everything we had promised was now satisfied. That’s because it was easy to read, in plain English, and was a great example of why it’s important to do a good job making sure your paperwork memorializes your promises.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.