The net she thought she was going get wasn't the real net
I sent a written offer to the seller which stated "Sales price to be $59,000." The seller misunderstood that to be "Net $59,000." The day after we closed she received her check via Fedex. She then sent me the following email with the subject line "Closing is incorrect - URGENT"
I am having heart failure as Fed Ex just left my house.
The net, net was supposed to be $59,000 proceeds to me and that was after payoff, etc. The only thing that was to be deducted were taxes and HOA prorations!
PLEASE HELP ME ASAP AS THIS IS URGENT AND WAY OVERDUE.
Thanks so much for your help. I am ready to have a heart attack over this!
My reponse to her:
My last written offer to you signed on 11 October states "$60,000 TO SELLER." It doesn't state net cash. We discussed this on the phone as I had a termite contingency in there, but ultimately, we settled on a sales price of $59,000. You confirmed this with an email you sent to me (see below). This is the last email in which we discuss price, not net cash. You state "Final price agreed upon was $59,000.."
All the escrow docs, which supersede any contracts and also which you had to sign, clearly state the final sales price is $59,000. The HUD (closing statement) which you also had to sign, states on the bottom the net cash paid to you.
I will call you shortly and hopefully we can resolve this.
She responded with a slew of emails and highlighted in them wherever I had said 'net cash.' During this time, I found her on linked-in and discovered she worked for several banks in the financed departments. Her last email to me was:
Remember when we were countering one another and you said that you would pay $90,000 if I took back the paper? Another point to consider when referring to gross versus net sale.
Ultimately, I didn't want an unhappy seller. I had wholesaled the house for $8,000 so I had some money in my budget to hopefully ease her out of her painful predicament. I asked her what she might consider taking and she said $5,000. Because she had a mortgage background and should have read the closing statements, which she had to sign, I didn't think it was fair to me that I give her back the bulk of my profit on this deal. After much consideration, I sent her the following email:
I am not price sensitive when it comes to seller financing. It is about time value of money and I structure those offers so I make money every month. When I make an offer with the seller carrying the paper, the monthly payment on the note has to be covered by the tenant's rent, not me, as well as all the expenses (taxes, repairs, insurance, management/overhead, vacancy) so as long as I'm making a little money every month, price isn't an issue. Heck, I'll pay double what any house is worth if I can get payments of less than 1/2 of what the house will rent for. Over the long term, I just can't loose on a deal like that.
The reason being is I'm making money TODAY and that is all that matters. I'm not concerned with the total cost of the long term financing. I might not be here to see the end of that payment stream, but I am here today and I need to eat and pay bills today. So, I structure the deal in a way that puts money into my pocket every month. The income I get from the rent creates a nice return on the down payment and closing costs. That is why I emailed you that we can increase the down payment by your mortgage amount and lower the carry back note value. That meant that you were going to pay off that note out of the down payment proceeds, note me. Also, whenever a seller carries back paper, there is always the potential for discounting that note down the road, so I agree today to a price, but 2, 5, 10, 12 years later, that seller might very well be tired of cashing that check, may have a situation arise where money is needed, or may even pass the note to an heir who could care less about the small monthly check and will gladly take a huge discount and call it even. I once paid off a $60K note for less than $16K because the person holding the note just had to have a brand new Hummer to impress the neighbors and the monthly payments I was making weren't enough to cover that expense.
I looked over my budget to fix this house up and my numbers are pretty tight. When I went to the house on Saturday to pick up the keys and shut off the water so the pipes wouldn't burst. The problem that I hadn't budgeted for was the stream of water that leaked through the foundation at the corner near the water main. We experienced quite a downpour a few days ago and the street was covered in mud. It must have clogged the drain in the street and the water started rushing down the hill and penetrated the foundation. The house is OK, but the foundation is definitely going to need to be sealed. I can't imagine that is going to be cheap to fix. You've been in real estate finance a long time so it's really hard for me to justify paying more money to an expert who should have closely read through the closing statement. I scrutinize every document I sign and make sure I'm being properly credited for down payments, expenses, fees, etc. I can't count how much money I'd be giving away every year if I didn't pay attention to the closing statements.
I'm trying to be as fair as possible here. If I give you $2,500 can we call it even?
And here is her response:
After all is said and done Aaron, integrity means the most and you have evidenced to me that you are trying. Had no idea anything was amiss about the leak you are referring to at all.
Yes...I will accept in good faith your offer. We may work again in the future and as you said, it is about the people, not the house.
While I am not happy about the final outcome, I feel that we both learned a valuable lesson. I was asking less than 50 percent of the difference. I guess if you can live with knowing that, I will too.
Before I sent her a check, I made sure she sent me a W-9 so I could account for the $2,500 payment with the IRS. While I was waiting on that document, I happen to post the following email to a private group of investors I network with:
Being the holiday season, I thought I'd share a fruit cake I'm dealing with.
On Friday I closed a deal with a seller. I paid $59,000 for the house and wholesaled it for $66,500. I got a call today from the seller stating I urgently needed to contact her. When I called, she said she didn't understand why escrow deducted the $10K 1st lien from her proceeds since my offer was net cash to her. The amount she received wasn't enough to pay the medical bills.
I called our favorite wholesaler and he said it has happened to him 2 or 3 times. In one instance, he sent the seller 1/2 of his assignment fee. He explained the cash and him being unable to give the property back as he needed to settle up with his partner and in return for 1/2 of another house, he gave him the subject property and also got some cash from his partner to square up the difference. In another situation, he said since he had paid all the closing costs, he would happily deed back the house if the seller sent him a check for his out of pocket expenses. All good advice.
I spoke to escrow and my favorite escrow lady had a different view; she said, in the court's eyes, giving any money to the seller now might constitute and admonishment of guilt. Also good info, at least in my opinion, and definitely something to think about.
I had a similar thing happen in the past. I sold a mobile home on terms. A few weeks later, the buyer's agent called me to inform me that the A/C went out. I told her to contact the home warranty company and use the insurance policy I was forced to pay for. She said the buyer did, but they claimed the unit was a recall. I asked Chris Carlson what he would do. He immediately said to buy her a new unit. He pointed out that I made good money on the deal, and by buying the buyer a new A/C, I might make less, but I have a happy buyer and I still made money. I don't know how long ago that was, but just last week I deposited my monthly check for $558.41 from that buyer. I've been collecting those every month for years, all at 12% interest. Great advice. On a side note, I'm seriously considering getting into the home warranty extortion business. They get $400-500 from almost every single real estate transaction and I've never heard of them paying anything out as they always use 1 of 2 excuses; that broken thing was recalled, or it was an existing condition when you bought it. Sounds like an easy gig.
Here is where my dilemma is; I can easily give the seller some money back and probably will if it comes down to a pissing match, but we're not talking about your typical civilian seller. I googled her name and found her profile on Linked in. This seller has worked as an office manager of a loan company, underwriter, regional operations manager of a bank for 10 years, divisional underwriting manager for 2 years, senior VP of a lender for 1 year, director of real estate lending for 1 year, operations manager of a residential lender for 1 year, VP of operations for a wholesale bank, and most recently VP/regional operations manager of another bank. That last job clearly states her duties as underwriting, docs and funding for wholesale division.
I think what I have on my hands is a person who clearly didn't read a damn thing I sent her including the escrow docs. Probably would also explain why, over a 30 year career in lending, she's had 10 jobs. My last offer to her stated: $60K to Seller. It didn't say anything about 'net cash.' Also, I always have "Seller to provide buyer with clear title at seller's expense." I think that alone clarifies who is to pay any underlying liens.
I did send her an email with a link to her own profile on linked-in asking if that was her profile.
So, there is some holiday fruit cake to chew on. Hope you enjoy, learn something from it, and if you have any thoughts, please share.
The buyer, who also happened to be a part of that group, sent me the following reply;
If you want your buyer to split it with you he's willing to.
I'm thinking in terms of Pete Fortunato: You don't dance with the house, you dance with the people. $2,500 isn't going to kill me, but for her, it might be a big loss. I actually don't even think about the money. I think in terms of how many fly rods I could have boughten. (I love the tense of that word!) I did notice quite a few of my emails said net cash to seller and I can see how that could be confusing, especially to someone who isn't paying attention. There was never a signed agreement between us and escrow docs stated what her actual net was. Ultimately, she acknowledged it is her fault and she said she would never go to court over it because she knows she would lose. Regardless of what she says, she could file a lawsuit and that would definitely cost me more than I made on this deal. Whether she would sue or not is really irrelevant. She could easily write something horribly negative about me online which might cost me one deal down the road and that one deal possibly might be worth more than the total amount I made on this one. Lots of ways for an unhappy seller to screw up my momentum.
Based on the results of my previous experience, I'm going to go the Chris Carlson route - Better to make things right in her mind and keep moving forward. On to the next one!