Helping our client through one complicated mess
Our client was in a difficult spot: He had loaned a real estate investor some $130,000 to buy single family homes, renovate them, and then re-sell them. “Flipping” it is called.
Of course, none of this was documented initially: No note, no mortgage, no contract.
As it turns out, the “investor” was a scammer. He had borrowed the same $130,000 multiple times from various parties, promising them all the same “return” from their investment in the same properties.
Now follow carefully here: As the investor was heading into insolvency, he must have liked our client more than the other lenders he had scammed, as he gave our client a note and a first mortgage to two properties to our client. To one other lender, he later delivered deeds to the same properties, obviously subject to the mortgage. Many other unsecured creditors were left out in the cold.
The fraudster just threw up his hands, and walked away from the investments and the debts.
Our client had his son’s college fund sunk into the ill-considered loan and risked losing it all. Fortunately, as first mortgage holder in the properties, he was well-positioned – but not perfectly positioned to save his investment
How did we provide value?
First, we carefully advised the client in negotiations with the various creditors to attempt to get clear title to the property. This strategy was undertaken for three reasons: (i) to minimize legal fees, (ii) to speed the return of the properties or cash to our client and (iii) to eliminate the risk that an adverse claim could succeed. Those negotiations failed as the other creditors were entirely unreasonable in negotiations, failing to recognize our superior position in the assets.
Second, we realized that the real risk to the client was that the fraudster would declare bankruptcy within 180 days of granting our mortgage, a circumstance that would allow the bankruptcy trustee to void the mortgage and make our client one of many general, unsecured creditors. That would result in our client getting only pennies on the dollars of his investment. Thus, we approached the fraudster and convinced him not to file bankruptcy before the 180-day deadline. He cooperated.
Third, we vigorously then pursued a simple foreclosure of the properties subject to the mortgage. Ultimately, our client was recognized as the first mortgage holder and the successful bidder at the Sheriff’s sale. Every penny he bid for the properties went to our client, and our client ended up owning the two properties. This had the effect of depriving the deed holder of any value from the property.
This client navigated the very turbulent waters of a messy situation, salvaged most of his ill-considered “loan” and was able to fund his son’s college education.
We proudly “made a difference” for this fortunate client.