I've been slimed (in real estate)

[Dave Siciliano]

I've written that we've seen some pretty aggressive action in the Dallas area raw land market. Turns out, we had a party put one of our tracts of land under contract. They didn't seem like real responsive, savy folks, but had closed a near by property. They offered a generous price and put down a good chunk of earnest money. When time came to close, they asked for an extension. After a lot of back and forth, we granted one on the condition they release some of their earnest money.

Late Friday, the SEC filed suit to freeze all their assets and a district court granted the action. I read the filing and these folks were raising money through a telephone boiler operation; lying about what they had purchased and what was going on an one had been sanctioned in the past.

Anyway, the title to this property will most likely be encumbered until a receiver can work through the mess. We had planned on the closing an made other commitments, now we're scrambling to cover those obligations.

People like this hurt investors, lenders and sellers--they don't care. Wish the punishment could be harsher than the options open to the SEC. Be careful out there.

Dave

 

[woodstock]

oh wow, I'm sorry to hear this -and that you have no good recourse either. grrrrrrrrrr

 

[gibbons]

Dave,

Why will this be tied up? You granted an entension and when that date passes the purchase agreement should release you from further obligation, right? What's the problem (other than having to wait out the extention)?

 

[Richard]

Dave, sorry to hear of your troubles. Chip has a good point but I would think you wouldn't have to wait til the extension period since it's been voided by the SEC action. It would be interesting to hear what your smart feller has to say.

 

[Dave Siciliano]

Oh Chip! If only you knew what it takes to get a title company to release escrow funds!

They don't want to get in the middle of a p@#$ing contest, so they require a release to disburse earnest money. If they don't get one, they pledge the proceeds to a court to make a determination. In this case, where an SEC action has frozen funds--no way the title company will release the funds without the court's blessing.

What we normally do in our contracts is insert a clause where the Purchaser grants the release and holds the title company harmless. They used a form of contract that didn't have this provision. We negotiated several other terms and acquised on this provision. (Huh, wonder why they didn't agree to it ;-))

We have some earnest money that was released, but the largest amount is still being held by the title company. If the purchaser doesn't perform, (and it's sure looking as if they won't), we will have to give notice of default, then, probably file a suit to recover. In the meantime, title is encumbered. Great huh?

Meanwhile, the court has appointed a receiver. Ever have to deal with one of those? Difficult to have much leverage with a receiver. They are probably reacting to a lot bigger issues than this. Then, there is the issue of a court weighing our contractual rights, v. the puplic's good being best served by refunding money to defrauded investors.

Luckily, we're in a position to carry the property and fund legal costs if necessary. A neighboring property owner was also under contract. Individual with some financial wherewithal, but there house is on the property and they are a small fish in a very big pond.

Dave

 

[gismo]

Oh Chip! If only you knew what it takes to get a title company to release escrow funds!

They don't want to get in the middle of a p@#$ing contest, so they require a release to disburse earnest money. If they don't get one, they pledge the proceeds to a court to make a determination. In this case, where an SEC action has frozen funds--no way the title company will release the funds without the court's blessing.

What we normally do in our contracts is insert a clause where the Purchaser grants the release and holds the title company harmless. They used a form of contract that didn't have this provision. We negotiated several other terms and acquised on this provision. (Huh, wonder why they didn't agree to it ;-))

We have some earnest money that was released, but the largest amount is still being held by the title company. If the purchaser doesn't perform, (and it's sure looking as if they won't), we will have to give notice of default, then, probably file a suit to recover. In the meantime, title is encumbered. Great huh?

Meanwhile, the court has appointed a receiver. Ever have to deal with one of those? Difficult to have much leverage with a receiver. They are probably reacting to a lot bigger issues than this. Then, there is the issue of a court weighing our contractual rights, v. the puplic's good being best served by refunding money to defrauded investors.

Luckily, we're in a position to carry the property and fund legal costs if necessary. A neighboring property owner was also under contract. Individual with some financial wherewithal, but there house is on the property and they are a small fish in a very big pond.

Dave

Hopefully the released part of the escrow will cover your expenses and carrying costs in the meantime. Given that it sounds unlikely you will ever see much of the remaining escrow, maybe you could get the property unencumbered by agreeing to return the unreleased escrow?

 

[SCCutler]

Chip, no doubt the injunction granted by the court imposed a "stand-still" on everything, but I would also expect Dave's lawyers will be able to get him free of the deal relatively quickly.

Dave, I would wite off that earnest money... but you ought to be able to deal the property soon.

 

[gibbons]

Chip, no doubt the injunction granted by the court imposed a "stand-still" on everything, but I would also expect Dave's lawyers will be able to get him free of the deal relatively quickly.

Dave, I would wite off that earnest money... but you ought to be able to deal the property soon.

I pretty much assumed that the earnest money was gone. For us, the bigger deal would be the ability to market the property (given the property value vs. the earnest money). In any case, best of luck Dave.

 

[Dave Siciliano]

Thanks guys. Yes, we will work through it, but it ain't fun and I sure don't like being associated with slime balls in any way.

 

[Let'sgoflying!]

They fought the hold harmless on the escrow co? I know zero about real estate but is that not a bright red flag??

 

[Dave Siciliano]

No, as a matter of fact, they had good cause because they put up a very large amount of escrow: one quarter of the purchase price. That gave us a very strong feeling they were motivated to close; especially after they let the review period expire. We just thought they would close.

The standard form of contract developed by the Texas Association of Realtors stronly protects the title company in the event of a suit (and the realtor). That's what they used. We didn't like it, but focused on other areas that seemed more important than this one issue.

We really did protect ourselves pretty well, just didn't know these folks were from the bottom of the gene pool.

Never interfaced directly with them; always through a broker or their attorney. There are reasons to protect a large amount of earnest money. Smaller amounts one can just walk away from if things don't work out. What they did was unusual, but not unheard of. It was/is raw land. Not a lot of due diligence required: title, survey and some checks with the county. They were assembling more pieces and had just closed a much larger tract--four times the size of ours.

We are thinking like Spike, but don't have any feeling how the receiver or court will view the transaction. Even though we have a contractual relationship only, they may be bogged down with much bigger fish. We'll just have to see. You can go on the SEC's web site and read the entire complaint if you wish. sec.gov. Click litigation. Read under Carolina Development Company, Inc. Not pleasant reading if you're in the middle of it.

Dave

 

[Paul Allen]

Scumbags! It's a shame good people have to put up with these types all to often.

 

[bstratt]

Hi Dave. You are now in the world of the debtor courts. I believe you are currently subject to the automatic stay provision. To get by this you must make application to the courts for "relief of automatic stay". If you were under contract the receiver will most likely have to determine if there is any value to the estate of continuing with the purchase. Doesn't sound like it in this case. Get a good bankruptcy attorney.

 

[Anthony]

Dave,

That sounds like a real mess. I'm sure you are taking the necessary legal and business actions to get through this. Good luck!

 

[Dave Siciliano]

Hi Dave. You are now in the world of the debtor courts. I believe you are currently subject to the automatic stay provision. To get by this you must make application to the courts for "relief of automatic stay". If you were under contract the receiver will most likely have to determine if there is any value to the estate of continuing with the purchase. Doesn't sound like it in this case. Get a good bankruptcy attorney.

Barry:

At this point, we aren't aware of any bankruptcy filing, but a receiver has been appointed to conserve assets. We're trying to determine who to deal with to get a flavor for their approach. Of course, if they seek bankruptcy, we then have a new round of concerns. Been on the other side of that before and it wasn't fun. No adverse consequense for the other party's actions. But, we're only trying to move on and get title to the property cleared up. It's just a matter of how long it takes and how much it costs. So, personally I'm going from having an income that would purchase a new plane, to paying to get the asset freed up again so we can begin the marketing period all over again. They have a critical date coming up in the contract; we'll see if they bother to address it.

Thanks for all the positive wishes folks!

Dave

 

[wsuffa]

Ugh, Dave.

Slimeballs in every business. At least you still have a tangible asset (raw land), rather than having been selling some kind of business where an announced sale would affect cash-flow.

I would think the court would release the collateral fairly soon after the extensions expire, but the earnest money is most likely gone. Unless, of course, the buyer decides to fight it.

The harder the other side pushes against a critical protection clause, the more I get concerned.....

Good luck!

bill

 

[Dave Siciliano]

The harder the other side pushes against a critical protection clause, the more I get concerned.....

Good luck!

bill

Comes with experience Bill! I got several warnings in the dealings with these folks. My partners were of the opinion we should go ahead anyway in light of the large deposit and good sales price. I had to agree at the time. Didn't like it and wondered why then insisted on a puny contract almost no one in commercial real estate uses. But they did close on stuff he knew of. Oh well, like you said, we think we'll be able to work through it O.K.

Thanks

 

[Anthony]

The harder the other side pushes against a critical protection clause, the more I get concerned.....

Absolutely. And their position is, "we don't have to worry about that we'll, never default!" My response is "well no problem leaving it in then, right?" Sigh.

 

[wsuffa]

Comes with experience Bill! I got several warnings in the dealings with these folks. My partners were of the opinion we should go ahead anyway in light of the large deposit and good sales price. I had to agree at the time. Didn't like it and wondered why then insisted on a puny contract almost no one in commercial real estate uses. But they did close on stuff he knew of. Oh well, like you said, we think we'll be able to work through it O.K.

Thanks

I like to do due-diligence on the buyers, especially where escrow is involved. It doesn't provide guarantees, but it does help. Hopefully there is no clawback on the money you've already received.

On one contract I'm quite proud of, I insisted on some pretty strong protective language, including technology escrows with audit rights. The harder they fought, the more often I told 'em I was going to pull out and purchase from their competitor. We got the provisions. 5 years later, we ended up invoking the contract provisions when they tried to renig on some of the terms. Really glad we got the provisions and the escrow.

 

[wsuffa]

Absolutely. And their position is, "we don't have to worry about that we'll, never default!" My response is "well no problem leaving it in then, right?" Sigh.

Funny, I use the same line. I have yet to be given a good response when I say that.....

 

[astanley]

I like to do due-diligence on the buyers, especially where escrow is involved. It doesn't provide guarantees, but it does help. Hopefully there is no clawback on the money you've already received.

On one contract I'm quite proud of, I insisted on some pretty strong protective language, including technology escrows with audit rights. The harder they fought, the more often I told 'em I was going to pull out and purchase from their competitor. We got the provisions. 5 years later, we ended up invoking the contract provisions when they tried to renig on some of the terms. Really glad we got the provisions and the escrow.

I did an audit for a customer in a similar situation; they had the technology in escrow and the vendor was basically flipping our customer off. There is tangible value to technology escrows, especially if you have any of your business bacon hinging on that technology.

Cheers,

-Andrew

 

[AdamZ]

Chip, no doubt the injunction granted by the court imposed a "stand-still" on everything, but I would also expect Dave's lawyers will be able to get him free of the deal relatively quickly.

Dave, I would wite off that earnest money... but you ought to be able to deal the property soon.

Surprise Surprise I agree with Spike. Sometimes it helps when you get an attorney that has a good reputation or relationship with the receiver. while I'm sure he will follow the rules, It always helps when the attorney can pick up the phone and say Hey Adam how y'all doing and the Reciever says doin find to day Spike hows the family. The " access" won't get you something you can't legally get but if you can get it, it sure helps speed up the process.
Also the complexity of the case will play a role in determining the speed at whcih things get resolved. I was appointed as a receiver for the files of a disbarred attorney. The Folks he was renting office space from were having a kinshipsha because the sheriff padlocked the office and they couldn't relet it till I did my inventory and gave the ok. I really felt for the landlord and busted my hump so he could get access to his property ASAP. Hopefully you have a very responsible receiver appointed. Best of Luck and I hope its resolved soon.

 

[Dave Siciliano]

Surprise Surprise I agree with Spike. Sometimes it helps when you get an attorney that has a good reputation or relationship with the receiver. while I'm sure he will follow the rules, It always helps when the attorney can pick up the phone and say Hey Adam how y'all doing and the Reciever says doin find to day Spike hows the family. The " access" won't get you something you can't legally get but if you can get it, it sure helps speed up the process.
Also the complexity of the case will play a role in determining the speed at whcih things get resolved. I was appointed as a receiver for the files of a disbarred attorney. The Folks he was renting office space from were having a kinshipsha because the sheriff padlocked the office and they couldn't relet it till I did my inventory and gave the ok. I really felt for the landlord and busted my hump so he could get access to his property ASAP. Hopefully you have a very responsible receiver appointed. Best of Luck and I hope its resolved soon.

Thanks Adam. We just found out who the recieve is and hope to have a discussion soon to get his view of the world.

Dave

 

[John J]

Dave;

Good luck and my best to you. Been there and have learned.

John

 

[Let'sgoflying!]

I remember a quote from a very successful, wealthy west Texas gentleman whom I greatly respected (since deceased).
He said, "You know David, (long pause) ....its hard to believe this, but people will....lie to ya."

 

[SkyHog]

hmm...

I have no idea what is being said here, but I get the idea that Dave got screwed, and will continue to be screwed for a while, until (enter technical jargon here).

That bites man. Good luck.

 

[gibbons]

hmm...

I have no idea what is being said here, but I get the idea that Dave got screwed, and will continue to be screwed for a while, until (enter technical jargon here).

That bites man. Good luck.

Nick,
Ever thought of being a technical writer? You seem to have a way of getting to the core of the issue.

Chip

 

[Dave Siciliano]

Actually Nick, we're not sure yet. We may be fine from a financial perspective; we'll find out in the next few days.

It's just the entire situation of dealing with slime balls. We spend a great deal of time and effort to 'do what's right' and feel we have a reputation in the market place for being ‘straight shooters’. Doesn't mean we don't occasionally get sideways with folks, but we try to play by employing reasonable standards.

Now, if we do keep the earnest money to which we are entitled, we know it came from a group that perpetrated fraud on investors. Of course, our property could be tied up for a period of time while this gets straightened out. We don't know how the receiver appointed by the court will view the world. We'll find out soon.

So, on the one hand, we have a fairly sizeable earnest money deposit in dispute to which we would normally be entitled. That may now, at least in part, be in doubt. On the other hand, if we do get the earnest money to which we are contractually entitled, we know the slime balls that deposited it defrauded investors and it pulls on our heartstrings.

Geesh!

 

[Dave Siciliano]

We settled with the receiver today! They were just as glad to settle and move on as we were. They recovered substantial assets which they needed to do other things. We were happy to just have title clear again so we could re-market the property.

So, all's well that ends well! Or somethin like that!!

Dave

 

[Larryo]

We settled with the receiver today! They were just as glad to settle and move on as we were. They recovered substantial assets which they needed to do other things. We were happy to just have title clear again so we could re-market the property.

So, all's well that ends well! Or somethin like that!!

Dave

Dave,

Good for you. I was reading this thread and couldn't figure how in the world they could cloud the title, assuming you didn't give them any recordable instrument.

As for the escrow, I could see some issues with it if fraud or criminal activity was involved.

I just do the little deals, not in the big bucks like you <g>....

However, my contract favors me to the extreme, I never put down more than $100 on a deal I'm buying, and never obligate myself to the buyer until I have "cash in the bank".

Now, that may sound rather harsh, but my intent is only to control the deal, not to screw someone, well, maybe excepting some Cessna pilot <g>.

But I've never been sued, never had to sue some one never lost more than an occasional $100 (and rare) and rarely had anyone mad with me. (Tenants excepted).

Now I have had a few lease/option deals fall through (where I was the seller). In most cases I gave back part of their option, they cleaned the place and left. Had a few move out without notice and left a few bucks on the table, and one guy went to jail and I thought the Feds might visit me. However, they didn't have a legal right and didn't bother me. (I don't like visits from those folks).

Real estate is a lot of fun. Got two really interesting deals going on right now, buying and selling. Food for another thread....

Larryo

St. Pete

 

[AdamZ]

Wow Dave! I am so happy this resolved quickly for you. Bet your glad its over.

 

[Pjsmith]

I've written that we've seen some pretty aggressive action in the Dallas area raw land market. Turns out, we had a party put one of our tracts of land under contract. They didn't seem like real responsive, savy folks, but had closed a near by property. They offered a generous price and put down a good chunk of earnest money. When time came to close, they asked for an extension. After a lot of back and forth, we granted one on the condition they release some of their earnest money.

Late Friday, the SEC filed suit to freeze all their assets and a district court granted the action. I read the filing and these folks were raising money through a telephone boiler operation; lying about what they had purchased and what was going on an one had been sanctioned in the past.

Anyway, the title to this property will most likely be encumbered until a receiver can work through the mess. We had planned on the closing an made other commitments, now we're scrambling to cover those obligations.

People like this hurt investors, lenders and sellers--they don't care. Wish the punishment could be harsher than the options open to the SEC. Be careful out there.

Dave

Dave - I'm sorry to hear about this. My day job, when not otherwise trolling POA message boards, is to acquire and entitle property for my company to build homes on, so I'm often the guy sitting across the table from you trying to buy the land...though it sounds like your buyers were speculators and not buying the land for their own use.

We've bought a lot of land and built on it, and we've sold a lot of land that we couldn't get to building on in a reasonable time, so I have also been where you are. Our business model is far from what you experienced; we negotiate hard for a contract with time frames and dollars that reflect reality, and if we're able to reach agreement that's it. It's an agreement and we abide by it. Unfortunately, there are far fewer of us out there who work this way than the speculator variety that you ran into, where the business model is to tie up the land at any cost with the expectation that you'll later ask the Seller to take some sort of haircut. I get together with several other of the local privately owned builders from time to time, and we all regret having to carry the baggage for the guys who pull the kind of crap you were subjected to.

Eventually the issue will be resolved and you will have to sell the land. As the owner, I recommend that you evaluate your buyers with the stability/integrity question in the forefront. It may mean you're accepting an offer price marginally lower than the higher offer you got from a speculator, but how much do you really make if you've lost all of this time?

Also: nothing speaks like money. If you absolutely must take a speculator's offer, build in non-refundable AND DISBURSED earnest money that comes to you either with the contract, or after the initial short due diligence period. This will help weed out a lot of buyers who aren't serious, or who aren't financially able to pull the trigger when the chips are down.

Just my $.02

Patrick

 

[Dave Siciliano]

Thanks Patrick. We normally purchase land to develop. This was a good deal and we got seller financing, so we purchased it hoping to develop in the future, but were offered more than we would have gotten had we developed; so, we decided to sell.

We normally have a pretty tough contract, but, when the Purchaser put up 1MM in Earnest Money, we gave a little. Doesn't matter what your contract says Patrick when a receiver for the SEC steps in. They have very broad powers. It's not like just dealing with another private party.

Anyway, it's settled. Now, we'll begin allowing folks to bring us offers again. Like you, I much prefer to deal with someone I know. Right now, this piece isn't utilitied which leaves out most builder/developers. Lots of folks coming into the market from the East and West coast we don't know. But, we will try to check some references and make sure they have a track record.

BTW, our previous purchasers had closed over a thousand acres near us before they contracted for our site; a reputable broker brought them to us. Those things and the Earnest Money they put up were reassuring.

I hear what you're saying as a developer. We have folks paying prices for land that just don't work for development. One speculator is flipping to another. At some point, this will have to settle down.

Dave