One of my readers asks (Slightly edited) “ i owner financed a house 2 yrs ago. they had all the inspections done and everything went thur with no problem. Now 2 yrs later they are sueing me for mold, aspectoes (not sure how to spell it) oh and lead paint of course they say we knew about this and didnt tell them.
We lived in the house for 10 yrs and never had any problems (his wife is sick and has been for yrs , they say the house is making her sick) anyway my question is how long is it till we don’t have to worry about them trying to sue us this is the 2nd time they have tried in the last 6 mos (1st lawyer said they didn’t have a chance) and how do we get them out of the house leagley ?? I don’t want to go thur this every few mos or yrs to come !!! We still don’t have a copy of the insurance on the house or flood papers they are to send !! thank you for any help you can give us.“
Unfortunately, the reality is that you can be sued anytime some other party decides they have a grievance and has the money to pay an attorney. Most people don’t realize it, but you are always at risk of being sued by someone for something.
How do you protect yourself? Keeping in mind that I am not a lawyer, and can’t provide legal advice, here are a few thoughts about how I mightgo about protecting myself in a situation like this.
I would ask my insurance agent about an umbrella insurance policy that provides coverage beyond that offered by the usual home owners policy. Something with much higher limits after making sure it covered me in the situation you describe. Then I could sleep better knowing that if I am sued the insurance company will pay for my legal defense and if I loose would pay the judgment.
I would speak to an experienced attorney about “Judgment Proofing” myself. By that I mean moving title/control of assets out of my personal name and into other legal entities that are more difficult to extract money from. Trusts and limited partnerships come to mind. Setting these up is expensive and they complicate your tax situation, so they only make sense if your net worth is substantial. The thing to remember is that you have to do this stuff BEFORE you need it. If you wait until you are actually served with the legal papers it’s probably to late.
You might consider talking to the buyers and offering to buy them out. Distasteful as that may be it gets them out of the house and lets you move on with your life. They could still sue you later on, of course, but I suspect it would lower the odds. Any choice you make is going to cost you, so factor that in to the buyout price you offer.
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Owner financed commercial building – A reader question
A reader writes “My dad owner financed his business and was paid in full then sold the building for to them for a 15 yr mtg. Dad passed away and the buyer stopped making the payments which I have in trust for my mom.
I hired and attorney and the building is now in forclosure .
I tried to renegotiate the loan and we went back and forth for 3 months and settled on a new payment with a balloon , legal fees and penalties . These were to be paid by 12/28/11 and as of now the lawyers have told me they have not heard a word.
I also do not know if there is insurance on the building and I have paid the first half of the taxes out of pocket.
What are my liabilities if while he is still in the building running a business and something happens?“
I can’t provide specific answers to most of your questions because:
So, I try to provide useful concepts that help people think about their problem from a different perspective and encourage them to get the legal advice they need to implement better solutions.
My guess is the business is out of money and trying to hang on in hopes their sales will improve so they can catch up. The reality is that good people, who have the very best intentions of honoring their commitments, fail and are not able to perform. (That may or may not apply here.)
I would be concerned that other bills might be accumulating. For example, I know of some jurisdictions where unpaid water bills become a lien against the property. Failing businesses often get behind on their taxes and the IRS can be absolutely ruthless, especially when it comes to payroll taxes. Failing businesses have been known to withhold taxes from their employees but not turn the money over to the IRS. A title search looking for IRS liens, etc. might be money well spent.
I know one investor who is almost never in court because when a problem develops he approaches the debtor directly and buys them out. ”I’ll give you $100 today to find a new apartment and move out by the weekend. If you are out and leave the apt in good shape I’ll give you another $100 when you give me the keys.” There is no reason a similar approach might not be your fastest and cheapest solution in your situation. (More zeros on the numbers though, I imagine.)
For example, would/could these guys deed the property back to you and then lease it back at a price they could afford? Depending on economic conditions in your area, an affordable price might be well below the purchase price they negotiated. You said they paid for the business itself. Are they the kind of people you are willing to work with, even if it means reducing your mom’s income? What are your chances of selling/renting it to someone else?
It doesn’t take long to rack up many thousands of dollars in legal fees. The same money paid to expedite a rapid move might we well spent.
On a final note: an experienced litigator I met wrote that chasing lost money is the most wasteful thing you can do. You never get it back. You spend more that could be better used to move forward in a more positive direction. It drains your emotional energy so you aren’t ready to take advantage of other opportunities.
Best wishes for a rapid and optimal resolution of the problem.
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