(If you are new to this blog, you may consider reading the previous post prior to this one for the correct chronological order of events.)
It was August 13, 2007, this was our 5th contract on our 48 unit complex, and, by now, the mortgage company was, shall we say, nervous and annoyed. When a contract came their way, which was considerably less than our purchase price, they wondered what happened to the asset in which they had a large ownership. We had been telling them for two years that the prior owner had quite possibly committed fraud in the sale of the property to us, and they ignored it. So we moved right along in our attempts to make it profitable and knew that, in order to have a strong case, legal action would have to wait until our losses were realized through a sale. (No we haven't sued him---yet).
After I sent the contract to the mortgage company, my agent called to say that this same lender had attempted to talk the buyer out of purchasing the property. I called my contact there and spoke with him and his boss. They proceeded to tell me that they did not want a distant owner and that her investment was less than 20%, so she would be more likely to walk away. And, one more thing--it would be impossible to close within 30 days because they had so many more important deals that they were working on. I told them that 1) We were distant owners with much less experience than this buyer. Also, we had brought other non-local buyers to them over the course of the year and this never became an issue, 2) We put less than 20% down also, 3) I didn't know what the heck they were talking about--it made no sense to me. The contact also denied trying to talk the buyer out of the purchase and stated that he just couldn't understand why she felt that way.
Then the buyer called me directly to tell me that this same contact at the mortgage company told her that they may refuse to allow her to assume the loan and that she wouldn't want the property anyway. That we had run it into the ground. That it was full of deferred maintenance. That she was a long-distance owner and they wanted someone local. That we had not submitted our annual report as required. That . . . blah, blah, blah. These statement were all lies. The only way that the buyer could have obtained this information was from the mortgage company! It was hard for me to believe this was happening after we had worked so hard to procure a buyer. How could she still be interested in the property??? I saw my finances starting to unravel.
But, to my surprise, the buyer told me that their attempted refusal to allow her to assume the loan made her more determined than ever to buy it. All I had to do was straighten out this crazy lender. So I began with an e-mail to my contact, his boss (the head of that office), and another executive at the company. I was able to counter every point they made, accused the contact of lying, and set out my directive and expectations. Here is an excerpt:
. . . . . "You did try to talk her out of buying Arlington Village Apartments. She is my witness. You stated that you did not. However, there is no way that she would know the information above unless you told her. Therefore, I have to believe everything else that she stated, too. . . . .
If you decide that we may not sell this complex to ######, I want copies from the loan agreement, any written policies and procedures, and other criteria where it states the reasons which you quoted to me today as to why ###### may not assume this loan. I will also want statistics of how many loans you allow to be assumed by out of state owners and the number of loans assumed with less than 20% equity.
. . . . . Once ###### is approved to proceed, I do anticipate that this will close within 21 calendar days (emphasis added) from the date of the contract. She has all the paperwork ready and is awaiting the loan application, which ##### would not give her today. I want you to send it to her immediately so that she may complete this while you make your decision. I also have the documents needed from my management company and myself.
Needless to say, it is very disappointing for me to learn that my own mortgage company is determined to sabotage my best efforts to sell my property to a qualified buyer who has all the facts. The confidential information that ##### divulged today is not for him to discuss with anyone. I expect that no more information of this nature will be leaked to anyone without my prior permission. Now that you have received this in writing, I expect that you will perform in a more professional manner in the future."
After that little ditty went out, I was called by my contact's boss, who asked when I would like to close. I told him, that with my efforts, I was certain we could close on Aug. 31st. He sputtered and told me that it was too ambitious. I said that it needed to be done.
An important point to remember is that we were in contract with this buyer for a week or two in July. She had performed the inspection to her satisfaction, which cut time off the length of the contract. All she wanted to do was view the vacant apartments to ensure that they were rent ready. We had agreed to this in the contract because my PM assured me that the only item some of them needed was paint. Well, guess what? NOT!! We spent another $15,000 or so to make the rent ready units rent ready.
The buyer took pictures and I was aghast at the condition that the PM felt was an apartment that someone could move right into. Two apartments had overwhelming odors of pet urine. All needed painting. Several required new carpet. One had a piece of wood as a master bathroom cabinet door (and that one had a signed lease for a new tenant to move in!). If the mortgage company had not angered the buyer into a firm resolve to purchase the property, I think she would have pulled out at this point. Yet, her determination never wavered. (Plus, she was getting a killer deal and she knew it!)
No wonder we were having problems retaining tenants. Our mistake was to not oversee the PM's work closely by visiting more frequently (like every month). We took the idea of passive income a bit too passively. I blame only ourselves.
I think most PM's are, generally, the same. Some are much easier to work with. But, by nature, as I've said in the past, no one will care for your investment as much as you do. This PM was a really great guy. At first, he packed the people in. Cleaned up the place. Answered e-mails right away. Promised to do what we asked. Very responsive. Paid our last month's mortgage out of his own pocket so that we could close on time. Gave me the Lousy T-shirt when it was all over. Nice guy.
On the other hand, he didn't collect the rent from everyone. Let us not skate by this very important point--HE DID NOT COLLECT THE RENT FROM EVERYONE. Everything in this business is based on that income that was flying out the window. His expenses were sky high. He may have misrepresented some things (like the condition of the landscaping, graffiti, not telling us about all the vacancies or expenses, etc.) that we didn't find out until later.
However, to close the deal, we didn't point (too many) fingers. We just asked him to get the rent readies done and to get them done fast. He did, for the most part. Within a week, the mile long list was almost completed. Needless to say, the buyer found new management before the close. She had to because our PM gave us a 60 day notice right before the contract was signed, but she would not have retained him anyway.
So let's recap at this point: my PM did not make the mortgage payment for the month until he had to in order to close the sale, he quit right before we found a buyer, we had vacant units that needed a lot of work to make rent ready, and I intended to close 19 days after the date on the contract. Whew!
I worked quickly in coordinating, the lender, buyer, title, and property manager. The buyer was very serious and organized, which helped tremendously. I'm convinced that the mortgage company made us their #1 priority (I wonder how that happened?), and we must always remember my secret to closing on time. I let everyone know that the world would no longer exist if we were to close on Sept. 1st or after.
With the prayers of our closest friends (and white knuckles on our part), we closed on Aug. 31st-- due to, and in spite of, MY lender, who tried to talk the buyer out of buying it. If every event had not occured in the exact order and nature that it did, we may not have ever closed. Now isn't that a miracle?
Our net take on the deal? $217,000 (only because we gained $100,000 in equity), which was a little more than half of the debt that we accumulated by owning both properties.