An Inauspicious Beginning Part 2 of 2

In the days, weeks and months which proceeded the robbery and subsequent radio silence between me and my ‘business partner’, I struggled with what to do. I found myself in the midst of an intellectual dilemma. Do I call him, leave messages, push, prod, insist, contact acquaintances, friends, family? Do I show up at his doorstep with an ultimatum (okay, I’m living in Qatar at this point, so granted, this is more vain pretense than anything else. But it’s nice to imagine, right?) The other half of me said, play it cool…everything is okay. Don’t act like a nut job otherwise you’ll spook him. Give him time. Contractors are flaky but he’ll come through. Don’t worry.  

The worry about what to do became a harrowing feeling over the next couple of months and because it seemed that our first deal was failing miserably, I didn’t want to confide in anybody about what was going on. 

After a couple of months, I contacted the  real estate attorney who had helped us create the contract in order to chat about my options moving forward. After a lengthy (and costly) conversation with him, we concluded that we should make our best effort to recuperate the money. The attorney emailed my ‘business partner’ a number of times.  Our initial inquiries eventually turned to demands. 

Excerpts from our communication appear below (names and businesses blocked for privacy):

My Lawyer to ‘business partner’:

I haven’t heard from you in a while regarding the Hollingshead matter. I have talked to ———– who confirm that the property has been foreclosed upon. It also appears that there’s other Oregon litigation following you regarding this and other deals.

Mr. Hollingshead is willing to negotiate a significant reduction in the amount of debt you owe him if you are able to make a payment. However, without funds in hand, we will set this matter for litigation and add to the line of creditors.

Please contact me immediately to discuss this further.

***Note: at this point, we knew from court records that we were third in line if we filed a law suit – both in terms of the date filed as well as amount he we would have been suing for. There were two other plaintiffs suing him for than half a million dollars. Therefore, at this point, there was little optimism that we would recover our funds.  

Lawyer to me:

——-’s response, for what it’s worth.  Sounds like it could be legitimate, in which case it might not make sense to pour more resources into this. If you want to pull the plug, I’ve stopped billing you and can return your retainer. If you want to proceed, you should probably talk with ————– (a firm specializing in these types of cases).  

‘Business partner’:

I have lost everything to my name and all properties.  While intend to repay Mr. Hollingshead, unfortunately I have nothing at this time. I have an appointment with a bankruptcy attorney this week to discuss my options.

Me to Lawyer:

In light of that information coupled with the fact that we would bring the claims against him to over 600,000 dollars, I think that it’s the right move to pull the plug.  Thanks for all of your hard work on my behalf – I’ll be on the lookout for the remaining billing.

 

Strangely from this point, things simply were. Life went back to normal in many regards, but I definitely learned a lot from the experience. Below are my biggest lessons learned.

  1. It’s easy to say, ‘we’re investing this money and we know it’s risky. Let’s pretend we’ll never see this money again and just not worry about it’. In retrospect, that was downright ridiculous. We lost nearly 40,000 dollars to somebody we barely knew…the aforementioned statement was something that I think I convinced myself of as a way to justify a risky investment.  
  2. In reality, losing that money was very difficult. The, ‘hey honey, we only live once, lets do this and once we do, let’s just forget about it’ is complete and utter bullshit. I thought our 40,000 dollar investment would make me tens-of-thousands in the next year and hundreds-of-thousands in the years to come…dealing with losing it was basically a grieving process. Shock, denial, anger, bargaining, depression, acceptance. Yes, yes, yes, yes, yes, yes. It was brutal! I can vividly remember driving to work on many occasions in silence gritting my teeth when the subject arose because I was so angry (mostly with myself) with what had happened. Coming to grips with losing what amounted to a year’s salary was not easy.
  3. I should have exercised caution around the fact that the contract had such favorable terms.  A 50/50 split where he was doing all the work and we brought equal money to the table was too skewed towards me to make sense. That should have raised a few question marks
  4. I should have seen the warning signs. Two specifically. First, when I asked for evidence of work performed previously, it did exist but the form in which it existed should have been a bit of a red flag. It was very informal and lacked detailed analysis and bookkeeping. The second big red flag was that he asked for more money to pay some bills after we were a couple of months into the project. We had initially invested 35,000 dollars but sent more than 4,000 dollars to pay for miscellaneous carrying costs. This should have been another major warning sign. 
  5. We should have had our lawyer look into any potential partner more thoroughly before entering into a joint venture. I believe that we would have had reason not to enter into the partnership had we performed more due diligence.
  6. There were a couple of contract breeches early on which should have been enough to spur us to action but didn’t. For instance, we were supposed to go on title together but the title ended up going under his name solely. I chalked this up to a minor error when in retrospect it was a grave mistake, possibly the biggest of all. Had we not stopped this one action for occurring, then the events might not have transpired the way they did.  

In the end, I can only speculate as to what exactly happened. From what I was told by my lawyer things might have gone down like this:

  • We purchased the house with a hard money loan.  
  • My partner then used the house we were rehabbing as leverage for another project.  This explains why he wouldn’t sell the couple of times we had offers which would have netted us profit – not HUGE profit – but enough. He needed a certain margin in order to pay for his other investments.
  • When he couldn’t make the payments, the hard-money lender foreclosed on him and took the house. Because I wasn’t on title, I had no say in the matter.

Perhaps the worst part of the entire process was seeing the pop ups on my phone the next number of months where I’d see the house appreciating in value on Zillow. We purchased the property for 270,000 and together put a total of around 80,000 into the deal. We had a sale price of 395,000 before the vandalism took place. We would have made a descent return, or at the very minimum been in the black.  

The worst day, however, came 6 months after I’d come to grips with never seeing that money again when I saw that the group who had foreclosed on the property had sold it for 451,000! In other words, they sold it to us for 270, received our sizable interest payments for months on end, took the property back and sold it for 180,000 dollars profit. That was a difficult pill to swallow! 

It wasn’t until writing this blog post more than three years after the fact that I am able to look back on what occurred without much emotion. While I read over some of the email exchanges as I embarked on writing this post, for the first time I thought that perhaps he really was a well intentioned individual who became over-leveraged and couldn’t find a way out.  I hope that was the case.  As I sit and try to think of a tidy way to wrap up, I am at a loss. I think that says it all.

 

This is Part 2 of a 2 part blog post.

Part 1 can be seen here.

 

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