Typical issues faced by Real Estate Investors.
by James Miller
These are some typical issues that I am faced with on a normal day and how I chose to handle them.
I grab the stack of papers from my desk on different Real Estate related “issues” I need to review. I had set them aside last night, so I could focus on them today.
The first issue is my fault since I accidentally overpaid a bill (by $200) for a 20 yard dumpster that we were using at one of the construction sites. I have another account with the same company where I am getting billed monthly for a dumpster that I am providing at a rental apartment. I call to see if they can apply the overpayment to the other account.
I am a little apprehensive as this company has been less than friendly in the past, which has caused me to often wonder about the validity of the myth that the Mob is into waste disposal. I am also worried that they will not have a record of the overpayment and I will have to prove it.
It turns out that they do have a record of it and they can transfer the balance, no problem.
My second issue is that on one of the properties we picked up “subject to” the existing mortgage, the lender (Wells Fargo) shot out two letters. One letter was about how the amount of hazard insurance coverage wasn’t adequate, and the other letter was about how the deductible amount on the hazard insurance policy was too high.
We have a few different policies for the properties we have, this property was on one of our business owners policy with a bunch of other properties that provides a total coverage of around a million dollars.
Their records indicated that we only have coverage of $2000 on the house, and that the mortgage balance was about $50,000 so we needed at least that much coverage.
My immediate concern was that since we are continually dealing with so many properties, we may have missed something and somehow inadequately insured this property.
The other letter from Wells Fargo indicated that we had too low of a deductible, and with a policy this size needed a deductible of no more than $100,000. That seemed really odd to me since I would never have a deductible anywhere near that high on any property. A deductible that high would mean that we would need to cover the first $100,000 worth of damage and their policy would kick in the rest. Having a deductible that large is really like not having a policy at all. It was confusing to me at best.
I grabbed a copy of our business owner’s policy and the other papers I needed and headed out the door to lunch with my girlfriend. On the way there we grabbed the mail. I noticed that I got “proof of service” back on a Tenant-Buyer who was behind on payments to the tune of about $3000. I don’t usually let them get in to me that far, but his business is landscaping, which is seasonal, and he gets paid sporadically. He has been with me for four year and usually makes good on what he owes me when his clients pay him.
This time around he had gotten in too deep and did the worst thing possible, which was to not respond to my calls and letters. When I lose contact with a tenant and they owe me money, I am forced to file a small claims action for eviction and judgment. The letter I received back from the sheriff indicated he had been served proper notice of his court date, but also told me that he had moved out and they had served him at his new residence.
Unfortunately he could have contacted me to work something out, I may have given him time, hell I may have lent him some moving money. I understand that life can throw you a bad shake. But now, my big concern was to get him out of the place so I can get it bringing in money again. If we are communicating and on good terms, I find that things usually work out the best for both parties.
Since it didn’t happen that way, I am now worried about the condition that the house is in. My girlfriend and I make a plan to go review it. I will bring the camera with in case I need to take some photos to tack on damages to the small claims action.
The other problem with the tenant just taking off is that I will still have to go through with eviction. While I know he has a new place to live and can reason that it is certainly very likely that he doesn’t intend on coming back, I am not in communication with him so I can’t be sure. This means that I while I can show it, I can’t rent it until the eviction is final. I plan for a trip to the house and mentally brace myself for the worst.
At lunch I review the Wells Fargo letters and the insurance policy. I quickly realize the problem. The $2000 they have listed as the amount of hazard insurance we have, is actually the amount we have on just the storage shed on the property. We actually have over $100,000 on the house itself.
I see that we also have a deductible of $250 and not over $100,000 like they had indicated. I make a call to our insurance agent to verify my information is correct (which it is) and to have him send yet another policy declaration page to Wells Fargo.
I then place a call to Wells Fargo to see if I can explain their mistake to them. I navigate my way through the automated voice system, which makes me wade though an inordinate amount of choices before letting me know to hit “0” for he operator.
Once I get a real person on the line I run into a problem that faces most “subject to” investors. The name on the mortgage is not my companies name or my name, so they can’t talk with me. I have been down this road a few times before. I let them know that there should be a Power of Attorney and a Right to Release Information on file with my name on it. They verify that there is, and ask how I am related to the owner. This is where it gets tricky, if I blatantly state that we have purchased the property, we can start down the ugly road of “due on sale” issues. Most, if not all, mortgage documents have a stipulation where if ownership interest transfers, the lender can call the mortgage due. Taking over a property “subject to” flies in the face of this, as the seller’s name remains on the loan, but the deed transfers.
I carefully pick my words and tell her that I am not related to the seller, but “calling on her behalf”. These are the magic words that allow us to talk freely, but don’t get me transferred to another department because the place has been “sold”.
I explain the mistake that was made to the lady on the other end of the line, and even while we are talking Wells Fargo receives in a declaration of coverage from my Insurance Agent, which eliminates these two issues.
That night my girlfriend and I make it to the house where the tenant bolted and find that it isn’t totally abandoned. The tenant isn’t there, but lights are on, there is a nice mountain bike on the porch and miscellaneous personal items strewn about. I resist the urge throw the mountain bike in the back of the car to hold as a hostage, and instead walk around the outside of the place.
As I peek in the windows I can see that the furniture is gone, so no one is likely living there. They were, however, kind enough to leave at least 30 trash bags full of beer bottles, cans, and junk in the back of the garage, in front of the garage,and strewn about the lawn.
As walk around to the front of the house I see that my girlfriend has already started putting up a “For Sale” sign in the yard. While I commend her on her aggressiveness, I tell her that it is too early to put the sign up. I either have to get back in communication with the tenant and work something out with him, or wait for the eviction to be finalized.
There is no legal reason we can’t put the sign up, just a practical one. I understand that the tenant is just as unhappy about things as I am, placing a “For Sale” sign there will piss him off, and likely end up damaged or stolen. This guy has lived there for four years. It has to be hard for him to give the place up, and is probably also embarrassing for him. A sign would just be like slapping him in the face. The last thing you want to do is to aggravate a tenant while they still have control of your property.
She reluctantly removes the sign and puts it back in the car.
I give the tenant a call and leave a message asking if he would call me to see if we can work something out to possibly avoid court. It weakens my position a bit to say this to him, but my first priority is to get him to a point where I can work with him so I can fast track new tenants into the place and get it cash flowing.
My idea is to work out some sort of payment plan with him on the money he owes me and get him to move his trash and other stuff out of the place. In return for this I would lessen the amounts owed, and temporarily fore go court as long as he held up his end of the deal.
This is a great offer for him as he is otherwise facing at least a $3000 judgment and having me garnish his wages for payment.
I would let him know all of this if I could talk with him, but so far he hasn’t called.
In some cases you can’t even get the horse to water, let alone make him drink.