Breach of Sale (insurance, real estate, approved, credit)

[Flivver]

I purchased a home directly from the owner, who offered to hold 100% of the mortgage. We agreed upon a sales price, written into the terms of the sales agreement was a $10,000.00 line of credit for repairs--the house is 128 years old--this line of credit had it's own repayment requirements.

After closing--about three weeks--I made a request for monies from the line of credit so that I could finish renovating one of the apartments for tenants I had already approved and accepted deposit from.

The seller flat out refused to live up to this agreement--said she didn't have the money and couldn't get a loan--stated she wished she hadn't agreed to the line of credit, etc.

I'm now in a position where I've no rental income from that unit, I owe a contractor--who's charging phenomenal interest on the past due balance--basically it's a mess.

I stopped making payments to pay the contractor. Then there was a fire in the house--now the owner, because she is listed on the insurance policy, will not sign the check until I give her over 50% of it for refusing to make payments as agreed upon. At which point, I'll be stuck with an uninhabitable home with no insurance money to fix it.

Any ideas. (I'm meeting with an attorney, I just need to get some opinions)

[pghquest]

Originally Posted by Flivver

I purchased a home directly from the owner, who offered to hold 100% of the mortgage. We agreed upon a sales price, written into the terms of the sales agreement was a $10,000.00 line of credit for repairs--the house is 128 years old--this line of credit had it's own repayment requirements.

After closing--about three weeks--I made a request for monies from the line of credit so that I could finish renovating one of the apartments for tenants I had already approved and accepted deposit from.

The seller flat out refused to live up to this agreement--said she didn't have the money and couldn't get a loan--stated she wished she hadn't agreed to the line of credit, etc.

I'm now in a position where I've no rental income from that unit, I owe a contractor--who's charging phenomenal interest on the past due balance--basically it's a mess.

I stopped making payments to pay the contractor. Then there was a fire in the house--now the owner, because she is listed on the insurance policy, will not sign the check until I give her over 50% of it for refusing to make payments as agreed upon. At which point, I'll be stuck with an uninhabitable home with no insurance money to fix it.

Any ideas. (I'm meeting with an attorney, I just need to get some opinions)

A line of credit financed from the seller? Thats one I never heard of.

Anyways, your options would be something like, going out and getting a line of credit and reducing this from the bottom line purchase price, suing the seller for expenses that you have to put out, or simply walking away.

I have been bitting by seller financing deals before and I will NEVER do one again.

On a side note, you should have had your own insurance policy, and it sounds like you'd be best to just walk away.

[Flivver]

Thanks for your input. I'm in a real pickle...
Funny thing about the insurance, though...I own the policy, I paid the $1,700.00 for it's protection for a year...It seems morally reprehensible to me, if not illegal, to demand insurance money just because you hold the note.

[texdav]

You could take her to court on the line of credit but she is intitled to the insurance as she holds the most interest in the property most likely.You interest is what you have paid in principle . That's the same as a bank would do;and of course you would pay for the insirance even then.

[chet everett]

While texdav is correct that ANY lender has to approve the insurance settlement, no sane lender would try and take a cut like this seller/lender wants. The l-o-c was/is a horrible idea for both of you. If you have/had no cash to buy or improve the place to get it in a state that it could generate income it was more than a little foolish of the seller to sell to you. Similarly why did you think that the seller was going to be source of funds for renovation than would be more reliable than other sources?

Seller financing can be useful when the buyer has a track record of making the cashflow on a property work -- the seller is nuts for not giving you access to fund that are needed to get the property in a leasable state.


Sounds to me like this may be a case of someone reading a "fantasyland" book of real estate investing and forgetting that in the real world things are never quite so easy...