The Administrative Matter (Part 1)

I slept better last night than I had in years. This morning I woke up refreshed. And grateful! I can't forget grateful.

Years ago, our business model was to purchase a home, allow the tenant to purchase it from us with owner financing. The tenant would essentially own the home and we were the mortgage company. This model worked fabulously in Arizona. It was 100 percent successful.

When we started buying rental homes in Birmingham, we didn't want to be landlords. So, we offered the same terms: rent for a year then buy, then refinance us out in three to five years. This did not work fabulously. In fact, it was very unfabulous. Only one Birmingham tenant fulfilled this contract. Because the model failed, we became landlords and the rest you can read about in the archives of this blog. Hence, we have an accidental business.

Part of the reason for this failure has to do with what happened in 2008. As you may remember, the housing market tanked. And then the economy. Or vice-versa. It doesn't really matter. They both went out in a fiery death, leaving me with a gazillion homes that were now underwater.

In 2008, one family, the Cox's, filed Chapter 11 bankruptcy. Chapter 11 means they were reorganizing their debt. As a mortgagor, they missed a payment and repaid me in increments based on the terms of the bankruptcy. Essentially, they wanted to keep the house.

In 2009 Mr. Cox lost his job of 18 years when his company closed down. He called me to tell me this was the case, but assured me all was good. Two weeks later they filed Chapter 7 bankruptcy and included the house. This wasn't a reorganization, but a cut ties and start anew.

When I got word of the bankruptcy, there was a lot of mayhem and panic on my end. I could not find a lawyer to help me (it was out of Legal Eagle's scope of reference) and I wasn't sure what I could do anyway. They have a right to file. They can also walk away from the home--which I later found out they were doing.

This wasn't really an issue. Because, as part of my owner financing, I have a clause that says if the property is abandoned it goes back to me. And, to solidify this point, I made every tenant who is buying the house from me and using our company as their mortgage company sign a quit claim deed up front. If the tenant doesn't perform, the quit claim deed is recorded and the home becomes mine again.

The late Attorney Jon was my lawyer for this. In my early years he helped me fine-tune my contract. Jon told me once my quit claim deed idea was clever. And, he also added an addendum when the tenant-owner signed my contract saying they knew they were signing a quit claim deed. They also had to initial this and the clause about default in my contract. So, there was 100 percent transparency. Everyone knew what was going on. Everyone agreed.

Because the owner financing business model tanked so badly around this time, the late Attorney Jon filed a lot of quit claim deeds with the county recorder for me from 2008 to 2010. However, he missed two. One belonged to the Cox's. The other belonged to Mrs. C. I was aware these two were pending. The Late Attorney Jon was also aware. There were slight issues with both--easily resolved at the time with a phone call or two. I contacted the Late Attorney Jon on a regular basis to gently remind him to get this done. Without these deeds recorded both tenants still owned the home.

Though we were paying our mortgages, insurance and taxes, all while collecting rent, we had no legal claim to the property. And, if either the Cox's or Mrs. C had a creditor come after them, the creditor could slap a lien on the property. Or worse, what if one of them was involved in some sort of criminal act or a car accident. The property would be collateral for either of them if there was a lawsuit. And, there was nothing I could do.

I discussed all this with the Late Attorney Jon when I went to visit him in February 2011. Our visit was for the sole purpose of getting the nitty-gritty details done. He showed me the actual original quit claim deed he had with the Cox's and said he would get it filed. No worries. He would get with Mrs. C. and take care of that issue. An easy fix he assured me. He hugged me as I walked out after our lovely visit. That was the last time I saw him.

The Late Attorney Jon took his life July 18, 2011. 

To be continued