| Copyright 2005-2007 All Rights Reserved Charles E. Marunde & FreeRealEstateLaw.com |
| Friends Invest in a Joint Real Estate Project |
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is in a financial hole with no money and bad credit. The other couple
owns a successful business and has some funds and has excellent
credit. The financially secure couple (referred to herein as the
"Secures") do not need partners, but they hope to be able to help these
friends (referred to herein as the "Insecures") to get out of their current
financial difficulties. Just prior to this partnership, and unrelated to this
partnership, the Secures loaned the Insecures $50,000 as a personal
loan and favor.
The two parties believe they can have a successful real estate
partnership, because they both bring something to the table. The
Secures bring funds and credit worthiness as well as labor, and the
Insecures bring their network of contacts in the building and development
business, contacts at the county land office and so on.
In the coming months here is what happens. The Secures move forward
making phone calls and conduct meetings. They form a corporation
which is intended to be the partnership arrangement. It is in the form of a
corporation but the exact same principles apply here, and the results
would be the same if it were technically a general partnership between
the couples.
The corporation requires each couple to pony up $1,000 in cash for their
initial capital investment and their stock. The Secures deposit their
money, but the Insecures never deposit any money.
The Secures are able to obtain a line of credit, but they have to use their
personal residence as security for the loan, which they do in order to
make this thing happen. The Bank tells the Secures in no uncertain
terms that the Insecures cannot be on the business account or on the
loan, because the Insecures have such a terrible credit score and
because of their current poor financial status, which is rather lengthy and
quite negative.
The Secures have to do much of the work they thought the Insecures
would be doing to get the engineers hired and to complete the
preliminary plat approval, the meetings with the county and others, the
payment of all the fees and costs to do this, which amounts to between
$20,000 and $30,000.
The only contribution the Insecures seem to have made is to meet on the
property once with a couple of engineers for an hour, more or less.
That's it. The Secures try to call the Insecures over the weeks, but with
no cooperation, and most of the time no return phone calls.
It is becoming apparent to the Secures that the Insecures are not holding
up to their bargain in this project. In fact, the Insecures are doing
absolutely nothing and not participating in any way. On top of this, the
Insecures have breached their personal promise in writing to pay the
Secures back the $50,000 loan, and the Insecures won't discuss it, won't
respond to phone calls, emails, or letters.
The Secures make a very difficult but well thought out decision. They
have no choice but to terminate their relationship with the Insecures. The
Secures will just move on and try to finish the project and sell it, and give
something fair to the Insecures, although the Insecures are probably not
entitled to anything, either morally or under the law.
The Secures have a meeting with their friends, the Insecures, and they
all agree amicably to go their separate ways. Then the Secures hear
from the Insecures' Attorney, who demands one-half of all the net profits
from the project after the Secures finish it and sell it out.
The Secures are insulted and offended, and their attorney and the
Insecures' attorney begin a volley of letters that cost both parties
thousands of dollars and get nowhere.
The Insecures' attorney distorts the facts grotesquely, exaggerates,
intentionally misapplies the law, and repeatedly attacks the character of
the Secures. When litigation is started on the personal promissory note,
which is long in breach, the Insecures' attorney asks them for a very
large retainer in an amount exceeding $35,000. The Insecures don't
have that kind of money, and finally start to realize their attorney has
been taking them for a ride, not telling them the truth about their rights,
and bleeding them for fees.
Think this is far fetched? It's not. It's a true story. What mistakes were
made in forming this partnership (technically a corporation), and how
could they have been avoided. See The Secrets to Building a Powerful &
Successful Real Estate Joint Venture.
Long story short, two friends
(two couples who are husband
and wife friends) decide to enter
into a short-term partnership and
buy a few acre parcel, subdivide
it, and sell it for a profit. The
market is hot. It's a solid idea.
One of the partners is an
experienced builder, but he has
stumbled upon difficult times and
(two couples who are husband
and wife friends) decide to enter
into a short-term partnership and
buy a few acre parcel, subdivide
it, and sell it for a profit. The
market is hot. It's a solid idea.
One of the partners is an
experienced builder, but he has
stumbled upon difficult times and
| A beautiful piece of land just waiting to be developed. A partnership can make it happen. |
| The Work Begins |
| Trouble Starts |
| Enter The Attorneys |
This story does not
specifically talk about
all the stress involved
in this kind of
conflict. Both parties
suffered tremendous
emotional stress and
many sleepless nights,
and the friendship
was permanently
destroyed. A
business failure like
this is far more than
just a loss of potential
profit. It involves
scars that will last a
lifetime.
specifically talk about
all the stress involved
in this kind of
conflict. Both parties
suffered tremendous
emotional stress and
many sleepless nights,
and the friendship
was permanently
destroyed. A
business failure like
this is far more than
just a loss of potential
profit. It involves
scars that will last a
lifetime.