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Pitfalls in equity financing and loan transactions for real estate investment.

On Behalf of | Jul 12, 2017 | Real Estate |

Loan Transactions / Financing
. During the purchase and sale process, clients utilize attorney services to assisting them in reviewing the financial documents associated with the real estate purchase. Also, at the time of closing, an attorney’s review of the closing documents sometimes shows that the closing documents are not always accurately prepared in association with the details of the loan.
 Even after the closing, certain issues regarding national bank loans come to controversy. Attorneys represent homeowners in defending against mortgage lender claims, some which include issues of non-payment or loan modifications. Even during the loan modification process, we find that the lender’s right hand often does not speak with its left hand. Often times this means that while a loan modification is supposedly underway, the lenders are still instituting their foreclosure action. Attorneys also assist in short sales if needed to protect the client. We assist clients in arraigning seller-finance deals, putting together the deed, note and deed of trust. Part of this process sometimes begins where the parties originally want to arrange a contract for deed, but after the Texas Property Code requirements are explained, a seller-finance situation is preferred.

Equity Financing. This is a situation when individuals and entities want to raise capital for real estate investment. In some situations, we assist the client in understanding the underlying contract prior to investment or to assist them in creating a document that will protect their interest after obtaining outside investment.
 The post-investment situation, for example, would involve an example/situation worth mentioning where I represented a plaintiff that invested funds in exchange for a percentage interest in an apartment complex. Here, as a co-owner of the apartment complex, the Cross-Plaintiff executed a master lease agreement between all the owners and Cross-Defendant. Under the deal, Cross-Plaintiff was to receive certain monthly lease payments from Cross-Defendant as guaranteed under promissory notes. In this case, lease payments were made until a certain point, and then ceased. Cross-Defendant claimed the apartment complex project was in dire financial situation. Under duress and coercion, Cross-Plaintiff signed the ballot approving the sale of the project but retained its right to inspect and sign the final closing documents. At closing, the parties agreed to set aside in escrow with the title company funds covering 13 months of missed lease payments and interest which were to be released from the title company after a full accounting for the apartment complex, but no accounting was ever made. The Cross-Plaintiff claimed breach of contract, conversation and the right to an accounting. And as damages, the plaintiff claimed: loss of capital investment; loss of principal returns on investment; loss of interest returns on investment; loss of lease payments.

The overall point is to have legal counsel all steps of the way.


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