August 01, 2007 (Original publish date) • By Dennis Beaver
Mr. Beaver, we desperately need your advice and have been reading your column for over 10 years.
The problem is that months ago we loaned our 27 year old son $50,000 for a real estate investment. He had a partner and they agreed to use the money as down payment on a rental home, but instead of it being purchased in their names together, it wound up in the sole name of his partner’s wife. Now those two are going through a divorce, and we are afraid of losing our money!
This is retirement money and we can’t afford to lose it! Our son is very intelligent, but had his share of business troubles. We just wanted to be supportive and help him, certain he would protect our investment.
What should we do? Thelma and Luke.
Their son the genius
When that e-mail came in, I called my readers. They are both in their 60s, retired and not well-off. They worked hard all their lives, saving what they now live off of, plus Social Security. Their son, Timothy, was described as “brilliant in math and computers when in junior high school. We thought then and still do that he is truly gifted, even though he never attended college. But soon after high school, he began a small company with the financial help of a lot of family members,” they said.
Two years later, he was $100,000 in debt, filing bankruptcy, leaving employees and bills unpaid.
“He is a nice boy, but he seems to know it all, and we were, I am sorry to admit, never really strong as parents,” Thelma admitted, suggesting that I talk with their son. I jumped at the chance, curious about just how brilliant he was, and more important, did he care about the possibility of losing $50,000?
“We had to cheat”
Tim explained that he and an old high school friend were “partners” in a real estate “flipping” venture, but neither were licensed agents.
“We bought and flipped homes, and had to get a $50,000 line of credit from my parents, since we could not qualify for any more loans. My partner’s wife had excellent credit. I admit we did exaggerate on the loan application materials just a bit, stating that she planned to live in the house, to get her a better interest rate,” he told me.
Tim seemed unconcerned that he had participated in what was clearly loan fraud.
The loan on the house was in the wife’s name, as was the title. Neither Tim nor his partner had any official interest in the property. “We thought things were going to be great. . .selling the house for a profit. But then they filed for divorce, the market began to slide, and now she says that the house is hers!” he complained. I asked him to tell me about this “partnership” of theirs. “Oh, we really trust each other,” he boasted.
“You do, eh? Well if it is such a great relationship built on trust, why did your pal not tell you about the marriage being in so much trouble?” Tim, it turns out, was told about the marital problems, but “since they got back together,” he thought everything was “just fine.”
Apparently Tim was standing behind the door when common sense was handed out.
Is the money lost?
My readers have two problems, one a lawyer can most likely solve, the other may never be resolved. I ran the facts of this story by attorney Ronald Jones of the Kahn, Soares & Conway law firm in Hanford. Here is Ron’s advice:
“Your readers need to immediately see an attorney who should in turn contact the wife’s lawyer. Urge that she do the right thing, cooperate, and if neither the wife nor her husband have any real money invested, sign the home over to the retired couple. If that does happen, they will have to refinance the house, or they might all just agree to sell it immediately, with the $50,000 being paid to your readers, and the balance divided by the couple and Tim.”
Ron added: “But if she will not, your readers have little choice. A lawsuit would need to be filed against both wife and partner, at the very least, for declaratory relief, quiet title, possibly fraud as well.”
If the only choice is a lawsuit, then it would be filed in the county recorder’s office where the land is located. They are looking at close to a retainer of $2,000 if they go that route, and hopefully the partner and wife will not have the financial ability of battling it out in court. But if it really went to trial, look at over $25,000 in attorney fees — and to possible punitive damages being awarded, Ron said.
Fail to be a parent — pay for it later
After several lengthy conversations with my readers and their son, it became clear this was not a new problem. They honestly believed him to be some kind of a creative genius. He didn’t need college because, as a kid, he knew “more about computers than any of us.” He was a 27 year old going on about 12.
Ethics are often compromised by greed and short-sightedness. Just think of it, what kind of a son takes $50,000 from his parents — after they already lost at least that much in the past — now putting them at risk in their retirement years?
The question I cannot answer is an obvious one: Even if my readers are successful in obtaining a refund of their loan, will they repeat their mistakes? Will Tim see them as the “bank” of mom and dad, attempting to be “supportive” all the way into poverty?
Attorney Jones had a final observation on this case: “So many people confused a rising real estate market with personal brilliance, looking for one more deal, going deeper and deeper into debt. They were victims of their own greed, expecting house prices to continue climbing.”
They attended seminars, some got a real estate license. But many of them lost their shirts, and along the way they hurt their families deeply.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.