Occasionally, we deal with a person who is less than truthful. He either omits pertinent information about his note situation or lies to us. Fortunately, our 3rd party due diligence will uncover the truth and help us avoid a potential financial loss. Let me share a story that illustrates the point.
I was talking to a man who held a note on an older home. He was pleasant and very co-operative. He answered all my questions, provided the documents I requested, and basically presented a relationship with his buyer that made purchasing his note seem attractive. We did our initial due diligence and gave him an offer which he accepted.
The buyer’s credit was acceptable. We then ordered a property appraisal to be completed by a local real estate agent. This is where the problem surfaced.
The appraisal included pictures and commentary about significant damage and cracks to the home’s foundation. I called the seller and without sharing this information asked if we could move up the process and speak to his buyer. He agreed.
Immediately, the buyer shared that she regretted buying the home. On her initial meeting with the seller, she noticed the foundation issues and told the seller she could not purchase or move in to a home with this damage. The seller responded by lowering his asking price and said he would take care of the problem. Rather than wait, the buyer took him at his word, proceeded with the purchase without any contingency, and closed the deal.
Big mistake!
Moving in, she waited for the repairs to be done. Seller excuses followed. In time, she learned that she had other occupants in the home – 2 rats in the cellar. Incensed, she retained an attorney.
The seller revealed none of this. When I called to share this information, the seller was quite. Very quiet. I said we were withdrawing our offer but would be willing to reconsider if the damage was repaired, the rats were gone and the buyer was satisfied. I offered to follow up in a few months and he agreed.
I eventually called and emailed with no response. I have no idea how this situation was resolved.
In my 15 years, something like this has happened only a few times. 3rd party due diligence is always intended to confirm what we are being told by the parties. Questions, a lot of questions is at the heart of what we do. Why? Rats in the cellar is why.
