WHEN A NOTE SELLER BACKS OUT

WHAT CAN YOU DO WHEN A NOTE SELLER BACKS OUT?
Part 1
by Lorelei Stevens

Anyone who has been a note buyer for long has experienced the
following scenario: You get a frantic call asking for a bid on a
note. You give the bid and the note seller signs up with you. The
note seller calls you frequently wanting to know when they will get
their money. Then they stop calling. Then they won’t return your
phone calls. Finally, you find out from some third party that the
note is being sold to someone else. Or, even worse, the deal
mysteriously evaporates and you never know what happened.

It’s just a part of the note business. The first time this
happens to you, you feel a sense of moral outrage that someone
would offer to sell you a note and then back out and not even
tell you. You think of the time and effort you have put into
your due diligence and writing up the transaction. You think
of the lost interest on the cash you reserved to buy the note.
You want justice. So what are your options?

Contact The Backed-Out Seller
First, try to contact the backed-out note seller and appeal to
their sense of ethics. Or you can advise them that you may take
court action. Sometimes the note seller will agree to pay you
something for your trouble. However, most note sellers, once having
backed out, don’t want to confront the problem and will not
communicate with you or pay you money.

Go To Court
You can take the case to court if you have a signed preliminary
agreement with the note seller and if it is written with “teeth” in
it. Without a written preliminary agreement, you would have a hard
time getting into court in the first place. Assuming you do have
one, its “teeth” may consist of a “specific performance” clause –
forcing the seller to complete the note sale. However, if the note
seller has already sold the note to someone else – and it’s usually
the payor – it might be too late. (ct’d below)

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LORELEI’S LEGAL LESSONS: THE ESSENTIAL GUIDE FOR SUCCESSFUL NOTE
BROKERS & INVESTORS
by Lorelei Stevens

“If I had read her book about 6 years earlier, I would be $200,000
happier.” – Rick Cogswell, Katrick & Associates, LTD, buyer of non-
and sub-performing notes

“If I were just getting started in the note business, I would
memorize every page.” — Allen Myers, Private Mortgage Brokers

“An exceptional display of instructional material for note brokers
and note buyers, whether novice or expert.” — John Zarrillo,
former Vice President, The Associates

For information: http://snipurl.com/legallessons

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Other “teeth” consist of a penalty clause which is more likely
to be effective because you could get a judgment from a court
awarding you a penalty payment from the note seller if the note
sale fails for any reason. Another possibility is to ask the court
for damages against the note seller in an amount to be determined
by the court.

There are a number of these legal remedies available to the
harmed note buyer. Each has its merits and problems. Each assumes
that you have written your preliminary agreement in such a manner
that a court is able to rule in your favor. A sloppy or poorly
conceived preliminary agreement can defeat not only your own
purposes, but also the court’s power to give you relief. If your
agreement left out something important, the court can’t fix it
for you. On the other hand, if you pack your preliminary agreement
with too many self-serving clauses, the court may conclude that
your document isn’t fair, and you may not win.

But even with the best written assurances, you will still
experience backouts. If you choose to go to court, you must bring
the strongest possible case in order to win a court judgment.
Remember that the note seller will also bring the strongest
possible case and may present brilliant defenses against you. Note
sellers may argue that they haven’t received anything of value from
you and thus shouldn’t have to pay you anything. They may argue
that your price was lower than the market dictates. Or perhaps you
asked for too much private information. Note sellers can be clever
in court.

You may find yourself arguing to the judge that the note seller
cheated you because they didn’t want to lose money by accepting
your discounted price. There is a certain lack of dignity in making
such an argument. Consumer-friendly courts may look at you as
taking advantage of the note seller.

Even if you do win the case, a court judgment is only as good
as your ability to enforce it. If there are no assets to attach, no
funds to freeze in a bank account, or no wages to garnish, you may
find your judgment was a hollow victory. You still don’t have the
money, but you do still have all your legal bills to pay, not to
mention lost time and frustration.

Just because you feel the note seller cheated you does not
necessarily mean the court will be on your side. That old cliché –
no one wins in court except the lawyers – is usually true.

TO BE CONTINUED