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Posted by Tim (CT) on August 29, 2002 at 15:13:47:

I just got out of an eviction mediation that went down hill all the way. I'm looking for advice as to what to do next. Any advice is appreciated. Here's the situation:

Seller calls me and says she wants to sell because she can't financial afford the property anymore. She (we'll call her Mary) lives on the first floor of the 2-family house. Her friend (we'll call her Lisa) lives on the 2nd floor. Apparently, they both went looking for a place to buy about 1 year ago. After about 10 properties, they found one. The broker told them that they would get a better rate if Mary was the only one to apply for the mortgage because she could get a first-time homeowners rate. So, they went ahead with the closing. Mary is on the note and also is the only name on the warranty deed filed at the courthouse. Lisa gave Mary a total of about $300 prior to closing. Most of it went for a property inspection. Ten months goes by and within that ten month period, Lisa pays her portion in full and on time for 4 of those ten months. The other 6 months; either she didn't pay Mary her portion or she said she would take care of the monthly mortgage payment and promptly bounced the check. Therefore, Mary had to make up the mortgage payment (because it's under her name). There are no written agreements or documents for this property between Mary and Lisa. Only verbal.

Mary calls me and says she can't financial afford the place and for me to take it off her hands. I do my due dilligence and check the deed at the county courthouse, Mary's the only one on it. My attorney does a title search and I get title insurance. According to him, Mary's the only one on the deed. I follow Bronchick's Land Trust technique, purchase the property 'subject to', put the property into a trust with my wife as the Trustee, Mary as the beneficiary of the Trust. Then, have Mary assign her interest over to my LLC. Also, Mary paid me 2k to do this.

So, I tell Lisa, I'm now the new owner and your rent's going to be $575. She says '...she's part owner of the property, how can you own it?' I said she's not on the warranty deed therefore she doesn't own it. So, she doesn't pay the first months rent to me (which I kept the value the same as her previous months rent for one month only). I evict for non-payment of rent.

I just got back from the mediation. My attorney was with me and Lisa had no legal representation. Bottom line is, the mediator (and, now my attorney) is saying that Mary and Lisa were in a 'constructive trust' agreement in which Mary was the Trustee. Therefore, I can't evict Lisa for non-payment of rent because her payments were not rent payments. They were mortgage payments. There was no lease agreement (verbal or written). Basically, Lisa is claiming equitable interest in the property. My attorney tells me that the best thing for me to do is to drop this eviction complaint (for non-payment of rent) and draw up another eviction for Lisa claiming '... you had the priviledge of living here at one point and now since I'm the new owner I don't want you here anymore...' (That's his lay explanation to me). But, he says, if we get to court on that complaint and Lisa says that she's part owner because they looked at the property together and she made mortgage payments, blah, blah, blah that the judge could throw it out of 'eviction court' and put it to another court because she has equitable interest in the property. If I continue into that court, now, instead of paying $400 for legal fees I'm looing at between 5 and 10k!! With FMV rents, this property would pull about 500/mo positive cash flow. It's not worth it to me to continue to that level. If it gets to that, my thought is to quit claim the property back to Mary, give her $1000 back (2k she gave me minus attornies fees and any mortgage payments I had to make up - comes to about 1k) and walk away with hopes that Mary doesn't sue me!!

I apologize for this being so long but I wanted to give everyone the full story (or as much as I think you need to know). Are there any options here? I made an offer to Lisa that basically said this: 3 months of payments at her old payment value ($350), I agree to do some repairs she wants, then we enter into a lease agreement for 1 year AND she signs a document waiving any equitable interest she thinks she has (probably a quit claim deed). She, (and, I believe the mediator talked her into it but not sure because I was not in the room) said no and that she wants to go to court. In my mind, even though she claims ownership and entered into a verbal agreement with Mary, she breached that agreement by not making the payments she agreed to make. I'm not sure if that comes into play at all.

Again, sorry so long.

Any advice is appreciated.

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Posted by JHyre in Ohio on August 30, 2002 at 20:04:19:

Unfortunately, my answer will be of little use to you, because I do not know your jurisdiction's speciifc case law - and even if I did, issues at "equity" are ofen unpredictable.

With that: Mary has not been in the house long enough to accrue any real equity, even if she HAD made all her payments. Mary has no serious money in the home...her "equity" is< $1,000, at best. In re the "constructive trust" - that means Lisa has an action against Mary, not you...for "damages" of $20 or so, given the lack of equity AND lack of payments. A major rule at equity: One must have clean hands, and she who would see equity done, must do equity. Lisa has unclean hands (lack of payments) and has not been equitable (ditto, plus she spurned a reasonable offer)....and her literal amount of equity is small to non-existent. That's the good news. The bad news: It will cost you to prove all of that if she actually pushes the issue. More costs, as you allude, than the deal is worth to you. That question answers itself - I'd cut the losses and move on if you think she'll drag it out...which sounds probable for a perpetual deadbeat. You are in the right, but proving it probably isn't worthwhile. Your call.

John Hyre

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Posted by Marc Donovan on September 03, 2002 at 23:02:31:

If its not on paper, its not enforcable. Don't know about CT law, but in most states it goes back to Great Britain law of equity.

I believe it had something to do with people not paying their taxes to the crown in the 17th century, but I'm rusty.

Look for statute of frauds on your state's website.

I can't see your attorney not considering that defense, though.

If you have title ins., they are guaranteeing you clear title. They will defend this.