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The Owner Who Tried to Steal $300,000.00 from My Commercial Real Estate Clients

By Jim Gillespie | February 14, 2012

When you’ve been in our industry for a long time, you see some wild things happen that can completely take you by surprise. In addition, some of these things can then become part of your repertoire of stories that you tell other people many years down the road, too.

Well, here’s one of my stories…:)

Back in the mid 1980s there was an investment property that came on the market for sale in my area that I thought would be of interest to one of my buyers. So we immediately wrote an offer on the property, and were then met with some stiff competition from a few other buyers also.

But lo and behold I put on my best real estate agent running shoes, got the listing agent more interested in having my buyer get the deal than the other people, and we soon signed an agreement for the purchase of the property for $850,000.00. (I’m now guessing that the property is worth over $2,000,000.00 in today’s market.)

So once we began moving forward with the due diligence on the transaction, my buyer informed me that he was bringing two partners into the deal along with him. One of the partners had never even purchased an investment property before, and he was very cautious and worried throughout every step of the transaction.

Well after moving through the contingency period and getting the financing, we were all set to close the transaction 90 days later. But a few days before we were scheduled to close, my buyers announced that they needed one additional week to close the transaction. One of them had a CD maturing that he was going to utilize for his down payment, but he now realized that it wasn’t going to mature until one week after our scheduled closing date.

Upon hearing this the seller went ballistic, saying that he had already obligated himself to purchase another property with the money he would be receiving, and that my buyers were endangering his other transaction with their request for a one week extension. But he soon gave in and granted my buyers the extension.

Flash forward now to one week later on the day the transaction was scheduled to record. I live in California, which is an escrow state, and typically in this situation the escrow agent will call the real estate agents informing them when title has successfully changed hands and has been recorded in the names of the new buyers.

So at 10:00 a.m. on the morning of the closing, our escrow agent called to inform me that the grant deed had been recorded, and congratulated me on successfully closing the transaction through her. So, needless to say, I put the phone down and began feeling good about closing the deal and the approximately $20,000.00 that was coming my way as a result of it. Then something completely unprecedented and unexpected happened that would never happen again throughout my entire 20-year career as a real estate agent…

The escrow agent called me back again about 20 minutes later, telling me that we now had a problem. I responded with, "What do you mean we have a problem? The sale of the property has already been recorded. How could we possibly have a problem?"

She then responded with, "The title company just ran another search on the property, and they’ve picked up a new $300,000.00 trust deed that’s just been recorded on it. I’m going to follow-up on what caused this and I’ll be getting back to you."

So, as compared with how I was feeling 20 minutes earlier, I was now wondering what this all meant in terms of this deal actually closing. But about 30 minutes later, our escrow agent called me again with a new update…

"Hi Jim. Here’s what happened. Our messenger was on his way to deliver the seller his check with the proceeds but we got a hold of the messenger in time and stopped him before he reached the seller’s office. I just got off the phone with the seller, and when I asked him about this new $300,000.00 trust deed he responded to me with ‘What $300,000.00 trust deed are you talking about?’ But when I told him he wouldn’t be getting any of his proceeds from the sale until this new $300,000.00 trust deed was removed from the title, he quickly responded to me with, ‘Oh THAT $300,000.00 trust deed!’"

So what the seller had successfully done was borrow an additional $300,000.00 from a private party the week before when we were originally scheduled to close the transaction, which was why he was so irate about the one week delay in closing. He was planning on that private party taking several days to record the new trust deed, which is exactly what happened. But in this situation the $300,000.00 trust deed was recorded just as title was being transferred on the property one week after its scheduled closing time.

So the seller immediately paid off the trust deed through escrow, his lender signed off on the reconveyance, and everybody was back to where we were supposed to be once again.

But from my experience as an agent…Wow! What a wild set of circumstances we went through at the last minute that I hope to never, ever experience again!

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