Worthless Note
As i posted earlier we took a promissary note on a business we sold. We had an attorney who drew up the paperwork with terms of 2 years no interest with a balloon payment in 24 months. The attorney drop the ball. We were out of state and left everything up to the attorney as far as the close of escrow and the signing of thepromissary note and documents before the close. The buyes told us they signed and as we couldn't reach the attorney we spoke to he secretary who said they had been in the office and she assumned they had signed all the paperwork. We thought all was ok and closed escrow. We had orginally signed an 8 yr interest free note that the buyers said the bank wanted in order for them to get the rest of their financing. We found out this last week that this was a lie, the bank loan officier said they would never ask the seller to take on an interest free not but they did require that the note had no balloon payment. He said the buyers had told him we had agreed to an interest free loan and the buyer told us the bank would not loan unless they had an interest free loan. One of the buyers is a real estate broker . He was playing to ends against the middle. Our attorney said we could sign the interest free note and that he paperwork would over ride it and we would still have the orginal 2yr note with the balloon payment. We now have nothing but the interest free note. The attorney said we only hired him to draft documents. The sr partner of the firm is now trying to clear this up as my documentation and proof is in order as to the reason they were hired. What can be done at this point. Can the buyer that has a brokers license and who handled the sale of the business and well as buying it be charge with something crimial? What a mess
Sorry but your post is a little unclear to me.
Let me see if I got the facts:
How much did you sell the business for?
Did the buyers put any money down?
Was there a broker involved in the transaction other than the guy who was the buyer? Did the buyer/broker get a commission?
There are two notes for the same transaction, what are the terms of each? Which came first chronologically? Surely the 8 year note specified payments and not a balloon at the end of 8 years, what were the monthly payments? Are both notes signed by the buyer? Is there any document which invalidates either of the notes?
Do they seem to be operating the business on a day-to-day basis?
Was this a stock transaction? Was the property in which the business operates included in the sale?
How much did the bank loan and for what purpose?
How long ago did the transaction close?
Its a mess but at least part of the mess seems to be your own confused rendition of whats going on.;
The sale price was 350k the bank loaned 170 and the buyers put 80k down payment and we took a note on the 100k. The broker recieve zero commission . Our note is is 2nd place. The bank and us hold the same collateral which is the business and equipement with no real property. Business is very good 600k yearly and is being operated well. escrow tood approx 8 months. yes, this is a mess. thank your for your quick response.
Ok, that helps a lot. Tell me about the two notes, were both executed by both parties? did the 8 year note call for payments or was it all a balloon?
We have one note for 100k now with no balloon and no interest with payment of 1000 a month for 8.33 year. We should have had a note for 24 interest free payment and a balloon of 76k at the end of the 2 yrs. We hold the 2nd. The bank hold the first for 170k with interest for 10 years. sorry for the mixup and thanks for the time.
I wonder what happend next. Was everything get sorted out ok? hope so.
Ok so your attny is incompetent. But I don't see that you are actually hurt that much.
The Net Present value of both cash flows is pretty much the same. Actually you are better off unless you impute an interest rate of more than 10% to this "interest free" loan.
So you have a number of options here.
1)Find a good note broker and sell the note you have. You should see around $40,000 to $65,000 in your pocket within 30 days.
2)Take your note to the bank and pledge it for a loan yourself with the same cash flows. You should see about $65,000 but you are also liable for the bank loan should your buyer default on your note..
3) Be greatfull for the attnys incompetence which netted you an extra $25,000 over the next 8 years.
My biggest problem with this deal is actually the thing that both notes had in common-- the 0% interest rate. And here you will recieve more bad news. The IRS believes that nobody loans money for free. They will, therefore, impute an interest rate to your interest free loan and charge you with that as income.
Perhaps you could explain why you are so upset by this transaction.
Thanks for the information but I don't see how we haven't lost that much as you stated. The 24month interest free note had a 76,000 payoff at the 25 month. we did not plan on 8.33 years. Selling the note so low is in itself a lose. The franchise was also lost and we did have things in the works with that.
The good news is that our attorneys have decided to try to turn this around and with all that has happened on the side of buyers they had a good shot.
Again, as a financial issue the value of the two notes are more-or less the same. As to the loss of the franchise that is a different issue. What does it mean?
i'm having a problem with you reference to 2 notes. there is only one note. the franchise is in the beginning states with two business interested in opening.
Again I am confused. You are angry about this deal suppossidly because you got the "wrong" note. But the difference in value in the "wrong" note and the "right" note is minimal. Again, pledging the note and borrowing against it gets you almost the same cash at the same time as your "better" note. So even if we figure that theres a $5,000 difference in value you shouldn't be this upset about $5,000 in a deal like this. Talking about pressing criminal charges and sending somebody to jail for $5,000 is extreem.
So, I think what you are really angry about is this "loss of franchise" thing which was not even in your original post. Did you not know you were loosing the franchise when you sold? Were you supposed to retain some franchise rights which were lost in the sale? Explain this to me.
I would suggest talking to your state's real estate commission. Tell them what happened with this broker. I'm not sure how it works in AZ, but they should have laws to protect people who feel they were wronged by a broker/agent, resulting in a fine and/or loss of liscense. If this doesn't help, you may want to talk with an attourney again.
With regards to the Broker (and I is one), the question is if the Broker announced to you (normally in writing is expected) that he was a licensed real estate broker. Was he an actual "broker", or just an "agent"? If he announced himself in writing, then that issue is likely off the table.
However, my concern is what appears to be "double contracting". It sounds like, in your understanding, that two contracts (notes) were put together - one with the express purpose of decieving the bank into completing their first loan (the $170k). That is, frankly, illegal in every jurisdiction in the US. If you have to - as a last ditch effort - use this as a means to get the buyer's to perform the deal you negotiated and want.
It sounds like the 0% note may be worth more (which I'm not convinced of since I haven't calcualted everything), in the theory of present value, but am I correct that what you really want is your money quicker?
Ask your attorney what the legal ramifications are of "double contracting" with using two different notes. They may not want to talk much about that - which could imply they know they may have encouraged the breaking of laws.
Mark
Hi Mark :
Thanks for your information. I am speaking to an attorney about the double contract and the buyer be a real estate agent and handling the sale. He told us the bank wanted an interest free note for the 100k and he told the bank we were giving him an interest free note. I spoke to the loan officer and he confirmed this. If signing a 2 notes is not legal why did our attorney say this was ok. Thanks for your infor.