A friend of mine has gotten herself into a bad investment deal and bad partnership. I would welcome any input or advice on how she can get out of this pickle.

Last August my friend (I'll call her "Eve") was approached by a "friend" (I'll call him "Adam")with an investment idea. They would together purchase a rental unit in the Florida city where he lives, rent it out for several years, sell it and split the profits.

His contribution to the partnership was to be finding the "deal" and acting as property manager for the unit. Her contribution was more than $15K in downpayment, closing costs and the purchase of appliances for the unit, and she got the mortgage in her name only. Both names are on the deed.

Being investment-naive but thinking RE was a good investment, she went for it. Now, five months later, Adam wants his share of the "profits" because he has lost his job and fallen on tight times.

One, there are no "profits." The "deal" he found was full price in a condo conversion, so other brand-new units are available in the same complex. After commission, etc., they would probably lose $11-12K on the deal IF they could find a buyer, which is the remedy outlined in the agreement they have.
Two, the tenant he found is paying not only $100-$150/month below area rents but also $90 a month below their mortgage and HOA payment. They agreed to each chip in $45 a month to cover that shortfall; now he says he can't afford that and wants $4K for his "services" in finding the "deal" and the property management.

If Adam can't afford $45 a month, he surely can't afford to pay for half of that loss if they sell.

What are her options? I have some thoughts, but I'd like to hear yours first. And does it sound like he was acting as an unlicensed real estate agent?

Check with an attorney, in GA we can file paperwork, without the partners consent, to disolve the partenership and have a judge decide who owes what and who gets title. You must have proof that you have tried to resolve the issue and cannot. Check with an attorney.

What does your friend want to do with the property? Keep it? Sell it?

If she wants to keep the property and she wanted to be nice, I suppose she could offer to let him out of the deal with no cost to him. He could just quitclaim it over.

But either way I think she should gets her facts and figures together to prove (as much as possible) that they would be $11k-$12k upside down, and that he is legally liable for half of that.

Hopefully she has a good contract. If so, it doesn’t matter whether he wants $4k or not, he’s still liable for half the loss.

I don’t know the laws there, but in CA her partner’s actions would not be considered acting as an agent without a license. If he has an equity interest in the property, he can buy, sell, or whatever without a license.

But as Dana posted, she may be best off getting an attorney.

She went on speculation when making the investment decision and not what the facts were.Condo conversions yo ubuy int he first phase of redevelopment not full price at the end.

This guy that is your friend is a moron and obviously has no idea about re investing.

He might want 4k but I wouldn't give him a dime.His finanacial problems are not her concern,if anything he owes her money getting screwed up in this deal.

Being just on the deed he has nothing to worry about it's all on her with the mortgage.

Make sure she holds the investment for at least a year so the capital gains would only be 15 percent instead of 35.If there is no gain she could write off the losses on her taxes,consult a re tax attorney.

Does she still want the property?If so and he is desperate she could give him 500 to 1,000 as payment in full and have him quitc claim his interest to her and she could keep renting it out and wait for it to appreciate to break even.

If she is broker like him then I would do what Dana suggested.She is lucky she only has that much into the property I have seen people lose much,much worse.

not giving legal advice

Update: Adam thinks he is being wronged but has signed and has had notarized a quitclaim deed in exchange for a token amount of money -- like $100 or something. Eve's attorney is drawing up a formal dissolution of partnership agreement to make sure she is really free and clear of him.

Don't forget the tenant. This is just totally my gut feeling on this, but I would guess that since her former "partner" and property manager rented the unit at below going rates, this may be a pal of his.

She should find out IN DETAIL who this renter is should either get a new rental agreement with a more appropriate rent setup, security deposit, etc. or should get that tenant out of the property.

Not a first hand story, but a few years back I heard about a similar situation where an owner thought they had regained control of their property from a partner only to discover that the tenant was a friend of the former partner and completely trashed the unit before heading out, never to be seen again.

R