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-   -   Property investment gone sour - ex threatening small claims court (https://www.askmehelpdesk.com/showthread.php?t=220914)

  • May 28, 2008, 08:18 PM
    mdsone
    Property investment gone sour - ex threatening small claims court
    Thanks for any advice you can give me. I currently live in Edmonton, Alberta, Canada.

    I was with my ex for 6 1/2 years, living as common law for 5 1/2 of those. My mother and I put a down payment ($10,995) on a condo that was not yet built and my ex loaned me 40% of the deposit money ($5000) with the thought that we would still be together when the condo was completed and we would sell it for a tidy profit.

    All the legal documentation concerning the condo purchase and deposit is in mine and my mother's names, with no mention of his involvement. It has been 2 years since we put the down payment on the property.

    Five months ago my ex and I broke up (obviously, as he's my ex now ;) ) and we had a relatively amicable break up with not many hard feelings. I had full intention of paying him some of the profit from the sale of the condo as I really wanted to do right by him. Well, since then things have gone sour in a big way. My ex and I had a huge falling out and have pretty much stopped speaking to each other.

    I decided that the price of the condo was too good to pass up so my mother and I have agreed that I will purchase the condo for myself to live in. All the financial matters between myself and my mother have been resolved with no issues at all.

    I met with my ex the other day and told him of my decision and also let him know that I had every intention of paying him back the $5000 he loaned me plus a bit more for his trouble and he totally freaked out!

    The main issue I believe is that the property has risen in value substantially since we signed the original agreement (without having an official appraisal, we estimate it's gone up by at least $100,000 since then.) My ex is adamant that he is "owed" at least $45,000 as it is 40% of the total rise in value of the property plus his original $5000. He dismissed out of hand my original offer and has threatened to take me to small claims to get what's "owed to him."

    His main issue is that he has put himself into debt quite badly in anticipation of the payoff (even though there was no guarantee as to how much money we would make or even if we would make any money at all) and he has become quite desperate as a result.

    So my question is this - does he have any recourse here? I mean, I am more than happy to pay him back the original amount of the loan he gave me, with interest and more to show my appreciation but I cannot in good conscience (nor afford to) give him the $45,000 he is demanding.

    His basis for threatening to take me to small claims court is that it was a verbal agreement and it was binding but my mother and I never sat down with him to discuss any sort of formal or informal agreement and as far as we were concerned he loaned me the money as a favor and I would have repaid him when we sold the property. My mother has agreed that she would testify to this as it's the truth and is backing me up 100% on this.

    He has become quite mean and verbally disrespectful over this and I am due to take possession of the property in July so want to make sure that I won't lose my dream home because of an angry and in-debt ex partner.

    Thanks for any advice you can give me - I really don't have a firm grasp of these matters and I believe that he might be trying to bully me into just paying him off as he knows how uncomfortable I am with these things.
  • May 28, 2008, 09:25 PM
    Dr D
    In my humble opinion your ex is an idiot, and greedy to boot. I believe that he has no leg to stand on to share in the profit on the condo. I am somewhat confused on the math, Did he loan you $5,000, which would be 45% of the $10,995 down payment, or did he loan you 40% of a $5,000 deposit, which would only be $2,000? Those numbers are irrelevant. Repay him the mony that is owed plus a reasonable rate of interest, and remove him from your life. His supposed claim is beyond the amount allowed to be settled by a small claims court, and Real Estate contracts MUST be written, according to Statute of Frauds laws which should be in effect in Canada as they are in the US. I hope that Lisa B, or another good attorney chimes in to confirm this. Enjoy your condo and have a good life.:)
  • May 28, 2008, 09:31 PM
    Sissy14
    I would spend a little money for some legal advice. Although it certainly sounds like he is being a bully if you had actual legal advice from an atty he might completely back down and depending on how much you can spend on an atty maybe have the atty draw up a legal doc & have the ex sign it agreeing to be paid back his loan and nothing more. This might give you much needed peace of mind so you can enjoy your new home.
  • May 28, 2008, 09:34 PM
    Dr D
    I failed to notice the fact that you were with your ex for 6.5 years and 5.5 years as common law?? If you were in fact MARRIED, that could put a different perspective on the situation.:)
  • May 29, 2008, 07:40 AM
    mdsone
    Oh sorry - I should clarify the amount he lent me.
    The deposit was $10,995 and he lent me $5,000 with my mother putting up the other $5,995. Which in hindsight is actually 45% (see how good I am with these things? Lol)

    Unfortunately we were not married which does throw a bit of a grey area into it hence my confusion with the legalities of the whole thing. In Canada you are common law if you have lived together for more than a year (which now that I think of it would have made us common law for 4 1/2 years.)

    Could you clarify what the maximum amount is allowed for small claims court?

    Thanks for your wonderful advice!
  • May 29, 2008, 08:02 AM
    froggy7
    Has your ex made any additional payments toward the condo? The problem I can see is that he has a reasonable argument... you bought the condo with the intention of eventually selling it for a profit, which makes his 5K a business investment, not a loan. And if the law treats you as married, then the condo is community property, and he does have a right to his part of it. Think of it this way... if you sell a year from now, and make 100K, you couldn't have made that without his 5K investment. So you getting to reap all the benefit doesn't seem very fair to me.

    Personally, if I were you, I'd honor your agreement, sell, take your profit and reinvest it in a different property.
  • May 29, 2008, 08:38 AM
    mdsone
    No he hasn't made any additional payments towards the condo as I have just received the possession date notice from the builder.

    The cheque he wrote for the loan was made out to myself and not to the builder of the condo - does that make a difference?

    Also - on the common law thing, we never filed our taxes as common law and never took advantage of any other benefits from that classification. I just thought I would let you know to see if it made any difference on the whole situation. Since we broke up before I received any word on the condo completion - can he still use it in his defense?

    We (my mother and I) were unclear from the start exactly what we were going to do. My mother and I had played with the idea of selling her home and then her moving into the condo - which would have meant that she would give me some money from the profit made on the sale of her home instead.

    The biggest issue was until the condo was finished we really didn't have any concrete plans since it took so long to be built (we paid the deposit and signed the builder's agreement two years ago). No agreement at all was really reached between my mother and my ex and I, we just discussed a few different options in several conversations spanning those two years with no clear understanding or agreement reached.

    Another issue I thought of is capital gains taxes as well since I won't have lived in the property for more than a year if I were to sell it to give him his supposed cut. If I sell it it will be subject to capital gains, which would make his figure of $45,000 much more than the actual percentage of the profit. How do you think that would affect the situation?

    I just don't really know what to do really - I tried to be nice and not take advantage of him but he's quickly turning this whole thing into a boondoggle.
  • May 29, 2008, 10:37 AM
    Dr D
    Much to my surprise, the small claims limit in Alberta is $25,000. In most places in the US, the limit is about $5,000, give or take. In AZ it is only $2,500.

    A quick Google search provided the Adult Interdependent Relationships Act, passed into law by Alberta in 2003. It seems like this act would cover your "common law marriage." One of the requirements of that act is a WRITTEN Adult Interdependent Relationship Agreement. If you and your ex did not execute such an agreement, one could conclude that such a legal relationship does not exist.

    Since you and your mom qualified for the financing on the basis of your joint credit and income, your ex has no interest in the property. Any outside profit sharing agreement for Real Estate, I think would have to be written, to be valid.:)
  • May 29, 2008, 12:57 PM
    froggy7
    Quote:

    Originally Posted by mdsone
    The biggest issue was until the condo was finished we really didn't have any concrete plans since it took so long to be built (we paid the deposit and signed the builder's agreement two years ago). No agreement at all was really reached between my mother and my ex and I, we just discussed a few different options in several conversations spanning those two years with no clear understanding or agreement reached.

    Another issue I thought of is capital gains taxes as well since I won't have lived in the property for more than a year if I were to sell it to give him his supposed cut. If I sell it it will be subject to capital gains, which would make his figure of $45,000 much more than the actual percentage of the profit. How do you think that would affect the situation?

    I just don't really know what to do really - I tried to be nice and not take advantage of him but he's quickly turning this whole thing into a boondoggle.

    Let everyone reading this take this to heart: Buying real estate with someone that you do not have a legally-recognized relationship with generally winds up in this sort of mess. If you are going to do this, make sure you have a spelled-out, legally binding contract that will help you avoid this sort of thing.

    Legally, I think the ex is pretty much screwed in this case. If the OP really wanted to, she could probably lie in court and say he never even gave the 5K. (It's not clear to me that he has a canceled check, etc. to back up his claim.) Morally, all I can say to the OP is to consider what she would want if the situation was reversed. Would you really be happy with getting the 5K and some interest, while your ex walked away with nearly 100K? If not, then try and figure out some way to do what is right.
  • May 29, 2008, 02:31 PM
    Dr D
    With all due respect to froggy7, I feel that mdsone has the high ground over her ex, from a moral standpoint. If this were truly a joint "investment" by mdsone and her ex, then the two of them should have purchased the property together. I suspect that her mom found a good deal and wanted her daughter to participate. I would further speculate that the purchase relied more on the mom's income than her daughter's.

    The demand from the ex for $45,000 of the potential $100K gross (with no consideration to selling costs) profit shows his greed, because that would leave NOTHING for mdsone, considering that she is a bona-fide co-owner of the property. If the ex has now overextended himself in anticipation of this undeserved windfall, it gives some indication of his character.

    Please excuse me if I have taken too much liberty with my speculations.
  • May 29, 2008, 07:22 PM
    froggy7
    Quote:

    Originally Posted by Dr D
    With all due respect to froggy7, I feel that mdsone has the high ground over her ex, from a moral standpoint. If this were truly a joint "investment" by mdsone and her ex, then the two of them should have purchased the property together. I suspect that her mom found a good deal and wanted her daughter to participate. I would further speculate that the purchase relied more on the mom's income than her daughter's.

    The demand from the ex for $45,000 of the potential $100K gross (with no consideration to selling costs) profit shows his greed, because that would leave NOTHING for mdsone, considering that she is a bona-fide co-owner of the property. If the ex has now overextended himself in anticipation of this undeserved windfall, it gives some indication of his character.

    Please excuse me if I have taken too much liberty with my speculations.

    Oh, speculate away! I find it interesting to see the different interpretations people bring to the same set of data. I will freely admit that my interpretation is biased by some of the OP's wording: titling this "Property investment gone sour" and not "house purchase gone sour", which makes it seem more likely that the initial idea was to buy and flip the property. And that she said in her initial post that she would have split "some of the profit" with the ex when she sold the condo, and this issue did not arise until she decided that she was going to live in it instead. And I also will admit that one of the things that makes me take the position that I do is that, based on the information presented so far, the person who is going to benefit the most from this investment is the person who did not initially put any money into it.

    But that's just my interpretation of the information given, and I could be wrong, since I am obviously not privy to all the facts. But I'm pretty sure that you and I can agree that this would all have been prevented by doing more planning and paperwork up front.
  • May 30, 2008, 10:44 AM
    mdsone
    I agree with both of you - in no way was I intending to take advantage of him but his actions and especially his words to me lately have led me to believe that he really has no compassion for my situation and is simply greedy with unrealistic expectations.

    I realize that it may seem that I am getting something for nothing but I had originally offerred to pay him back the loan over the course of those two years but he insisted that it wasn't necessary and that he would be fine until we got money from the sale of the property.

    There is also quite a bit of back story that when taken in perspective throws a different light on things but it's all really subjective and wouldn't help or hinder the issue legally, just in people's perceptions.

    I truly value both sides of the argument here and both Dr D and froggy7's opinions have helped me get a better idea of what my rights and his are in this situation. At all costs I would like to avoid any sort of legal proceedings and really do want this to end amicably but I have a feeling that he is still very angry from the break up and the subsequent falling out and will try anything to hurt me at this point.

    Thanks so much for your wonderful advice and if anyone else has any thoughts, please let me know!

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