Commercial Real Estate Strategy Tips

Meet the Other Attorney

by Marvin Levin

In the early 1960s, my real estate mentor was George Page.  George was 40 years my senior, and a renaissance man in the financial world.  He had a PhD in Physics, was an inventor, real estate appraiser, and an out-of-the-box thinker.  George was particularly helpful to me in country land transactions.  He understood land and, more importantly, he understood country people.

I made several attempts to purchase farmland with a view of subdividing it into recreation lots.  I discovered that a recreation land subdivider had to buy land for a low down payment and negotiate for the seller to carry back paper.  There are several techniques for arranging a seller carry back, but probably the best one is for the seller to carry individual notes and deeds of trust on each subdivided parcel.

If each parcel has its own note and deed of trust, then the problem of partial releases is avoided.  An alternative is for the seller to include a partial release provision in a blanket mortgage.  Then, upon sale of that lot, either a new note is executed to the note holder in exchange for the partial release, or cash is paid for the release, or some combination of both.

It is essential for the seller to allow the buyer to “checkerboard” partial releases.  It would be most difficult to saddle a sales group with the obligation of selling each lot contiguous to some lot previously sold and released.  The problem is that the attorney for the seller will fear that the buyer will checkerboard, then walk away leaving his client with a hodgepodge of property not connected.

Therefore, from the seller’s point of view, there are some worrisome terms in a typical land subdivider’s purchase offer.  They include a low initial down payment, the risk of checkerboarding, and the non-economic factor that the buyer might seem a little too much like the proverbial city slicker who has arrived in the country to cheat the rancher out of his homestead.

After several failed attempts to acquire property in Northern California, I presented this problem to my then-mentor, George Page, who gently pointed out to me that I was making a very fundamental mistake; and, therefore, I thought that should be the point of this real estate idea.  So, following George’s instructions, I outlined my next proposal in an informal letter addressed to the seller.  Then I sat down with the seller to announce that I wanted to review my proposal with him (his name was Art) and his attorney.  We thought that a couple of hours of legal time would be sufficient to get over the hurdle of whether the deal was essentially fair or not.  I delivered $150 in cash to Art (remember, this was 1962), with the understanding that he could keep it if he arranged a meeting for me with him and his legal counsel within the next week.  In a few days, that meeting took place.

George’s point was that when I was 31 (although I don’t believe that the passage of 40 years has made much difference) I seemed like a straight-shooter kind of guy and did not come off as a city slicker trying to steal the homestead from that attorney’s client.  I remember that the attorney raised the question of the checkerboard provision, and I asked him if he thought there was some way to make his client safe.  The attorney suggested that the checkerboard provision would come into effect only after the subdivision roads and utilities had been installed, or that a completion bond had been placed with the county to guarantee the completion of that work.  I agreed that I could live with that.

The attorney also questioned my proposal to make a low down payment of 15% of the purchase price.  I suggested that I might put up some additional collateral, which would be released back to me after the final map was recorded.  He readily agreed with that.

The point of all this is to suggest in the strongest terms possible that principals and their agents might gain a lot by overcoming the tendency of lawyers to manage their clients’ affairs from a distance, firing missiles at each other as if one was the enemy of the other.  Although there might be some resistance, it is certainly worth a try to achieve the example set forth above – that of a principal getting together with a principal and counsel on the other side in order to work out technical differences, but, more importantly, to see if some sort of bonding might take place.  I know that many brokers and legal counsel feel differently, and want to keep the principals apart, however, I am suggesting here that such a practice is not automatically in the best interest of their respective clients.  And, I thank George Page for bringing that to my attention at the beginning of my real estate career.

If you have a land deal that requires financing, please contact me.