Legal Question in Real Estate Law in Pennsylvania

Hello,

Early 2002, my family and I jointly sought to purchase an investment property in need of a renovation. The venture was to be split 3 ways with an equal amount of money invested for the purchase of the property and an equal amount of money to complete the 1st phase of the renovation. After the 1st phase of the renovation was completed the bank would release a pre-determined amount funds as payment. Those funds would be used to complete the 2nd phase of the project and that process would continue until all phases were completed.

At closing my aunt put up her $6,800, my cousin (her son) said his funds would be available in a week or so. So my wife and I agreed to put up double $13,600 to cover his share with the understanding that he would put up his $6,800 in a week. In addition, we were all to invest an additional $1,000 (for a total of $7,800 per investor) to pay for demolition/cleanout and labor (The 1st phase of the renovation).

Within the 1st week of starting the renovation and realizing that it was a major task and that they may have gotten in over their heads, my aunt and cousin abandoned the project, leaving us holding the bag. My aunt never provided her $1,000 for demo nor did my cousin. My aunt never asked about the building and never offered an explanation for her actions. My cousin took the same approach. Since the property is not in either of their names (it's in my wifes name), they would not be affected if the property was foreclosed on.

About 4 weeks after the start of the renovation I managed to get $4,300 out of the $7,800 that my cousin was supposed to invest. That was the final bit of funds we recieved from either of them We have not recieved any help from them at all since early 2002, one month after the purchase, it is now early 2010 (8 years have passed) No physical help of any kind from them. They never even asked how the project was going. They simply acted like it never happened and proceeded to buy new cars, take trips ect. Never attempting to salvage the project or protect their investment.

Since we had no money to pay for help, within 2 months the project fell drasticly behind scheduele. In the 1st 4 years we recieved 3 foreclosure notices and came close to losing the building. My wifes 401k was tapped to save the property each time. My aunt and cousin never offered any help.

After stuggling literally for years by ourselves, we finally turned things around and managed to purchase another home in August 2009 so that we could move out and get additional income from our unit.

Of course, this week, Jan.7, 2010 we get an email from my aunt and cousin demanding repayment of their investment. (They feel like we have money now).

My question is,

Are they entitled to their intial investment, or do they have any rights to the property?

Or, am I correct in believing that by them abandoning the project and not holding up their end of the partnership, that they forefieted their investment and are not entitled to any monies back nor have any rights to the property?

P.S. None of this so called partnership is in writting and the property is solely in my wife's name..

P.P.S. We have every intention of giving them the funds back just to be rid of them but, we want them to know that they do not deserve it.


Asked on 1/10/10, 12:02 am

1 Answer from Attorneys
Sharmil McKee McKee Law Office

Complicated question; so I will start with the basics. Legal partnerships in Pennsylvania do not need anything in writing. Of course, I recommend all parties sign a partnership agreement to help us resolve disputes, but it not necessary to create a legal partnership. So, on the surface, it looks like you, your wife, and your aunt, all own equal shares of the partnership. (Legally, this is called a general partnership.)

With all partnerships, you share the good and the bad. It sounds like they did not share the debts (ie foreclosure or missing mortage payments). So before a judge will force you to share the profit, the judge will deduct her share of the debts from her share of the profit.

To be fair, your aunt can argue that the money she gave you was really a loan. If that is the case, then the debts will not be deducted from the principal amount she loaned you. I do not have enough information to tell you whether this loan-argument will be successful in court.

On the othe hand, you can argue that there is no partnership, but merely a contract. Unfortunately, contracts that will last longer than a year, must be in writing to be legally enforceable.

I also do not have enough information to tell you whether the abandonment-argument will succeed. Its hard to abandon a partnership. On the other hand, if your contract-argument wins, then you won't owe your aunt any money, because pennsylvania law only gives her 2 years to sue for breach of contract.

Lawsuits between family members can destroy families. I recommend settling the dispute, signing a settlement agreement and moving on with your life. You can hire a mediator or an arbitrator to help you and your aunt settle the dispute.

We can help if you decide you need help. Otherwise, I wish you the best of luck.

Sharmil McKee

Attorney

215-242-5260

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Answered on 1/21/10, 8:30 am


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