TERMINATE JV-SPLIT PROFIT-MORTGAGE PAYDOWN

[patriciacw]

I`m in the process of terminating an Alberta JV Agreement with a REIN member.The original agreement (drafted by a recommended REIN lawyer... but tailored) states that there should be a 50% split of profit or loss during the relationship and at the close, too.QUESTION: Should this splitting of profit include 50% of the mortgage paid down?

I put in the money and hold title. And there was to be a caveat of the Original JV agreement put on the property.

Mortgage Paydown was not detailed in the JV.

Also, the JV states that I have first rights to "Purchase" the property or sell, transfer or assign, pledge, mortgage, hypothecate or in any way to convey or dispose of the property.... to another at fair market value.

QUESTION: Am I entitled to compensation for the loss in current market value by splitting the loss 50/50, since I will still be holding the property, rather that selling it.
Any thoughts? I`m thinking that according to the wording above, I am purchasing it from myself?

This will have been run by two different lawyers. One lawyer said that because I`m not selling it, I can`t claim compensation for reduced market value.

Thanks in advance for your input.

 

[Thomas Beyer]

QUOTE (patriciacw @ Jan 26 2010, 05:49 PM) I`m in the process of terminating an Alberta JV Agreement with a REIN member.The original agreement (drafted by a recommended REIN lawyer... but tailored) states that there should be a 50% split of profit or loss during the relationship and at the close, too.

QUESTION: Should this splitting of profit include 50% of the mortgage paid down?
yes, as mortgage paydown is a gain i.e. equity.

QUOTE (patriciacw @ Jan 26 2010, 05:49 PM) I put in the money and hold title. And there was to be a caveat of the Original JV agreement put on the property.

That was not detailed in the JV.

Also, the JV states that I have first rights to "Purchase" the property or sell, transfer or assign, pledge, mortgage, hypothecate or in any way to convey or dispose of the property.... to another at fair market value.

QUESTION: Am I entitled to compensation for the loss in current market value by splitting the loss 50/50, since I will still be holding the property, rather that selling it.
no .. you agreed to split profit or loss ..

thus loss will be partially offset by mortgage paydown

 

[gwasser]

QUOTE (ThomasBeyer @ Jan 26 2010, 05:31 PM) yes, as mortgage paydown is a gain i.e. equity.


no .. you agreed to split profit or loss ..

thus loss will be partially offset by mortgage paydown



Why don`t you post the actual numbers here and then we can comment on the calculation. ...hmmm then Thomas can comment on the calculation.

This is an interesting problem for anyone curious about JVs

 

[Nir]

I agree with Godfried - a very interesting topic for JV partners! thanks for sharing.
Not sure about your specific agreement but here is what I think is most fair:
Bottom lines losses (or profit), after you get back the down payment amount you put, should be shared 50/50.

Just remember that instead of complicating things, if you feel you should get more if you buy his shares, you can just sell. I`m saying "complicating" because apparently, your agreement does no clearly say (how) you should be compensated when buying partner`s shares.
(if I understand the situation correctly?)

If you buy the property from partner I think it is fair to expect you to pay partner: 0.5 x (today`s appraised value minus today`s mortgage balance minus down payment amount you put).

If you get a negative number, meaning a loss, simply change the sign to positive and that is the amount partner should pay you.

The above is shown for simplicity. obviously formula can be a bit more complicated based on agreement. for example if you should also get interest on down payment you put (not common) or if you should also assume RE agent fee in the reconciliation process.

Regarding "I am purchasing it from myself?":
No you are not purchasing from yourself. your partner owns half the property (or at least half the profits generated by the property) and you are purchasing his half from him.

Cheers.

 

[patriciacw]

QUOTE (gwasser @ Jan 26 2010, 05:56 PM) Why don`t you post the actual numbers here and then we can comment on the calculation. ...hmmm then Thomas can comment on the calculation.This is an interesting problem for anyone curious about JVs (I have written the words below myself) LAST MONTH`S DOWN PAYMENT: The Finder will restore the tenant`s Last Month`s rent to the Venturer prior to the time of signing the Termination Agreement.

*GST REFUND: The Finder will deliver all correspondence and the file re: GST rebate to the Venturer and will cease application for it. If the Finder has received the funds for the Rebate, he will immediately place the Rebate into the Venturer`s bank account that was set up to pay the mortgage.

DIFFERENTIAL ON FAIR MARKET VALUE: Just as the Finder would have approached me for a differential in profit for an increased property value, had there been one… Likewise, the Vendor is entitled to compensation for a differential for a decreased property value, according to the JV agreement with states 50% profit or 50% loss to be shared (assuming the property is well managed.)

Purchase Price (Approx. $260,000 + GST) $276,554.00

Less Current Market Value izeo:1-->sales prices in our development show an approximate $200,000.00 Market Loss $76,554.00 Less *GST refund …………………………………….................................... - $4,740.00

Market Loss / 2 = ................................................................................
. $35,907.00[/color]



VENDOR`S FINANCIAL CONTRIBUTION OF $55,000.00 be returned


PLUS THE INITIAL DEPOSIT $10,000.00 ………...............................……. $65,000.00



:fuchsia"> LAST MONTH`S DOWN PAYMENT: The Finder will restore the tenant`s Last Month`s rent to the Venturer prior to the time of signing the Termination Agreement. ………………………………………………………….. $1,500.00



MORTGAGE BALANCE JAN 1 $221,243.00

Mortgage Closing Bal Dec. 31 $215,790.00

MORTGAGE PAYDOWN $5,453.00 / 2 =


Finder owes me (Venturer) ……….………………………….........................…… >$2,726.50 UNPAID MORTGAGES Finder was collecting rent but not depositing the mortgage money ... . $7,665.04




BALANCE OWING TO VENTURER ……………. $112,798.54

 

[gwasser]

QUOTE (patriciacw @ Jan 26 2010, 10:54 PM) (I have written the words below myself) LAST MONTH`S DOWN PAYMENT: The Finder will restore the tenant`s Last Month`s rent to the Venturer prior to the time of signing the Termination Agreement. *GST REFUND: The Finder will deliver all correspondence and the file re: GST rebate to the Venturer and will cease application for it. If the Finder has received the funds for the Rebate, he will immediately place the Rebate into the Venturer`s bank account that was set up to pay the mortgage.

DIFFERENTIAL ON FAIR MARKET VALUE: Just as the Finder would have approached me for a differential in profit for an increased property value, had there been one… Likewise, the Vendor is
Market Loss / 2 = ................................................................................


MORTGAGE BALANCE JAN 1 $221,243.00

Mortgage Closing Bal Dec. 31 $215,790.00



>[/color]UNPAID MORTGAGES Finder was collecting rent but not depositing the mortgage money ... . $7,665.04

BALANCE OWING TO VENTURER ……………. $112,798.54


Sorry I am having trouble following these numbers, especially the last one.

I figured that you estimated the current market value to be $200K. Did you have this appraised by an independant 3rd party?
Also, you had a GST refund. Was $4740 the entire refund or a 50% share?

You talk about a Finder and a Venturer and a Vendor. Do I assume correctly that the Vendor and Venturer and you are the same party?

Also, do I assume correctly that you the Venturer made a $65,000 down payment and took on a $211,544 mortgage the remaining balance of which is $206,101?

Finally, is it correct that your Finder, is the party that operates the JV and that if you buy him/her out he owes you the tenants damage deposit or Last Months Rent of $1500. That the finder has recently not made the mortgage payments and your JV is $7665.04 in arrears?

This is how I would see it, if I understand this all correctly:

Original Purchase Price: $276554.00 - GST Refund of $ 4740.00 = $271,814.00
Current Property Value: $200,000
Principal Repayment: $5453.00

Total Loss: Original Purchase Price minus Current Property Value minus Principal Repayment = $66,361.00


Unpaid expenses
Last Month Rent $1,500.00
Mortgage Payment Arrears $7,665.04
Total Expense Money owed: $9,165.04


Balance Sheets for Finder (the other partner) and Venturer (you)


Finder

Down Payment = 0
50% of losses = -0.5 * 66,361 = -$33180.50
Expense Money owed = - $9,165.04
Total Equity Finder - $42,345.54

Venturer
Down Payment - = $65,000
50% of losses = -0.5 * 66,361 = -$33180.50
Total Equity Venturer = $31,819.50

For Finder to terminate the JV he/she owes you: $42,345.54

Also, he/she may owe you some termination fees. He/she leaves you with a mortgage that if terminated now probably requires a mortgage termination fee.
Also, there are legal fees signing over ownership.

Anyway, I do not understand how you arrive at $112,798.54


Did I miss something or did I misunderstand the entire calculation?