Bulletin
Investor Alert

New York Markets After Hours

The Moneyist

Feb. 1, 2022, 11:11 a.m. EST

I spent $20,000 on a house my brother promised, but failed, to sell me. I texted: ‘Congratulations on the sale. Now is your chance to do the right thing.’

By Quentin Fottrell

Dear Quentin,

In 2014, I was renting a three-bedroom duplex home from my brother located in Spring, Texas. Towards the end of 2015 I remarried. In late 2016 or early 2017, my brother said he would sell me the home for $55,000. I agreed. 

In August 2017, Hurricane Harvey struck Houston and the surrounding areas with 48 inches of rain. The home, which had never flooded before, took in approximately 18 inches of water. My brother did not have flood insurance.

Needless to say, the home was damaged as well as many of my personal belongings. My family and I went to stay at a hotel as the home was not livable. I told my brother, “Don’t worry, I will make the repairs myself.”

Because my wife and I were going to purchase the home, we wanted to do some remodeling anyway. I am by no means a professional carpenter or painter. I am sort of handy around the home, and can do handyman-type things.

I purchased a pop-up camper and parked it in the driveway, and worked in the home during my time off. (I work 40 hour work weeks.) My wife was not working during this time. I began putting up drywall. However, I found that I wasn’t fast enough. 

I hired a contractor to replace the drywall, and texture it so I could make the home livable more quickly. To make a long story short, the repairs were much more than I anticipated and, in 2019, I told my brother I would need to file for bankruptcy.

In 2019, the home was approximately 95% finished. That is when my brother called me and said he was going to sell the home. I was devastated and in shock. After giving my brother two months notice, my family and I moved out in January 2020. 

In June 2021, he sold the home. He owed $25,000 on the mortgage, and sold it for $120,000. I texted him, “Congratulations on the sale. Now is your chance to do the right thing. Deposit $20,000 in my bank account, and we will call it even.”

His response was: “I know you think I have a lot of money. However, I haven’t been working and I fell nine months behind on the house payments. Maybe in the future.” He still should have had plenty of money left over to make good on my offer. 

I kept many of my receipts. The cost was at least $20,000, not including labor. I paid him rent the entire time the work was going on. What, if any, recourse can I take? Can I take him to court to recoup my losses? What type of attorney would I look for?

The Other Brother

Dear Brother,

You got played and, to an extent, you also played yourself. You added to the market value of the house, and retail estate prices have risen since 2017.

Oral contracts do not apply to real-estate deals in Texas. There are many requirements that must be fulfilled before a landlord is obligated to pay for repairs that are made by a tenant. “The tenant’s deduction for the cost of the repair or remedy may not exceed the amount of one month’s rent under the lease or $500, whichever is greater,” according to the regulations in your state.

Your brother had a choice to make to reimburse you for at least some of the money you spent on the renovations, given that he reneged on his promise to sell the home to you and your wife. Yes, it would be the decent thing to do. Did you keep him apprised of the work and the amount of money it was costing before spending it? After all, it was still your brother’s house, not yours. 

You both acted in good faith, but you also both took liberties with your planned real-estate transaction, and your sibling relationship. He promised to sell you a home far below the market price, and you spent a lot of money on renovations, assuming the home would one day be yours and/or he would reimburse you if he decided not to go ahead with the agreement. 

Another complication: You declared bankruptcy, and your creditors would have been the No. 1 priority. If you bought a property at below the market price post-bankruptcy, it would be difficult to justify given your agreement with the bankruptcy court. Filing for bankruptcy would have released your brother from any obligation to sell a $120,000 property to you for $55,000.

Patricia Hamilton, who serves as a Chapter 7 bankruptcy trustee for the District of Kansas, said if you had a claim for reimbursement for the repairs and improvements he made prior to filing bankruptcy, that claim would be part of your bankruptcy estate.  “If an asset is undisclosed in the bankruptcy schedules, it could still be administered even if the bankruptcy case has been closed,” Hamilton said.

If you filed bankruptcy after the repairs and did not list the claim against your brother in his bankruptcy schedules, you have “a continuing duty” to report this asset to the trustee in your bankruptcy case and to turn over any funds you may receive to the trustee, Hamilton, who works for Stevens & Brand LLP , added. She says you should contact your bankruptcy attorney or your trustee.

Two other possible, perhaps more complex, routes you could explore, again with legal assistance and likely additional legal expense: “Promissory estoppel,” where one party recovers damages after one party relied on a promise that was made and/or broken, and “unjust enrichment,” where one person is unjustly enriched and there is no contract between the two parties.

The Curley Law Firm in Houston gives this example: “A subcontractor working on a home remodel delivers materials to a construction site. Before the subcontractor can install the materials, the contractor goes bankrupt and cannot complete the project. The homeowner hires a new contractor but refuses to return or pay for the materials provided by the subcontractor. “

People sometimes throw the rulebook out the window — relying on handshakes — because they’re dealing with family. Blood is thicker than water, and they act in the best interests of their relatives. But for others, those familial bonds are a fiction. Your brother acted as if he had your best interests at heart — and was putting them over his own financial interests — but he ultimately did what was best for him.

But you need to look at your own self-interest in this arrangement. You believed you were getting a house that’s worth far more than $55,000. A cursory look at other properties on the street would have told you this was a bargain. What if you bought the house, and then sold it five years later for more than $120,000? Would you reimburse your brother?

A real-estate lawyer can answer your question in more detail, but you would have an uphill battle claiming $20,000 from your brother for those renovations. Texting is an inadequate form of communication, particularly for important matters such as this. Texting “congratulations” likely rang hollow with your brother. A face-to-face conversation is always more effective.

Unfortunately, the goalposts changed. Your brother saw an opportunity to make more money for himself, despite your verbal agreement, and he took it.

<STRONG>Yo<EMPHASIS>u <STRONG><EMPHASIS><STRONG>can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on <INTERNET LOCATION="EXTERNAL" URL="https://twitter.com/Quantanamo">Twitter.</INTERNET></STRONG></EMPHASIS></STRONG></EMPHASIS></STRONG>

<STRONG>Check out <INTERNET LOCATION="EXTERNAL" URL="https://www.facebook.com/groups/moneyist/">the Moneyist private Facebook</INTERNET></STRONG>   <STRONG>group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.</STRONG>

The Moneyist regrets he cannot reply to questions individually.

More from Quentin Fottrell :

•  ‘Our friends always yearned for a relationship like ours’: My husband of 16 years left me for another man. I don’t want them to live in our properties. What can I do? •  ‘She trusts me completely’: My sister offered to pay off my credit-card bill. I’ll repay her over the next 4 years. Am I taking advantage of our relationship? •  ‘He is the most computer-illiterate person I know’: I was my husband’s research analyst, caregiver, cook and housekeeper. Now he wants a divorce after 38 years.

Link to MarketWatch's Slice.