Black Swans and Back Taxes

Peyton Manning played a terrific 14 years in the NFL, and then played 0 games this year.  Lehman Brothers functioned as a wildly successful investment firm for 158 years, and then filed bankruptcy.  Strangely enough, tulip bulbs in 17th century Netherlands were worth more than 10 times the salary of a skilled craftsman, and then worth nothing at all.  History has shown us time and time again that long periods of success often end in dramatic and abrupt failure.  So why aren’t we better at avoiding it?

Well for one thing… success is way more fun.  People often overlook unsound reasons for success, choosing rather to attribute their success to their shrewd business acumen and charisma.  The problem with charisma is that it is only charisma so long as it is making a lot of money.  A less successful businessman is far more likely to have the attributes of a “snake oil” or “used car” salesman than he is to be described as “charismatic”.

So it is then, that the true measure of a successful businessman is not what he does in the thrill of victory, but what he does in the agony of defeat.  Primarily, whether he chooses to view it as agony, or opportunity.  Opportunity in the sense that there are valuable lessons to be learned from large mistakes.  Opportunity in the sense that it provides a venue to prove he is as accountable and responsible as he is shrewd and charismatic.  Opportunity in the sense that he is, for better or worse, a human being, just like those he is responsible to.

All of that to say… we made a pretty terrific mistake on a recent flip.  Purchase price was $82,200, resale price was $127,900.  There was very limited rehab, as it was 2006 construction and the pergranisteel (along with a number of other high-end upgrades) were already there.  After some minor repairs and staging, we were all in on rehab at about $6,000.  The numbers looked like a decent/juicy flip until… we got the prelim.

What do you get on the prelim (house people language for preliminary title report) that scares you more than anything?  Liens the title company didn’t tell you about.  Especially when they are for back taxes and there’s no way to fight them.  Especially when they’re for $13,000+ (more than 10% of your resale price).  These are things you like to know about ahead of time… seeing as how there’s no way in hell you would have bought the property.  This is why you rely on Title companies to give you this sort of information, and sometimes it doesn’t work out like you want it to.  Actually, this is the first time it has worked out this way.  Kind of like Peyton Manning’s neck, Lehman Brothers terrible use of leverage, and whatever the hell happened with the tulips.  At the time, prior to the event happening, one could not have reasonably expected the title company to screw up… but they did.

So I ask you (yes… all three of you), what would you do in such a situation to get things back to where everyone is happy?

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