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4 neat ways to use an investigative lawyer in a co-op or condo

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At the NYC Real Estate Expo last fall, a lawyer-turned-private-investigator gave one of the more intriguingly-titled seminars. 

In “Why Google is Never Enough,” Philip Segal explained how investigative lawyers (versus standard issue private detectives) can be helpful, for example, to creditors deciding whether it’s worth going after the personal assets of a developer whose project has defaulted, or whether the pickings are too slim to justify the legal costs.

Segal and his associates at Charles Griffin Intelligence also conduct personal background checks that go way beyond Google and a credit report.

“We start with databases and the public record to find out what a person’s connections are through deeds, mortgages, litigations, UCC records,” says Segal. “We provide the kind of depth a credit report or Google can’t give because so few documents have been scanned onto the web."

Even if you locate evidence of litigation online, he notes, it's often just an abstract with names of plaintiffs and defendants, with no details about the complaint or whether it's anything to worry about.

"There’s no substitute for going into the courthouses and getting the documents themselves. We love looking through 500 pages of documents," says Segal, who is typically asked to look into prospective business associates or employees applying for a big job, rather than prospective co-op buyers. Yet.

Below, four novel ways to use an investigative lawyer in a co-op or condo: 

1.  Checking out potential co-op buyers

At $2,500-$3,000 a pop for a single candidate, this seems to us within the realm of feasibility at very high-end co-ops, perhaps even being charged back to the potential buyer as part of the application fee, like the cost of a standard credit check.

“We give you the chronological layout of a person’s life—where they lived, who they are, what their business associations are, have they ever been involved in litigation in the U.S.,” explains Segal.

Another reason to take a closer look is that there’s no such thing as a national criminal background check.

“You need to know where the person has lived and worked, and check the public records at the courthouse or via state police criminal checks, state by state or county by county," says Segal. "These records are not computerized even on a local basis, never mind nationally.” 

An in-depth background check can also yield a more fruitful list of reference-checking possibilities than the standard personal and business testimonials provided by buyers in a board package.

“We might find out that in March 2004, he sued his partners, and his partners countersued alleging fraud, and here are the five ex-partners you could call,” says Segal.

And to get a bead on a candidate’s history of neighborly (or un-neighborly) conduct, a database search can turn up contact information for ex-neighbors, who have the least to lose by answering a few questions.

2.  Checking out a contractor before you renovate

With a gut apartment renovation easily costing $150,000-$250,000 in New York City, it doesn’t seem like such a crazy idea to go beyond do-it-yourself reference checking (a la Choosing the perfect contractor).

“You would want to see basic personal background, tax liens and litigation history, and you would want someone to evaluate the lawsuits to see whether they are something to worry about,” says Segal. Investigating a small contractor with two to five employees would run about $2,000 at his firm. 

3. Investigating a potential property manager

To guard against the all too real possibility of hiring a shady or incompetent property management firm, a co-op or condo board might consider doing a thorough background check first.

“Has the company ever been sued by a building, for instance?” says Segal. “Another good tactic is to interview people who used to work for that management company. They'll feel less inhibited in talking than current employees, and might be able to tell us who the big clients were when they worked there. We could then compare that list to the current list and figure out if the managers were ever fired. Former clients could let us know why the manager was let go.”

He suggests checking credit and making sure the management company doesn't have tax liens or lots of debt.

“You also want to see what the history of the principals was prior to this company's operation,” says Segal. “Did they used to run a different company and when problems arose, closed it and opened a new company we're now looking at?”

Finally, look at whether the head of the property management firm and the manager who would be assigned to your building is under any kind of personal financial stress.  Stress creates temptation to put the management company’s interests ahead of your building’s, or worse.

Segal says the sort of review described above would cost around $2,500 to $5,000, depending on how many people need to be interviewed.

4.  Deciding whether to sue your sponsor--or whether to buy from the sponsor in the first place

There’s no use spending six figures suing your sponsor over a cracked foundation and leaky façade if the sponsor  can barely afford a Metrocard to get to court.  Similarly, you probably don't want to buy a new condo from a sponsor who has been dragged into court over major construction defects in three prior projects.

A full-scale, show-me-the-money asset search and litigation check can run anywhere from $3,000 for a small operator with a building or two to $7,500  for a big real estate guy with, say, 15 limited partnerships and lots of other business dealings.

 

 

 

 

 

 

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