One
Mistake I’ll Never Make Again
By Alan Breznick
Michael Schaul learned more about undoable real estate deals from an old mansion
in East Orange, N.J., than he did from 100 other houses put together.
Schaul, a 57-year-old cash-flow broker in Raleigh, N.C., who owns KG Funding,
made the mistake in June 1995 of getting deeply involved with a century-old mansion built by the Vanderbilts. The
house had fallen on hard times and its former owners, after financing the property’s sale to a New Jersey community
group, now wanted to sell the mortgage. Enchanted by the mansion’s history, Schaul quickly agreed to take on the
project without checking out all the financial details. The retired IBM software engineer also got emotionally
involved because the sellers were Israeli, like his wife. He spent much of the summer and early fall researching
the mansion and pitching the property to a large mortgage and securities firm and other possible buyers, all to
no avail.
Much too late, Schaul discovered that no company would touch the mortgage. The
mansion’s new owner was paying too little to cover the loan’s monthly interest costs; there was no one person to
stand behind the mortgage; and no financial firm wanted the political risk of having to foreclose on a community
group if it couldn’t meet its payments.
"Every one of those things was a potential deal-killer," says Schaul.
All three combined made the deal impossible. Schaul now knows what questions to ask early in the process. And he’s
learned to keep his emotions in check.
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