Alternate Asset Protection Strategy

[Justin K.]

So I am wondering if this is a legitimate asset protection strategy and would highly value any mortgage lenders or attorneys opinions.  I haven't heard this discussed before.

My wife and I own several properties.  I have a fantastic job and she is a stay at home mom to our two beautiful girls.  We own several properties that do pretty well, but I am at the end of my time availability in a given week.  Therefore instead of expanding our portfolio to increase cash flow we are looking at reducing debt to increase cash flow.  I understand that its not mathematically the best solution because we lose tax efficiency, yada yada yada.  We have also looked into hiring property management, but we live in a rural area and although these companies exist near us we have found that their average occupancy rate is in the 70-80% range, where last year my occupancy was 95%.  Charging first months rent and 10% thereafter with a significantly lower occupancy rate doesn't justify the cost for the 'service' (or disservice) to us.  But that is not what this post is about.

As we pay off properties the fear is that all this equity has been created and now we could be sued by an ambulance chaser attorney or anyone that wants to try to become a 'slip and fall millionaire'.  We do carry good liability insurance and we treat our tenants and their guests like they are family.  We dont want any of our properties to be forced to sell for the equity after a potential lawsuit.  So here is my strategy.  

Create a Nevada LLC - (or any state that offers owner anonymity) i.e. "Main St. Loan and Finance LLC"

Pay off a property we currently own and have financed with a bank.

Have a bank that we have a fantastic working relationship with write a new loan with the terms I agree to, knowing that the property will be 'underwater' and the length of the term is crazy long (like 30 or 40 years).

After the bank funds the property loan to my Property Ownership LLC, use the funds to immediately buy the loan from the bank with my "Main St. Loan and Finance LLC". (Our local bank sells all of their loans and collects the origination fee and all the other closing fees, etc).

Now I own the property and the note putting the property underwater.  I would never make a mortgage payment to myself so I wouldn't generate the need to file any IRS tax paperwork, but I would also never file foreclosure on myself either.  In the event that we would be sued the property has no equity, hopefully preventing frivolous lawsuits.  

Please note, in the event of a legitimate lawsuit we do have liability insurance to cover any claims.

This is an attempt to design a lifestyle and not necessarily the best mathematical return.  

Your thoughts are greatly appreciated!