All Forum Posts by: Jeffrey S. Breglio

Unfortunately, @Bryan O. is incorrect. Nor is he an attorney. I have been an attorney for nearly 20 years. I have almost a 1000 clients, with 1000s of entities with 10,000s of properties. I've been a real estate investor for 15 years, owning both residential and commercial, a flipper and private lender, a real estate agent for 8 years, and owned a title company. In all that time I have never seen a bank call a note due because of a transfer to an LLC. I have, however, successfully defended numerous clients and protected their assets in entities--even when the mortgage was in their name. Having a mortgage in your name is NOT commingling funds and does NOT pierce the corporate veil. There are numerous way to blow your liability protection, but solely having your name on the mortgage is not one of them.

I have seen three notes called due in all that time. Usually from local banks that are more aggressive at checking title, and these were all seller financing situations. The bank didn't care about the entity structure, but rather that the property had change hands. I spoke with clients and the bank in those situations. The bank asked for corporate documents to determine the owner. In no case did they mention the LLC was the issue. They didn't care. They cared that the owner of the LLC was NOT the borrower on the note. That is, it actually was a sale.

The due on sale clause is always an issue, and one that all investors need to understand. I didn't say it wasn't. It's part of doing business in real estate, both in an asset protection measures and in seller financing deals. If you understand it, and are prepared if it's called due, then it's not something to worry about. @Edward is correct. If that's not something you're comfortable with, then find a different strategy in investing. Get educated is my suggestion.

I'm always intrigued by the "I know someone who" claim. I would ask: What was the end result? What documents did the bank ask for? Did the bank actually force the payoff? Did the borrower still own the LLC? Did the borrower explain to the bank it was for asset protection purposes and not a sale of asset? Did the borrower offer to re-title back into his own name to make the bank happy? When you get all the details, the conclusion is usually different from the one stated. And if it is an actual example of a bank forcing a pay off simply because of the LLC, then there ya go. There's one.

Happy Investing!

Jeff

We've been successfully titling real estate assets in LLCs for nearly 30 years. It is standard practice. Yes, technically, it does violate the due on sale clause. It always has and that hasn't stopped millions of investors from using them. I've never seen it actually called due from being held in an LLC, however, and despite hearing the rumor that banks are calling them due. It seems to be more fear in the rumor mill than an actual risk. The bank just wants to know that the borrower is still the owner of the property. If you are the owner of the LLC that owns the property, you've accomplished that and it's not worth worrying about the due on sale clause. If the bank still has a problem, you can just title it back in your own name.

Your analysis of using a living trust is incorrect. If you're referring to what is commonly known as a "land trust", then it's not the trustee that provides the liability protection, it's the beneficiary in these documents. So, you'd make the LLC the beneficiary, NOT the trustee. Further, this doesn't change the due on sale analysis. The only exception to the no transfer rule is to a "family living trust" where the borrower, the human, is one of the beneficiaries. And then, of course, you have no asset protection. The land trust is used if you want to have some anonymity in holding title, not to avoid the due on sale.

Put the property in the LLC (or in a land trust if you want where the beneficiary is the LLC) and don't worry about the due on sale clause.

Jeff

All good advice. Find another investor to get a contract, find a RE investing lawyer to create one for you, or use the state approved forms. You can usually Google that and get them online. As for earnest money, establish a relationship with a closing company (usually a lawyer in MD). They can hold EM. Better than you taking it.

Jeff

not sure if i can say this, but on my website i have a ton of free video education. THere's a webinar, about an hour long, on the logistics of wholesaling techniques. Watching that would be easier than me explaining it here. :)

Jeff

@Bill Gulley and @Lenzy Ruffin are right. This happens all too often. Almost every time I teach investors, I bring this up. Check with your state attorney general. If it's not a lot of money, or they haven't received complaints from others, they may not take it. Also try the state consumer protection board, most states have them. Try your division of real estate to see if any of them are licensed. Then, try an attorney.

But, everything is a learning experience. Even if it's not what you thought you'd learn.

Jeff

If the property is "in probate", you have to wait until it's complete and an administrator has been appointed by court order. No one has authority to sign a contract with you until that happens. Contract is meaningless, and you won't be able to wholesale it (at least not to someone who knows what's going on).

The probate requires public notice to creditors who will stake their claim. The administrator is required to pay them off from ANY assets from the estate. Not doing so can be criminal. Technically, when a property is sold only actual liens on the property and judgments against the deceased will have to be paid through closing. The escrow company will determine that. Any remaining funds go to the estate to pay off creditors. It's not your job to do that, but...

If there are a lot of creditors or a lot of debt, and they find out that the administrator has sold the home far below market value, you could find yourself (you and your final buyer) in litigation. The creditors could argue fraudulent transfer to avoid paying debt. They could come after the property, and you. They can take your profits or the house back. And if you are deemed to be in the superior position of negotiation (i.e., you've already admitted to knowing the value is far above what you're offering and that big a spread tells me the sellers aren't sophisticated), the administrator could come after you for fraud as well.

My recommendation is wait until the dust settles. And talk to some experienced wholesaler on structuring in the mean time.

Jeff

An attorney can provide legal advice and consultation on the best legal structure for you as well as on other legal matters relating to your entity. A CPA cannot without practicing law without a license. (Some CPAs are also attorneys). This is a pet peeve of mine and I do go after accountants who do this. And 9/10 they set up THE WRONG ENTITY OR STRUCTURE it incorrectly for real estate investors! They have generic corporate docs. A good real estate investment attorney will have very specific doc for their clients. I always work WITH my clients' accountants and refer them to their own CPAs for specific accounting advice. If the CPA has an attorney that is providing their forms, work directly with the attorney. The CPAs retainer will not cover legal advice. It's for accounting consult, which you probably won't need, or can just pay for an hour's consult once a year as needed. Find out what's included and what's not.

I just used the outline I gave you and talked about it at the REIA. I don't think they recorded the presentation.

Jeff

Here's an outline from my corporate governance class. I also have recorded webinars on this topic on my website. Always free. :)

40 Steps to Protection

• 1.Number of Members

• 2.Management Structure

• 3.Registered Agent

• 4.Purpose Statement

• 5.Articles of Organization

• 6.Operating Agreement

• 7.Employer Identification Number

• 8.Ownership Change Documents

• 9.Loan Documents

• 10.First Organizational Meeting

• 11.Yearly Meetings

• 12.Quarterly/Special Meetings

• 13.Minutes

• 14.Business Notes

• 15.Proper Capitalization

• 16.Proper Loans

• 17.Company Record Book

• 18.Receipts and Invoices

• 19.Separate Bank Accounts

• 20.Proper Bookkeeping

• 21.Proper Accounting

• 22.Bill and Invoices

• 23.Reimbursements

• 24.Quarterly Taxes

• 25.Name on Contract

• 26.Signature

• 27.Arm’s Length Deals

• 28.Personal Representation

• 29.Written Documentation

• 30.Employee Relations

• 31.Unemployment Insurance

• 32.Workers Compensation

• 33.Tax Withholding

• 34.Business Insurance

• 35.Umbrella Policies

• 36.Buy-Sell Agreements

• 37.Accountants

• 38.Bookkeepers

• 39.Corporate Counsel
• 40. .BUILD YOUR CASE TO A SAFE AND SECURE BUSINESS!

Fortunately, he was not killed. :)

my first question is a 6 bed, 3 bath home in a good area of Orem for $180K. Hmm. I'm a salt lake county investor, but that doesn't seem right. 

@Tim Mellor is spot on with the zoning. Very unlikely but you never know. For something like this, I'd recommend working with someone familiar with zoning, valuation, and that kind of conversion (if it's possible).

Jeff