All Forum Posts by: Rob K.

This can get complicated and client will need to get professional help to navigate this. First, assuming the property is or was held in parent's trust, the successor trustee and transferee(s) need to file for a parent/child exclusion to avoid reassessment. If the property has already transferred to three siblings, the act of a buy out will trigger reassessment on 2/3 of the property.

If the property is still in trust and has not yet been distributed, there may be more options. If the declaration of trust permits the trustee to distribute assets in kind and there are sufficient assets in the trust such that distributions could be equalized with one sibling receiving the 4 plex and other siblings receiving other assets that may work. If this is not the case, then assuming there is sufficient equity, the trustee might obtain a secured cash out loan against the property (probably at higher rates then conventional commercial) and after the loan funds, the trustee would then distribute the cash to the siblings who want to be bought out, and the 4plex to the sibling who wants it with the loan still in place. 

It is important that all transactions take place within the trust prior to distribution in order to avoid reassessment. Successor Trustee, whoever that is, needs to honor the language of the trust and retain professional assistance to do this right. 

Not sure this applies directly to your situation, but 10 years ago I purchased a triplex foreclosure from Bank of America that had a squatter in it. Per the terms of the contract they were supposed to get the squatter out before close, but during escrow they informed me that they were doing no evictions in California in response to the Robo signing issue that was all the rage back then. Solution was we knocked 5K off the price and closed with the squatter there. After close, I showed up and gave the squatter a credit application with a stated rental rate. Fortunately, they decided to move out on their own shortly thereafter, no cash for keys necessary.

Latest on Eviction/Foreclosure moratorium from CA judicial council:

https://newsroom.courts.ca.gov/news/chief-justice-remarks-on-judicial-council-emergency-rules-on-evictions-foreclosures

You should probably break this down into two parts. The first part is the arrangement you are going to have with your parent's during their lifetime. One possibility is that your parent's down payment gets converted into a second loan on the property, assuming that won't create issues with the first. In exchange for lower interest rate on their loan or deferred payment of the loan you can give them reduced or no rent or whatever will work on the numbers and will work for them. You can also split ownership as you have suggested, but probably the simpler the setup the better.

The second part has to do with your parent's trust. Once they both pass, a successor trustee takes over to administer the trust. Who is that? you? your sisters? What powers does the successor trustee have and assuming your parents trust has partial ownership of the property does the trust include giving the trustee powers to divide the assets in kind so that the property can be transferred to you completely and your sisters get other assets in kind to equalize distributions. If your parent's investment is a loan to you, that makes things a bit easier. A lot of how this works will depend on your relationship with your sisters and not letting resentment build. If the trust provisions don't match what both you and your parents want to happen, the trust could always be amended during their lifetime.

In considering hiring an attorney, one should ask am I looking for an attorney for the whole partnership/LLC entity or just myself? When an attorney represents all the partners in forming an entity, he/she has a potential conflict of interest that he/she will ask the partners to waive in advance, will advise the partners of their right to seek their own seperate attorney and will attempt to try to balance the interests of the partners without giving individualized advice. Most potentially sticky issues having to do with entity formation involve potentially competing rights and remedies between the partners themselves. If you are looking for an attorney to represent solely your interests and not those of your partners, it is a lot easier for the attorney to give frank advice as he does not need to take into account the interests of your partners.

I had the exact same issues with my property management company using appfolio. I also complained and we figured out a very nice work around. They set me up as an "employee" limited to only access to my properties and access to the appfolio property management portal which is what the property management staff use. Largely solved all the issues and I can now see what the manager is doing real time with the system on my properties. I can also run my own reports on my properties.

@Dan H.,

No question that we are in a time of economic stress and uncertainty and no one really knows the effect it will have on the real estate market. As you say, listings are down, but this could just mean sellers are not going to sell unless they can get their dream price, not necessarily a backlog. Unemployment is up hugely, but probably mostly on the low income end, folks who were not in the market to buy anyway. The market is still awash in capital. How many recent MB/PB STR purchases have there been and is it enough to result in significant discounted inventory coming back onto the market? I don't know the answer, but so far it does not seem like any inventory is coming back on the market at all and we are now about two months in.

In order to get anything approaching a 20% fall in coastal real estate, something would have to trigger a pretty massive leap in inventory coming back onto the market. A spike in interest rates coupled with renewed foreclosures could do it, but I think we can count on government to intervene all the way to negative interest rate policy to stop that from occurring.

The mistake I made in the 2008-2009 recession was assuming things were going to get a lot worse, passing on what would have been incredible deals, and not anticipating the effect of the government bailout. This time it looks like the government bailout will be even bigger. Who a few months ago would ever have predicted that the Fed reserve would be buying junk bonds? This time around, I am going to try not to underestimate the effect of government intervention. Will keep a close watch on the level of inventory, but I would be surprised to see a significant change anytime soon.

 The 2008-2009 situation was based on large increases in inventory driven by spikes in foreclosures. In the great recession, government policy to extend and pretend was a bit late in coming but it was an important factor in the foreclosures subsiding and inventory receding. 

Today, government intervention mandating forbearance and discouraging if not prohibiting foreclosures outright has been massive and early. Foreclosures have not increased and are not likely to in the near future if at all. In order for there to be a repeat of the 2008 situation, there needs to be something that drives a large increase in available inventory beyond current demand. It is hard to envision what would drive an increase in inventory, especially in coastal markets such as Pacific Beach. Coronavirus? It will certainly cause economic stress for a while, but will it motivate anyone to dump coastal real estate? True, there may be some stress in vacation rentals, but enough to change the inventory equation? Vacation rentals can always become long term rentals. I don't see any sort of mass liquidation of vacation rentals.

Instead, everyone appears to be in wait and see mode and sales transactions are diminishing. This might be the new normal for a while. I would not assume a 2008 repeat. If you are in the market for a long term buy and hold, keep looking and make a decision based on the fundamentals, not fear of what the market may do. As you say, these interest rates are very tempting. History of San Diego is that if you can get into a buy and hold coastal property that comes close to break even, you will do just fine.

I have some tenants where they all work in the restaurant industry, were laid off, and promptly filed but still have not received unemployment from an overwhelmed government system. I lowered their rent for the next three months so that they are effectively getting one free month of rent over this period.