All Forum Posts by: Mike Hartzog

The proper way to do this is to hold the property in the name of the LLC and get a loan in the name of the LLC. It is fairly common for LLC members to personally guarantee loans to LLCs. That said, there may be some creative ways to do what you want to do, but I would recommend talking with a CPA about it. Best thing to do is try to do it the right way.

If I was a member of your LLC, I would want the property held in the name of the LLC, because that gives me indirect partial ownership of the property which can secure my investment.

@Mark Welp Hey Mark - One thing to point out here is that the transfer of the note itself, which is done using an Allonge document or endorsement on the face of the note itself, is not recorded.  The assignment of mortgage or deed of trust is recorded at the county.  This can be done electronically (via CSC and others) or via the mail.  Some counties do not support electronic recording.

@Account Closed - Your guy is simply buying defaulted loans from banks at par and doing workouts with borrowers.  Paying full price only works if you are buying loans with significant equity, i.e., loan balance is less than property value.  He would be making the arrearage as his profit in this case, i.e., take a payment from the borrower against the arrears and capitalize the rest of it into the modified balance.  Now he holds a performing loan which is greater than his investment plus whatever he could get from the borrower as a payment.  This would only work on high value collateral, with large arrearage, and only when there is significant equity.

Hey @Steve Watson - Without getting into a long winded explanation which should really come from an accountant, I can tell you that if you use a cash basis for your accounting (rather than accrual) you recognize the income when it is received rather than when the sale is made.  In this basis, a down payment made by the buyer would count as income in that tax year, and the same can be said for the payments.  Income from the payments is spread over the 5 year term.  Hope that helps. 

Sounds like the owner has judgement against him personally but no lien against the property you are buying.  The IRS will not stop the sale.  I don't think you have anything to be concerned about here.

Flips by definition are a short term strategy. Most NPN deals are essentially flips in that the exit is achieved within the first year or two, so IMO one does not have tax advantages over the other since the intrinsic tax advantages of holding RE over the long term don't come into play. Given this, tax advantages for either can be found by using self directed retirement accounts. The cleanest approach is to invest in the projects of others, i.e., hard money lending or private placement in the case of an equity deal for RE projects The typical NPN JV fits into this model as well. One can use checkbook SD retirement accounts to take on entire projects as well, but in my experience this gets messy for notes and is a non-starter for flips unless you are doing the whole thing with cash. (Financing and SD retirement accounts don't mix well.)

@Joseph Blauwiekel  - As the foreclosing lienholder you can set the initial bid for the Sherriff's sale up to the amount you are owed plus foreclosure costs (attorneys fees).  (This is true in most states.  OH for example, has some strange rules regarding lienholder bids.  Check with your attorney on the rules.)    If you want a chance at retaining the property, you would set the bid at the max.  If you want it to sell at the sale, you might set it to a level that would be attractive to bidders which might be less than the amount you are owed.  If there are no bids above yours at the sale, you get the property.  If someone bids higher than you, they get the property and you receive the proceeds from the sale up to the amount you are owed.

Guys - I have a reference for you.  Message or email me.

LNAs are fairly common.  I have purchased a number of loans where the original note has been lost.  The key here is the seller must provide a copy of the original note along with the LNA.  Without a copy there is no documentation for the terms of the loan.

@Account Closed  It's unclear from your description what the role of the "broker" is in this scenario, other than a 2nd position lender.  My assumption is that they are facilitating the loan for you.  Generally speaking, if you are lending in first position you don't need to be too concerned about junior liens.  What you really need to care about is the borrower's skin in the game and their ability to make payments.  If the borrower is doing a fix and flip, their level of experience, financial condition, etc. would be important as well.