All Forum Posts by: Vincent Polisi

@Bill Gulley

Are the character attacks and insults really necessary because they serve no purpose and benefit no one? 

Is no one allowed to proffer experience in these threads other than you?


It's a little disingenuous for you to say I'm lost on anything when you then repeat what I just stated. 

Let's try to keep it professional and on topic so we can help people, fair enough?

I'm extremely familiar with laws as they relate to lease options and Dodd-Frank and de facto and disguised sales do fall under Dodd-Frank due to what you mentioned previously regarding.........wait for it......circumvention. 

Revenue Ruling 55-540, 4.01 states, in relevant part, “Whether an agreement, which in form is a lease, is in substance a conditional sales contract depends upon the intent of the parties as evidenced by the provisions of the agreement, read in the light of the facts and circumstances existing at the time the agreement was executed.”

To determine whether an arrangement is a lease-option or a sale, the IRS examines all of the facts and circumstances surrounding the transaction. Circumstances that suggest a sale include:

* Portions of the rental payments are specifically applied to equity in the property (think RENT CREDITS)

* Title to the property will transfer to the lessee upon payment of the rental payments (ie. Total payments made actually equal the purchase price)

* The amount paid in rental payments is an excessively large proportion of the total sum required to secure transfer of title to the property.

* The taxpayer can acquire title to the property under a purchase option price that is nominal in relation to the value of the property at the time the option may be exercised.

* Some portion of the rental payments is specifically designated or readily recognized as interest.

* The sum of the rental payments and purchase option approximates the original purchase price plus interest and carrying charges.

* The lease requires the lessee/buyer to make substantial improvements to the property.

So, yes, you can do a lease option that the IRS deems is a disguised sale (which most lease options are, including John Jackson's) and have it fall under Dodd-Frank. 

Not opinion. Fact. 

I'd suggest you watch the webinar we did because we had a real estate attorney, a CPA who's a bona fide expert on Dodd-Frank and another real estate investor who was taken to the cleaners over a lease option deal. 

@David S., 99.999999999999% of the time, lease options are a disaster waiting to happen because most attorneys and investors structure them as what are called de facto or disguised sales. I haven't done one since I learned the law in 2008. Since then, it's been all contract for deed because my intent is a sale, not a disguised sale. 

Again, it all goes back to intent. 

When you structure a lease option and transfer ownership responsibilities to a tenant, such as maintenance, repairs, taxes or insurance, and/or you provide rent credits or principal balance reduction for the option fee against a principal balance, and/or you reference the option document in the lease, and/or you quantify the signatory of the lease as a "tenant/buyer" instead of a tenant, and/or you quantify the signatory of the option as a "tenant/buyer" instead of an optionee, and/or you quantify the signatory of the lease as "seller" instead of landlord, you're heading down a slippery slope where you've unknowingly conveyed equitable interest to the tenant. 

So, the argument goes something like this when it comes time to evict:

....but your honor, I'm not a tenant. I paid a down payment that's credited against the principal balance. I've taken care of all maintenance and repairs, insurance and property taxes. I'm not a tenant. I've got equitable interest. 

And once the magistrate hears the term, "equitable interest", you're sunk as he lacks jurisdiction and now it must go through the judicial foreclosure process before you can evict. 

If you really get someone who's sharp, they'll take you through that process while simultaneously contacting the Dodd-Frank Czar to notify them of your covered transaction because you've created a de facto or disguised sale in the eyes of the IRS. 

This may be hard to believe but I just covered this in a blog post about this very topic. I did one of our Hot Seat webinars with the real estate attorney, Angelo Russo, who provides his contracts and closing services to my former student, Joe McCall (which he provides and promotes to his students), and in this webinar, he openly admits to putting clauses in the contract that he knows are in direct violation of state and federal law and the argument/logic (if you want to call it that), is the following:

1. The tenants aren't smart enough to understand the law so it's a non-issue and adds greater profit because financial and physical responsibilities can be offset onto the unknowing tenant. 

2. If the tenants do figure it out, they don't have the cash to litigate so it's a non-issue. 

This is very bad business and why the age old adage of, "hire or close with an attorney and you'll have greater protections", is a complete joke. 

You can read the recent post on this and actually hear all of this from the attorney's own mouth as I dissect and forensically audit his contracts in the webinar on my Virtual Real Estate Investor Academy website for free. 

@Bill Gulley

Not except for two things. 

First, everything is disclosed and totally transparent in the original agreement. I don't use fraudulent clauses or weasel clauses or acts of omission. 

Second, "there is no way around compliance, as loopholes", nor did I suggest there was and I really don't appreciate the insinuation, however, using the methodology and structure I'm using, there's nothing to comply with since the Act doesn't apply. 

It's not circumvention as I've got a well documented history of hundreds of transactions for more than a decade prior to Dodd-Frank all using the same basic methodology. 

Ultimately, we can discuss this until the cows come home. Dodd-Frank isn't a law any more than any other "law". Congress and state legislatures don't write or make law. They write guidelines. Those guidelines are subject to interpretation. This is why we have the farcical system of courts, judges and attorneys. Attorneys provide opinions on the guidelines which aren't facts. They're opinions. They then present these opinions to a judge and/or jury who renders a decision which becomes the law in each case in every courtroom in America. Juries have the power to nullify any law they deem unfair or un-Constitutional with a single stroke of a pen regardless of how many Senators and Congressmen/women spent how many thousands of hours to get it introduced and passed. An attorney's opinion isn't worth a great deal because 50% of the attorneys in America are proven wrong in every courtroom in America every single day. Not very good odds to pay for. 

"Law" is subject to circumstances and intent. As an example, if I said it's not illegal to kill someone, you'd probably say, "yes, it is!", but, that's simply not true. It's "illegal" to murder someone with malicious intent however, it is not illegal to commit the very same act in self defense nor is it "illegal" for cops to kill innocent people (which they do every single day in America). Ultimately, it all comes down to intent. 

As @Jason Dillard stated, there is no case law on this yet and yes, I think everyone intelligent realizes they're aching for someone to make an example of to get it on the books so it can then be replayed and rehashed in every subsequent case nationwide.

Ultimately, Dodd-Frank is un-Constitutional, communism at its finest and serves no legitimate purpose. Its only purpose is to further institute communistic state totalitarian rule in the U.S. and interfere in commerce. 

I do owner finance deals all over the United States that are compliant with Dodd-Frank. My methodology is different from @Jason Dillard and doesn't require all the red tape he's going through (though I do have "buyers" (assignees) proof up, calculate DTI, ensure they can refinance out within 24 months, etc.).

As @Bill Gulley said, it took me six months of examination, critical thinking, and conversations with both attorneys and CPAs to weave through the maze of communistic idiocy that is Dodd-Frank.

 The methodology is very simple:

I buy properties using a no money down contract for deed on a non-owner occupied basis with a 30-60-90+ day seller leaseback with the buyer being a corporation, trust, or joint venture. The contract for deed is later assigned to a joint venture partner or entity with beneficial interest. 

The origination point of the mortgage is when my company/trust/joint venture purchases it as a non-owner occupied property further validated by the seller leaseback. 

As a result, Dodd-Frank doesn't apply. 

Avoidance, not non-compliance or evasion.  

@Tim Soto:

Very smart of you to even know about this much less be ready to implement it. In certain situations, it can create positive cash flow immediately from an otherwise negative cash flow "investment". 

Personally, due to the expense, I would't order the Engineering Study until AFTER you've closed to ensure nothing happens that prevents you from closing. 

You're going to want to talk to someone who actually does the Engineering Study to determine which items you're purchasing meet the requirement for accelerated depreciation. 

Your CPA may or may not know. Generally speaking, you're going to want the Engineer and your CPA to collaborate to maximize the depreciation and maximize your benefit. 

Here's an article that relates directly to Cost Seg on self storage facilities that may be of some help

Kudos to you. 

I hate "weasel clauses" because they constitute fraud in the inducement. 

Unfortunately, they're sold to REI students every single day.

@Ken Graham, I did provide the links and the forum mod deleted them. Apparently you can only post links as sources that you don't own which doesn't make a lot of sense for an education forum. For spam and sales soliciting, I get it, but this is purely informational with nothing sold. 

Anyway, you can find them at my first name lastname dot wordpress dot com

Also, you're correct. Options don't convey equitable interest which is why you have to identify in the option agreement the intent to convey equitable interest. 

This is how I have my options setup along with a clause indicating that if any legal body deemed the language insufficient to convey equitable interest the Optionor agrees in advance to perfect the documents so that equitable interest is conveyed. 

@Dev HornYou hit the nail on the head, brother. 

I can't emphasize this enough. As a mortgage banker years ago, I always required my borrowers to "proof up". In other words, show me the money. 

As a real estate investor, anytime I hear someone say something, whether attorney or not, I always ask them to proof up. 

If it's the law, it won't be that difficult to show it to me in writing. 

You'll find that most of the Internet armchair attorneys quietly go away when asked for verification in writing. The sad thing is, they promulgate their falsehoods as facts and newbies who think they're doing due diligence don't do any due diligence on their due diligence. 

And so the stupidity breeds from one generation to another. 

It's painful to watch. 

@Dev Horn, I agree. Options are excellent vehicles to use in contract assignments. I've done a ton of them. 

Full disclosure, total transparency, and ethics will keep you out of all kinds of trouble. 

@Layla Savant he's got gains of over $250k or $500k on his primary residence?

Remember, gain on sale is based off of his basis in the property, not how much cash he walks with because he has no mortgage. 

I wasn't aware that California had recovered to the point that someone could have that type of gain on a primary residence unless he bought it 20 years ago or at the bottom of the crash. 

Obviously, pre-2008 that was the norm. 

Even so, why would he want $250k or $500k taxed unnecessarily? 

I don't get that.