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The Laurex Process: Strategy
Development
Get That
Property Out of Your Name!
By Bill Bronchick
There are over 80 million
lawsuits filed every year in the United States. Landlords and real
estate investors are especially susceptible to liability. Are you a
target? Are your assets easy to locate? Is your real estate titled in
your name?
You wouldn't walk around with a financial statement taped to your
forehead would you? So why would you have your most valuable assets
exposed to public scrutiny? Anyone can go down to the county courthouse
or recorder's office and look up the owner of any property. Real estate
records are now computerized, so all of your real estate holdings can be
located at the touch of a button!
Any mortgages on your property will be recorded as well. Most recorded
mortgages will state the amount of the original principal balance and
the date the mortgage payments began. All one has to do is figure out
the balance of your mortgage and subtract that amount from the market
value of your house. Bingo! Now they know how much equity you have and
hence whether suing you is worthwhile.
If a tenant or creditor is contemplating suing you, he will make an
appointment with a lawyer. Unless he can afford an attorney by the hour
($150 and up), he will likely seek a "contingency-fee" lawyer. A
contingency-fee lawyer does not charge by the hour; he charges a
percentage of whatever he collects. Most contingency-fee lawyers will
not take a case unless there is something upon which to collect. If you
have no real estate in your name, then finding out your ownership
interest will not be easy for a typical lawyer. It's not that lawyers
are lazy. It's simply a matter of allocation of resources; lawyers focus
on cases they can win and collect. If they don't find any assets in your
name (and there is no other apparent "deep pocket"), they probably won't
take the case. As you can see, appearing "broke" is the best
lawsuit-repellent money can buy!
There is another problem with owning real estate in your own name. If a
judgment is obtained against you and filed in any county in which you
own real estate, all real estate in that county will have a lien
attached to it. You cannot sell or refinance any property in that
county, since no title insurance company will guarantee a clean title.
You're stuck until you pay off the lien.
Some people use a corporation or limited liability company to hold title
to their real estate. While these entities will protect you, they will
not protect your property. If you own all of your properties in one
corporation, a judgment against the corporation will create a lien on
all property owned by the corporation. Furthermore, the directors and
officers of a corporation are public record, so a corporation will not
hide your ownership.
The solution for holding title to real estate is a land trust. A land
trust is a revocable, living trust used to title ownership of real
estate. Title to the property is held in the name of a trustee, who is
forbidden to reveal the beneficial owner. The beneficial owner or
"beneficiary" can be an individual, corporation or other entity for
further protection. Land trusts were first used in Illinois, hence the
nickname, "Illinois Land Trust." In nine states (AL, FL, GA, HI, IL, IN,
ND and VA), land trusts are specifically recognized by statute. In most
other states the validity of land trusts are supported by common law and
general trust principles (land trusts are not recognized in TN & LA).
A land trust, if properly setup and implemented, will hide your name
from the public records. No one will know who owns the property but you,
your attorney and the trustee. If a judgment is entered against you, a
lien will not automatically attach to the property, since title is not
in your name.
A transfer of realty into a land trust virtually no income tax
consequences. A land trust is considered a revocable "grantor" trust
under the Internal Revenue Code, so it does not require a separate tax
identification number or income tax return. Thus, you continue report
the property for income tax purposes as though you still own it.
Furthermore, a transfer of property into a land trust will not usually
trigger the "due on sale" clause of your mortgage.
A land trust will allow you to assume an FHA or VA loan without
recourse. Anyone can assume an old FHA or VA loan without qualifying,
but few investors realize that such an assumption is with recourse. If
the investor sells the property and the buyer assumes then defaults on
the loan, the investor (and anyone else who previously assumed the loan)
may be held liable. If a land trust is established to take title to the
property and assume the loan, there is no recourse against the
beneficiary. Furthermore, the loan will not appear on the beneficiary's
credit report as a liability. So What are your waiting for?
Get that Property Out of Your Name!William Bronchick, CEO of
Legalwiz Publications, is a Nationally-known attorney, author,
entrepreneur and speaker. Mr. Bronchick has been practicing law and real
estate since 1990, having been involved in over 600 transactions. He has
appeared as a guest on numerous radio and television talk shows
including CNBC Power Lunch. He has been featured in Who's Who in
American Business, Money Magazine, the Los Angeles Times and the Denver
Business Journal. William Bronchick has served as President of the
Colorado Association of Real Estate Investors since 1996.
Article Provided by:
Bill Bronchick
Legalwiz Publications |
