Architect · Santa Monica, CA · Member since 2012 · 73 posts · 24 votes
If I personally own a property (I'm on title and I have a conventional mortgage), can I use an LLC that I own to give me a second mortgage against some of the equity in the property?
And then....if the senior position mortgage is paid off by a third-party purchaser of the property (ie: I sell the property), does my 2nd position take 1st priority against the new mortgage originated for the buyer? Or would that scenario never happen because the title company would catch that I had encumbered the title with the 2nd position mortgage and not go through with the sale unless it was paid off along with the first mortgage?
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
Your new buyer could purchase subject to the 2nd lien staying on the property. Most sales require fee simple, no liens. Most states' boiler plate PSAs are for fee simple title. The title co will need it paid off to offer title insurance in that case.
I've considered doing the same thing @Marc M.. If nothing else, to make the property appear very encumbered as an asset protection strategy.
Architect · Santa Monica, CA · Member since 2012 · 73 posts · 24 votes
11y
Thanks for the reply @Steve Vaughan ! That is what I was thinking about...asset protection. I just wonder if the IRS would allow that kind of transaction or if they would consider it self-dealing? I remember listening to a good podcast on asset protection but can't remember the episode number. The attorney on the show recommended creating trusts that managed LLC's, which somehow made the owner untraceable (because the owners of the trusts do not have to be recorded publicly, I think).
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
@Marc M. the podcast you are referring to is probably #109. The Delaware Trust and LLC strategy that costs $7k to establish properly and would be difficult even for you to prove you are the 'owner' when it's finished. I wasn't a fan for anyone except the really large portfolio people.
Self-dealing IRS rules aren't something I'm at all an expert in, but if the 'lender' is paid a fair interest rate I don't see why they would care. I think it would be pretty easy to record a note and deed of trust and show a history of electronic payments to the lending entity. Just my thoughts. Probably run that by an accountant/ tax or legal professional.