Involved In Real Estate · Sacramento, CA · Member since 2014 · 4 posts · 0 votes
I have heard you can accomplish this with a Trust. But how do you make a trust? Now considering I get an REO under contract and plan on wholesaling it and at what point of the transaction do you make it? Before locking it up?? Any guidance would help, I know the bare minimum as to how it can be done.
The 90 day restriction is for "more than 120% of the purchase price". 123 LLC buys, immediately sells to 1234 LLC for the same price. The deed restriction doesn't apply to 1234 LLC, so 1234 LLC can immediately sell it for whatever it wants, so the current "creative" investors say. Does common ownership of 123 LLC and 1234 LLC create "circumvention of the intent of the restriction" and could they come after you for that? Perhaps.
In reality it won't be the house's address because of the timing I guess it could still be, but the odds are against it). Here's why.
You should have a number of LLC's ready to make offers at a moments notice. We usually have 10. Since the LLC will be setup long before you know what property it will be making offers on, you probably will have names like Gonzo's House, rather than the address of the house it will be owning....but, you never know.
So you would have to have your buyer bring two separate checks to the closing table, one for the property and one for the LLC right? Is the rest of the process still the same (inspection, contract, EMD)? Will the bank want to see an account/credit score etc.?
Buy the property in the name of an LLC...then sell the LLC. The LLC was, and is the owner the entire time.
How do you ensure that the LLC is unencumbered? For example, that the owner of the LLC didn't take out a credit card in the LLC's name or borrow money in the LLC's name?
Buy the property in the name of an LLC...then sell the LLC. The LLC was, and is the owner the entire time.
How do you ensure that the LLC is unencumbered? For example, that the owner of the LLC didn't take out a credit card in the LLC's name or borrow money in the LLC's name?
It's your LLC. What is there to ensure? We set up LLC's all the time. We only use brand new LLC's to make offers. Besides, you can do a credit check on an LLC the same way you do on a person.
It's your LLC. What is there to ensure? We set up LLC's all the time. We only use brand new LLC's to make offers. Besides, you can do a credit check on an LLC the same way you do on a person.
As a seller, I obviously have no concerns. As a buyer, I would have these concerns.
Which leads me to believe that if I were to sell to a savvy buyer, he'd have these concerns.
How would I alleviate the concerns if a buyer had them?
It's your LLC. What is there to ensure? We set up LLC's all the time. We only use brand new LLC's to make offers. Besides, you can do a credit check on an LLC the same way you do on a person.
As a seller, I obviously have no concerns. As a buyer, I would have these concerns.
Which leads me to believe that if I were to sell to a savvy buyer, he'd have these concerns.
How would I alleviate the concerns if a buyer had them?
Original date of LLC is starting point. S & P Paydex works just like FICO, but for business.
Yes, I skipped posts after the second, using any entity is still going to be a violation, don't think you're going to hide behind doors as you're still behind that door using a ploy for the purpose to circumvent the restriction.
How do you legally, pretty simple. Contract, get your down (lots of collateral means to guarantee performance of a buyer) give possession prior to closing and close 91 days later! Nothing says a purchase contract can't be effective for more than 90 days, the restriction isn't to contracting, it's to passing title, which includes using other interests passing the beneficial interest to title. Just wait and close. :)
Original date of LLC is starting point. S & P Paydex works just like FICO, but for business.
If you can convince buyers to do this, more power to you. But, I'd never buy an LLC from someone (unless I trusted them enough that I'd be willing to provide them an unsecured loan).
Here's why...
I could organize an LLC and then an hour after that I could have an unsecured $500K loan in the company's name. If I were to sell the LLC an hour later, the buyer would see a 2-hour old LLC with a clean credit report...but would eventually find out that it owes $500K. If that LLC owned property, he could easily lose all equity in the property having to pay off the loan.
I'm scrupulous enough never to do something like that...but there are a lot of less honest people out there...
Joe, I'm sure you mean you don't have a problem not being caught, I'm sure if you notified them with your intentions or past transactions that would be different.
Thing about selling an entity, that doesn't show up in RE records.
Don't think that regulators are so dumb as to see an LLC buyer and not look to the Sec. of State filings, so you can get caught.
And, while the risk is rather low for 90 days, folks do die, can have various issues, like insured losses where your convoluted tactics are exposed.
Have no idea why people first try to circumvent things with sneaky schemes rather than just take the high road and do things correctly, in this case, just wait, doesn't really cost either party more, it's just delayed closing, possession prior and a lease arrangement, commonly done for other transactions.
And no, I wouldn't buy an LLC just to try to avoid a deed restriction. A buyer would need to do some heavy due diligence doing that as J. Scott pointed out. :)
@Bill Gulley It's not illegal in any way shape or form. I'm simply selling interest in an LLC. The timing of it matters not. It would matter if it was based on financing, and a loan was in the name of the LLC and my personal credit was getting that loan and thus signing for the loan. That's not what is happening here. All that is happening is the new member is being added to the LLC, and we are coming off. Just like the sale of any other company with or without assets. The price to do this is based on any agreed amount of money between the two parties involved...buyer and seller of the LLC.
The purchase agreement is between the LLC and the seller...no matter who the seller is. We are not assigning interest in the property, we are selling the LLC that has interest in the property. The LLC is sold before the property closes.
At closing, the two parties that agreed to buy/sell are exactly the same as before the sale of the LLC. The LLC is the buyer and the seller is the seller.
The 90 moratorium prohibits the buyer from reselling the property. The buyer (the LLC) isn't reselling the property. The property was never actually bought until after the LLC was sold anyway.
Even so, if we wanted to we could remain on as owner of the LLC, then sell interest in the LLC at a later date to another partner that could either buy-in with cash, or come in as a credit partner to do the refi. The property still would not have been sold.
Joe, who is behind the door of that LLC and what are the intentions of the restrictions to the deed which was agreed to?
I think you'd need a law degree for this discussion to understand my point, I don't agree with the tactic, especially when there is a straight up legal and ethical way to accomplish the same thing with just a few agreements instead of filing for LLCs and getting into convoluted exercises. :)
The 90 day restriction is for "more than 120% of the purchase price". 123 LLC buys, immediately sells to 1234 LLC for the same price. The deed restriction doesn't apply to 1234 LLC, so 1234 LLC can immediately sell it for whatever it wants, so the current "creative" investors say. Does common ownership of 123 LLC and 1234 LLC create "circumvention of the intent of the restriction" and could they come after you for that? Perhaps.
Most of the buyers I have come across actually do not mind buying a LLC they actually all understand that this is the only way to wholesale a REO property or at least the most popular. I understand what @Bill Gulley , @J Scott and others are saying but I wouldn't consider this as being in no way shady dealings. It isn't illegal it is just being savvy enough to get around rules they set in place to control the transaction. Most people would walk away from these deals if they have to wait 90 days to close. The long wait is one of the reason lots of people do not do short sales. @Joe Villeneuve explained it perfectly although I would have to agree with Bill that if they knew they would probably not be so happy. This is a completely separate business transaction though that has nothing to do with the real estate transaction. I can see it as being risky for buyers like J. Scott said but I tried to ease their mind by it being a newly established LLC with no EIN. It is pretty hard to establish business credit without a EIN. Although this never even seemed to be a thought to most of the buyers. Most of them and my attorney just wanted to see a certificate of good standing.
@Uriel Gonzalez Easy fix is spend time marketing and leave the MLS alone when wholesaling. I do not know about your area but in the markets that I operate it is crowded and people tend to drive prices up. You will last longer by doing your own marketing in your own niche.
This is a great thread! It is always great to see different views on popular topics.
Gary, please don't mention me anymore in the forums. You not only don't have a clue but you are dangerous to the public, you're not someone I need to address.
The OP @Uriel Gonzalez is in California. LLCs are pretty expensive in California if you plan to set up a new one each time you want to sell. For that reason alone it's not your best bet.
Yes, I skipped posts after the second, using any entity is still going to be a violation, don't think you're going to hide behind doors as you're still behind that door using a ploy for the purpose to circumvent the restriction.
How do you legally, pretty simple. Contract, get your down (lots of collateral means to guarantee performance of a buyer) give possession prior to closing and close 91 days later! Nothing says a purchase contract can't be effective for more than 90 days, the restriction isn't to contracting, it's to passing title, which includes using other interests passing the beneficial interest to title. Just wait and close. :)
Bill G, when you say delay the closing for 90 days but get lots lots of collateral down from the end buyer, does that "down" amount cover the A-B purchase of the property from the bank who has to close with the investor? How does such a delay affect a double closing where the end buyers funds are used to pay the original seller? Daniel Nolan
I'm sorry, I assumed the A-B was in cash, you'd buy it and sell later, that was silly of me, wholesalers don't have money I know. Use a hard money lender? Maybe a transactional lender might go 90 days. My question would be how do you get your closing agent to close a HUD REO using the buyers funds in a double closing? That was common in the past, today ALTA has an issue with that. Escrowed funds from an end buyer can't be used until consideration has been exchanged to pass good title in the first transaction before the second transaction.
To answer the initial question on this post on how to buy a property with a deed restriction using a land trust it works like this. You write a contract under "Bob's Holdings, LLC" for the property located at 123 Main St. The offer is accepted and you find a buyer but it has a deed restriction. The way we do it is we contact our real estate attorney and have them draw up a land trust. Land trust have two parts to it, a Trustee and a Beneficiary. A trustee is in charge of handling the land trust how the beneficiary has indicated to them. Once we set up the land trust for that specific property we do a name change addendum with the seller. The new name will normally go "Attorney, LLC as trustee; of the 123 Main st. land trust". If the seller complains that this is a new buyer then we leave it as "Bob's Holdings, LLC as trustee; of the 123 Main St. land trust". Now the original buyer name is still included and technically has never changed. The way your buyer will get ownership of the property is that you assign the beneficial interest of the land trust over to the new buyer. This will not get recorded in the deed as the buyer has never changed. This is relatively inexpensive and really quick to do. Our attorney can usually do it in a few days.