Due on Sale Clause... Ways to transfer to trust or LLC?
Rental Property Investor · Orlando, FL · Member since 2015 · 131 posts · 62 votes
BP,
I've been searching and there are number of LLC posts. What I haven't found is a way to get similar protection of my assets without putting the properties into an LLC.
Here is my issue. I bought the two properties outside of the LLC because I didn't feel it was going to be benef
Your lender(s) can probably be most helpful if you discuss this with them (full discolsure) so they know why you're doing the transfer. They will tell you if any issues might arise.
Re: LLC: Consult an appropriate attorney (I'm not one).
That said, understand: an LLC alone only offers a single level of protection. If it's "corporate veil" can be pierced, your exposure is total.
You want to build a business entity structure such that there are multiple level of protection.
Here's a typical scenario as my investing group has learned it form our tax and legal expert:
You set up a personal or family trust. This will be part owner of an LLC you use for long-term holdings and an S-Corp or C-Corp you set up for short term holdings and cash flow. The other LLC owner is your S-Corp or C-Corp. The LLC is also part owner of your S-/C-Corp. This way, you "control everything and own nothing". All of your income-producing assets are held by a business entity and the entire structure can be willed to your heirs via the personal trust.
This triad becomes the foundation of your business entity structure and provides effective protection against liability from either the LLC or S-/C-Corp. The S-Corp also allows you to pay yourself from your business income using the "salary / dividend split" technique. This limits your income tax liability and reduces your FICA ("self employment" tax) expense.
There is a two-day (two 8-hour days, recorded) tax and legal class in the education to which I am connected. It's in the beginner's curriculum. Most people say this one class pays for their entire education in tax savings alone the first year.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
I would be careful about following this advice. Although I would stay shy of saying it would not work in your state original poster, I would say that such corporate structures may very well not be upheld by the Judges, at the very least, in my state. There are plenty of statutes in states like Virginia such as Consumer Protection and Uniform Trade (fraud) statutes that would label such a structure as a clear and obvious attempt to avoid liability. As a savvy creditor attorney, there is a significant chance I could easily circumvent such a structure. Not by virtue of the "corporate veil", but by virtue of the "badges of fraud" that it represents.
There is more than one way to skin an LLC, which is why you should always consult with a *local* attorney familiar with your state's laws for a complete analysis of what kind of corporate structure best supports your *individualized* needs.
Disclaimer: I do not agree to represent any individuals in the state of Virginia, or elsewhere for that matter, by presenting the above information. If you are viewing this post from Virginia, the Virginia State Bar may view this as legal advertising. Consult a local attorney on all matters legal. This is educational use only.
By protection, are you referring to asset protection? Without having a validly executed incorporation of your business and placing those properties into a business, there are very few ways to protect your assets with any degree of predictability. Some other ways include Trusts and partnerships, but they may not work in your case. Insurance policies only protect you up to a certain coverage amount, and are not necessarily the end of the discussion. I'd recommend seeking out an attorney to better understand how asset protection works in Washington. There are not many ways outside of incorporation to protect yourself.
Your lender(s) can probably be most helpful if you discuss this with them (full discolsure) so they know why you're doing the transfer. They will tell you if any issues might arise.
Re: LLC: Consult an appropriate attorney (I'm not one).
That said, understand: an LLC alone only offers a single level of protection. If it's "corporate veil" can be pierced, your exposure is total.
You want to build a business entity structure such that there are multiple level of protection.
Here's a typical scenario as my investing group has learned it form our tax and legal expert:
You set up a personal or family trust. This will be part owner of an LLC you use for long-term holdings and an S-Corp or C-Corp you set up for short term holdings and cash flow. The other LLC owner is your S-Corp or C-Corp. The LLC is also part owner of your S-/C-Corp. This way, you "control everything and own nothing". All of your income-producing assets are held by a business entity and the entire structure can be willed to your heirs via the personal trust.
This triad becomes the foundation of your business entity structure and provides effective protection against liability from either the LLC or S-/C-Corp. The S-Corp also allows you to pay yourself from your business income using the "salary / dividend split" technique. This limits your income tax liability and reduces your FICA ("self employment" tax) expense.
There is a two-day (two 8-hour days, recorded) tax and legal class in the education to which I am connected. It's in the beginner's curriculum. Most people say this one class pays for their entire education in tax savings alone the first year.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
Your lender(s) can probably be most helpful if you discuss this with them (full discolsure) so they know why you're doing the transfer. They will tell you if any issues might arise.
Re: LLC: Consult an appropriate attorney (I'm not one).
That said, understand: an LLC alone only offers a single level of protection. If it's "corporate veil" can be pierced, your exposure is total.
You want to build a business entity structure such that there are multiple level of protection.
Here's a typical scenario as my investing group has learned it form our tax and legal expert:
You set up a personal or family trust. This will be part owner of an LLC you use for long-term holdings and an S-Corp or C-Corp you set up for short term holdings and cash flow. The other LLC owner is your S-Corp or C-Corp. The LLC is also part owner of your S-/C-Corp. This way, you "control everything and own nothing". All of your income-producing assets are held by a business entity and the entire structure can be willed to your heirs via the personal trust.
This triad becomes the foundation of your business entity structure and provides effective protection against liability from either the LLC or S-/C-Corp. The S-Corp also allows you to pay yourself from your business income using the "salary / dividend split" technique. This limits your income tax liability and reduces your FICA ("self employment" tax) expense.
There is a two-day (two 8-hour days, recorded) tax and legal class in the education to which I am connected. It's in the beginner's curriculum. Most people say this one class pays for their entire education in tax savings alone the first year.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
I would be careful about following this advice. Although I would stay shy of saying it would not work in your state original poster, I would say that such corporate structures may very well not be upheld by the Judges, at the very least, in my state. There are plenty of statutes in states like Virginia such as Consumer Protection and Uniform Trade (fraud) statutes that would label such a structure as a clear and obvious attempt to avoid liability. As a savvy creditor attorney, there is a significant chance I could easily circumvent such a structure. Not by virtue of the "corporate veil", but by virtue of the "badges of fraud" that it represents.
There is more than one way to skin an LLC, which is why you should always consult with a *local* attorney familiar with your state's laws for a complete analysis of what kind of corporate structure best supports your *individualized* needs.
Disclaimer: I do not agree to represent any individuals in the state of Virginia, or elsewhere for that matter, by presenting the above information. If you are viewing this post from Virginia, the Virginia State Bar may view this as legal advertising. Consult a local attorney on all matters legal. This is educational use only.
Your lender(s) can probably be most helpful if you discuss this with them (full discolsure) so they know why you're doing the transfer. They will tell you if any issues might arise.
Re: LLC: Consult an appropriate attorney (I'm not one).
That said, understand: an LLC alone only offers a single level of protection. If it's "corporate veil" can be pierced, your exposure is total.
You want to build a business entity structure such that there are multiple level of protection.
Here's a typical scenario as my investing group has learned it form our tax and legal expert:
You set up a personal or family trust. This will be part owner of an LLC you use for long-term holdings and an S-Corp or C-Corp you set up for short term holdings and cash flow. The other LLC owner is your S-Corp or C-Corp. The LLC is also part owner of your S-/C-Corp. This way, you "control everything and own nothing". All of your income-producing assets are held by a business entity and the entire structure can be willed to your heirs via the personal trust.
This triad becomes the foundation of your business entity structure and provides effective protection against liability from either the LLC or S-/C-Corp. The S-Corp also allows you to pay yourself from your business income using the "salary / dividend split" technique. This limits your income tax liability and reduces your FICA ("self employment" tax) expense.
There is a two-day (two 8-hour days, recorded) tax and legal class in the education to which I am connected. It's in the beginner's curriculum. Most people say this one class pays for their entire education in tax savings alone the first year.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
I would be careful about following this advice. Although I would stay shy of saying it would not work in your state original poster, I would say that such corporate structures may very well not be upheld by the Judges, at the very least, in my state. There are plenty of statutes in states like Virginia such as Consumer Protection and Uniform Trade Statutes that would label such a structure as a clear and obvious attempt to avoid liability. As a savvy creditor attorney, there is a significant chance I could easily circumvent such a structure. Not by virtue of the "corporate veil", but by virtue of the "badges of fraud" that it represents.
There is more than one way to skin an LLC, which is why you should always consult with a *local* attorney familiar with your state's laws for a complete analysis of what kind of corporate structure best supports your *individualized* needs.
Disclaimer: I do not agree to represent any individuals in the state of Virginia, or elsewhere for that matter, by presenting the above information. If you are viewing this post from Virginia, the Virginia State Bar may view this as legal advertising. Consult a local attorney on all matters legal. This is educational use only.
Where are you seeing "badges of fraud"?
Does that mean everyone who puts their home into a personal trust is "committing fraud" by ensuring the home bypasses probate upon their demise?
Not sure what you're reading into it which wasn't in the earlier post.
This structure is intended for asset protection against liability in a litigious, lawsuit-happy society where people think they can make a living taking other peoples' assets through frivolous and/or fraudulent litigation.
If you think you can "easily circumvent" such a structure within the limits of the law, by all means get in touch my group's tax and legal expert and his law firm. PM me for that info, though - don't want to broadcast it here (forum rules limitation). One hint I will give is that more than one of the classes he teaches qualifies as continuing education for real estate agents and brokers as well as accountants and other financial professionals.
This structure is very common in the world of estate planning and asset protection. Consult your legal colleagues and mentors and discuss it with them, also.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
I'm sure your in-house counsel is well versed in his own local laws, and I would not be surprised at all if the structure you proposed works in your particular jurisdiction. Here is the problem though Mr. Dachtera, and I am not attacking you in any way. Your in-house counsel is not licensed in all of the states in the nation. Each and every state has their own statutes and common laws that apply to the dismantling of corporate structures on behalf of the consumer or judgment creditors. There is no such thing as a single corporate structure that will necessarily protect you in each and every state in the United States. To think thusly is folly, and I'm sure your in-house counsel would agree.
I'm looking at this from the perspective of an attorney who routinely goes to Court to collect against other people; whether they have put their assets in trusts, corporations, or private accounts. What most people do not realize is that placing your assets into an asset protection plan is not a stop gap measure from judgment creditors. I've had one case recently where an individual had placed all their assets in an "irrevocable trust". Common knowledge says that "oh, creditors can't reach those! You don't have access to them." Wrong. There are plenty of ways to invalidate an irrevocable trust. Among those are violations of the Uniform Trust Code, the Uniform Fraudulent Conveyances Act, and any number of laws that allow you basically "pretend as if the corporation is not even there".
"Piercing the corporate veil" is but one of the many tools available to us creditors right's attorneys in getting at your assets. We do not have to proceed along that route. "Badges of Fraud" is a common law concept that has been developed through case law in each and every jurisdiction. Every state has their own definition of what constitutes as a "badge of fraud". Among them would be if the corporation was self-settled, such as if you had your own LLC and your own personal trust being joint owners, and you being the basic beneficiary under both plans. Under that, the court would infer an intent to create entities solely for the purpose of dodging creditors.
"Badges of Fraud" is a holistic analysis which takes into account at least a dozen factors, if not more. It is a doctrine of equity, which utilizes concepts of law related to what "is actually going on" as opposed to "oh, yeah, I totally filed this corporation properly".
I'm sure your company does fantastic work, but please speak with your in house counsel about what states such plans are best for, as I, or any enterprising collections firm, would tell you differently.
DISCLAIMER: The above, again, is not legal advice. The disclaimers from my last post dated 3/4/16 are incorporated herein by reference in their entirety. The views expressed in this post are not necessarily the views of my firm, and I post this information in my individual, trade name capacity.
I'm sure your in-house counsel is well versed in his own local laws, and I would not be surprised at all if the structure you proposed works in your particular jurisdiction. Here is the problem though Mr. Dachtera, and I am not attacking you in any way. Your in-house counsel is not licensed in all of the states in the nation. Each and every state has their own statutes and common laws that apply to the dismantling of corporate structures on behalf of the consumer or judgment creditors. There is no such thing as a single corporate structure that will necessarily protect you in each and every state in the United States. To think thusly is folly, and I'm sure your in-house counsel would agree.
I'm looking at this from the perspective of an attorney who routinely goes to Court to collect against other people; whether they have put their assets in trusts, corporations, or private accounts. What most people do not realize is that placing your assets into an asset protection plan is not a stop gap measure from judgment creditors. I've had one case recently where an individual had placed all their assets in an "irrevocable trust". Common knowledge says that "oh, creditors can't reach those! You don't have access to them." Wrong. There are plenty of ways to invalidate an irrevocable trust. Among those are violations of the Uniform Trust Code, the Uniform Fraudulent Conveyances Act, and any number of laws that allow you basically "pretend as if the corporation is not even there".
"Piercing the corporate veil" is but one of the many tools available to us creditors right's attorneys in getting at your assets. We do not have to proceed along that route. "Badges of Fraud" is a common law concept that has been developed through case law in each and every jurisdiction. Every state has their own definition of what constitutes as a "badge of fraud". Among them would be if the corporation was self-settled, such as if you had your own LLC and your own personal trust being joint owners, and you being the basic beneficiary under both plans. Under that, the court would infer an intent to create entities solely for the purpose of dodging creditors.
"Badges of Fraud" is a holistic analysis which takes into account at least a dozen factors, if not more. It is a doctrine of equity, which utilizes concepts of law related to what "is actually going on" as opposed to "oh, yeah, I totally filed this corporation properly".
I'm sure your company does fantastic work, but please speak with your in house counsel about what states such plans are best for, as I, or any enterprising collections firm, would tell you differently.
DISCLAIMER: The above, again, is not legal advice. The disclaimers from my last post dated 3/4/16 are incorporated herein by reference in their entirety. The views expressed in this post are not necessarily the views of my firm, and I post this information in my individual, trade name capacity.
Our group has members in all 50 states and our legal people have contacts every where we have members (it's a VERY large law firm). If anyone's local jurisdiction has specific issues, I'm sure they are advised of that upon consultation with a professional local to them.
Again, this is intended to protect against litigation brought by those seeking to profit. It is in no way intended to escape valid liability; however, that liability will fall upon the associated business entity, as it should, and not any individual stock-holder, member, etc.
You should be advised, by the way, that our credit expert's opinion of your employers' / clients' profession is similar to BP's opinion of the likes of me (an affiliate marketer). Most collectors we hear stories about make every effort to circumvent the FCRA, the FDCPA and much other legislation.
'Nuff said. Let's get back to our lives...
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
Good discussion. Want to comment on the concept of a
The intent of this vehicle is a tax strategy for the heirs to inherit without capital gains being due. To my knowledge, there is no asset protect per se.
I have performed a Quickclaim deed to our trust in multiple counties ( Calif) by using the correct PCOR (preliminary change of recording) without invoking DoS.
Notice:- No mention of any S-corp or LLC which would be another matter.
Yes, and a trust can also be part owner of another legal entity. For the full explanation, contact your legal professional (I'm not one). If they look at you sideways or like you have three heads, I can put you in touch with my group's tax and legal people.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
@Jeff B. Perhaps you are referring to a Quitclaim Deed?
Lots of reasons I don't like getting advice from online forums. Lots of theory, lots of hearsay, lots of old wives tales, a few baby attorneys and and few seasoned folks who've been through both sides of the matter of topic at hand.
Problem for newer investors is that it's difficult to sort out who is real and who has another motive.
As to the original poster's query, once you've left a trail, it's pretty easy to follow.
Operating under the false belief that a multiparty near LLC or similar special purpose entity in inpenitrable is mistaken.
Having been in many, many lawsuits as a title, trust and estate litigator, fiduciary and essentially as court appointed receiver, (but not informally) I can tell you that most lawsuits get settled when one party gets tired of the cost of discovery or the other burdensome pressures of litigation for those who can't stomach it.
Without giving advice, most very successful, active investors create a SPE for the purpose of acting as trustee and then separate trusts for each asset. It's easy to manage. It also offers 1st tier level privacy. Asset protection? Not really, but does discourage casual sue-happy idiots.
Insurance is a good counter strategy. So is debt or friendly encumbrances, but the latter can be back-tracked if no evidence of real money passing hands for which the debt allegedly secures.
Here are a few resources: Dykes Boddiford: Asset protection seminar; Peter Spiro book on same, Mark Warda book on trusts; Ward Hanigan's Title Holding Trust one-day training seminar.
And finding ways to keep from getting sued is a good strategy, too.
BP,
I've been searching and there are number of LLC posts. What I haven't found is a way to get similar protection of my assets without putting the properties into an LLC.
Here is my issue. I bought the two properties outside of the LLC because I didn't feel it was going to be benef
I've never seen a conventional mortgage lender go after anyone for nothing more putting title to a property into an LLC the day after closing, or any time after that, for that matter.
The internet lawyers will go back and forth about what a lender could do, but I've never seen or heard of a lender or loan servicer actually caring.
A couple folks I do mortgages for, literally do it the very next day, literally every single time. They sign at ABC Title on Monday, and then they walk over to XYZ Title Company across the street the next day and shove title into their LLC. It's plainly obvious to me, to the underwriter, to everyone, including even the folks buying this mortgage on the secondary market, but no one cares.
In the case of a refinance, it's even more obvious: Title was in the LLC the day they applied for the mortgage. In fact, ALL of their properties with conventional mortgages have title in an LLC, including the last property we lent on four months ago! When we close this refinance, what are the odds that title isn't going right back into an LLC within 48 hours? Approximately zero percent. We still fund hte loan, and we still sell it at full value on the secondary market, even though title was held in the LLC before we got around to selling it!
So, yeah, no one cares about the due on sale clause in the context of LLCs, for whatever reason, even though they could care if they wanted to. Maybe the logic is that if the LLC is for asset protection, the person ultimately holding the note likes that this asset is now better protected because it bodes well for you paying back your mortgage, so why would that entity object to you doing something making it more likely that they will get paid? If it were my personal $500k I was lending you, I wouldn't care that you're doing something to better protect that asset that I'm lending based upon. Hell, go for it, from my POV all you are doing is better ensuring that *I* get paid back, with interest and in full.
If you failed to maintain insurance or failed to pay your mortgage, might the lender use the due on sale and LLC thing as icing on the cake when they go after you? Yes, probably.
These are just observations, this is not legal advice.
Re: the Virginia lawyer talking about badges of fraud... really?
You don't have holding companies and operations companies in your state? It's an almost universal strategy of the wealthy to separate ownership from operations. Operations takes possession and operates, but doesn't own. That's not a fraudulent situation under the UFTA... Assuming the only obligations that exist at time of formation of the entities are secured loans on real estate, who's being defrauded? If the debt arises *AFTER* implementation of the plan, then it's not fraud...
And in jurisdictions like TX and Nevada, plans like that are, in my opinion, encouraged by statute.
Thanks for the insight @Chris Mason
That makes a lot of sense.
Thanks for the advice. Reading through this proves I definitely need a little more help.
I reached out to a fellow investor in Florida, who works closely with an attorney familiar with these matters. I'll be reach out this week.
my experience with transferring and/or sale of a property from my original purchase via conventional mortgage to an LLCs, corp or trust over the last 25 years with over 50 properties has been one of no lender interference.
This includes simple assumption of mortgages from homeowners in Preforeclosure status when their mortgage company has no simple assumption provisions and a due on sale clause.
Have I just been fortunate that a lender has not interfered?
Or are they just happy to get on time payments?
I am always able to payoff a property if a lender were to enforce the due on sale clause, but until that time comes I continue as I have over the last 25 years.
Anyone have different experiences?
Conventional wisdom holds that lenders, with only a few noteworthy exceptions, are content as long as they receive timely payments. That may change at anytime, of course, depending on the ebb and flow of the economy and the impact of that on their payment streams.
Generally, "subject to" the existing financing is not excessively risky, but there's always that chance the note may eventually be sold to a new holder who may choose to take action.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
Conventional wisdom holds that lenders, with only a few noteworthy exceptions, are content as long as they receive timely payments. That may change at anytime, of course, depending on the ebb and flow of the economy and the impact of that on their payment streams.
I'm curious what these notable exceptions you've seen are, when and where a lender will care about title going into an LLC that's run by the borrower?
I've never seen any traditional mortgage lender or servicer care, but I have a hunch you've been around a little longer than me. :)
Re: the Virginia lawyer talking about badges of fraud... really?
You don't have holding companies and operations companies in your state? It's an almost universal strategy of the wealthy to separate ownership from operations. Operations takes possession and operates, but doesn't own. That's not a fraudulent situation under the UFTA... Assuming the only obligations that exist at time of formation of the entities are secured loans on real estate, who's being defrauded? If the debt arises *AFTER* implementation of the plan, then it's not fraud...
And in jurisdictions like TX and Nevada, plans like that are, in my opinion, encouraged by statute.
There is a strong difference between a holding company, and the fact patterns that are presented by the joint trust/holding company scenario; namely the fact that the beneficiary under a single member holding company is the same member of the self-settled trust. If anything, I am a strong proponent of holding companies. That is not exactly what is being proposed here from a legal standpoint. There is significant case law in my jurisdiction that states that such transactions are indeed considered as one of the many "badges of fraud". Having limited beneficiaries in structures that are intended solely to shield one's self from personal liability can, and often does, get invalidated in a court of law.
Badges of Fraud were created because it is so hard to prove fraudulent intent. It is these badges that create legal *presumptions* on the part of courts. These presumptions can be overcome with sufficient testimony, but from a legal perspective it isn't necessarily a smart idea to create corporate and holding structures in which you know there are potential challenges to the underlying structure. You open yourself up to lawsuit and collections attorneys. No, in most instances simpler is better. Fact; having two forms of ownership, each of which has a single person as the sole beneficiary, is a presumptive badge of fraud under Virginia case law.
I maintain; the suggested corporate structure in this particular thread can, and will, come under scrutiny by a court of law if you have an extremely savvy attorney on the other side. Also note, I am only speaking to my specific jurisdiction, which is all I can professionally and legally do. Those people who are discussing the law in other jurisdictions in which they are not licensed attorneys are actively engaged in the unauthorized practice of law where the provision of such information is likely to be relied upon by the other party. It may very well be that Texas and Nevada would not treat this legal issue the same way. Why? Badges of Fraud are a *common law* doctrine established by *local precedent*. Texas does not have the same Badges of Fraud as Virginia. I maintain that this is but one further example of why anyone considering asset protection should consult with a licensed, experienced attorney in their own state. Investors are not attorneys. They do not know all the law out there. There are things that investors are great at; such as financial planning and estate maximization. But law is not chief among the things they are licensed to do. For anyone businessman out there I would recommend having one of each of the following professionals to help with your business; an independent accountant, an independent lawyer, and an independent wealth management advisor. All of these acting independently of each other.
Conventional wisdom holds that lenders, with only a few noteworthy exceptions, are content as long as they receive timely payments. That may change at anytime, of course, depending on the ebb and flow of the economy and the impact of that on their payment streams.
I'm curious what these notable exceptions you've seen are, when and where a lender will care about title going into an LLC that's run by the borrower?
I've never seen any traditional mortgage lender or servicer care, but I have a hunch you've been around a little longer than me. :)
I've heard that BofA sometimes chases changes in title. So, of course, any lender they've subsumed would probably be subject to the same surveillance.
It will mostly be some of the "too big to fail" institutions, I should think, which would follow suit. Smaller lenders likely have bigger fish to fry.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
@Matthew Kreitzer - is the TL;DR version of what you are attempting to convey as follows? Want to make sure I am understanding you correctly.
- Folk law is not real law, and if it's plainly obvious to a judge that you're engaged in shenanigans, she or he very well may just nullify by fiat the supposed benefits of those shenanigans (citing case law with a healthy dose of common sense, statutes be damned, because English common law is awesome).
- Talk to a knowledgeable local lawyer.
Is that about accurate?
@Matthew Kreitzer - is the TL;DR version of what you are attempting to convey as follows? Want to make sure I am understanding you correctly.
- Folk law is not real law, and if it's plainly obvious to a judge that you're engaged in shenanigans, she or he very well may just nullify by fiat the supposed benefits of those shenanigans (citing case law with a healthy dose of common sense, statutes be damned, because English common law is awesome).
- Talk to a knowledgeable local lawyer.
Is that about accurate?
Yeah, thats pretty much it. Well said. There is considerable risk in engaging in shenanigans if they even have the odor of impropriety, whether they turn out right or not. Not worth the risks when the costs can be so high.
@Matthew Kreitzer - is the TL;DR version of what you are attempting to convey as follows? Want to make sure I am understanding you correctly.
- Folk law is not real law, and if it's plainly obvious to a judge that you're engaged in shenanigans, she or he very well may just nullify by fiat the supposed benefits of those shenanigans (citing case law with a healthy dose of common sense, statutes be damned, because English common law is awesome).
- Talk to a knowledgeable local lawyer.
Is that about accurate?
Yeah, thats pretty much it. Well said. There is considerable risk in engaging in shenanigans if they even have the odor of impropriety, whether they turn out right or not. Not worth the risks when the costs can be so high.
Cool, thanks.
One thing I gotta say...
"Odor of impropriety"? You've just about got me sold on going to go to law school just so I can learn all these hilarious phrases. That's even better than "badge of fraud." Got any more for us today? :)
"Musk of dishonor." Someone go find a judge, and tell him to set some precedent or other using the term "musk of dishonor." I want that to be a new legal term used for something, IDK what.
I've only heard of a few institutions calling a loan because of the Due on Sale clause. Most won't because they could potentially end up with an asset they really don't want. But if I were a bank looking to score some additional cash, here's what I would do...
I'd look for every loan 7+ years old at an interest rate 2% or less than current rates. I'd then check the title to see if the original owner was transferred or changed in some way. I'd also look at the payment record for those who have consistently made good payments. If so, I'd invoke the Due on Sale. Why?
I might get a new loan which brings the interest rate up higher and therefore gets me more return. I could take that 4.5% interest rate up to 6.5% or higher. Seems like a winner to me.
Even if they get a new loan and pay it off, as the bank, I now have that money available for new loans at a higher rate.
And if you were diligent about making payments, there's probably decent equity built up. They'd take a gamble that you'll do everything you can to keep that equity. If you don't, they have a decent amount of float on your equity to get their cash back even with the costs of foreclosure.
We haven't seen a run up in high interest rates for a long time. But back in the early 80s, it was pretty common practice for banks to call older, lower interest rate loans. Get written approval from your bank. If they won't do it, then refinance and put the property into the LLC at that time.
I'd look for every loan 7+ years old at an interest rate 2% or less than current rates. I'd then check the title to see if the original owner was transferred or changed in some way. I'd also look at the payment record for those who have consistently made good payments. If so, I'd invoke the Due on Sale. Why?
I might get a new loan which brings the interest rate up higher and therefore gets me more return. I could take that 4.5% interest rate up to 6.5% or higher. Seems like a winner to me.
The guy making that phone call isn't going to be compensated based on your interest rate going up or down - that is illegal as of a few years ago.
It would be a huge pain in the butt to make that a business model just from a people perspective.
- You'd have to get a bunch of collection agency slimeballs, and find the 1 in 10 of them smart enough to pass the licensing test. I sure as hell am not making these phone calls.
- This is one where we would all object strongly enough that we'd be willing to go nuclear over it - tear down that ABC Lending sign outside, and put up a XYZ Mortgage sign up.
- Not such a winner if you're a mortgage company with no local branches left originating mortgages.
- This is what keeps senior management of mortgage companies in check, and call it reason #433,519 why always best to work with a local lender that has a brick and mortar presence in the community. Most of us can throw rocks from our back yards, and hit homes that we've financed, these are our neighbors (& your realtor can pop into our branch and raise hell if she feels that we aren't taking care of you :P ).
- This could work with Quicken or one of the call center outfits, though. Their internal power dynamics are all F'd up, such that the people with fancy titles actually have power, and the people at the bottom actually do what they are told (stupid way to run a mortgage company).