Note Investing - Register as Foreign Entity?

Question

I have asked @Chris Seveney a little about this topic but I'm curious what approach other note investors take (and I'd love to learn more from Chris as well).

Do you register your business as a foreign entity in any/all states you purchase notes/CFDs in? Why/why not? If so, when? Before you buy? Before legal action? Is your decision based on the state?

Are the fees and compliance hurdles typically annual or just a one-time thing? What companies do you use to represent you as a registered agent?

Any insight is appreciated!

Chad U. · Answer

As I mentioned in one of the FB posts, research the state statutes on whether it is considered "Doing Business as a Foreign Entity".  Some states specify that if you are performing a foreclosure action (via local attorney) and only holding the property to sell, then registration is not required.   Most states require a registration if you own property with intent to rent it out.

However, if you don't register and get sued, then some states do not allow you to be served and be offered protection under the laws of that state.

Andy Mirza · Answer

@Jamie Bateman We register as a foreign LLC in IL when we have notes in that state. There is a state statute that requires licensing for entities that own non-performing notes but it's vague. Based on the advice of a couple of trusted attorneys, we decided that registering as a foreign LLC mitigated 90% of the risk. The attorneys never heard of licensing used as a defense and, even if it were used, didn't think that it would vacate a mortgage. Being unregistered, however, poses a lot of problems.

Chris Seveney · Answer

@Jamie Bateman

We register if we own notes or CFD’s in the state.

Bob Malecki · Answer

Hi Jamie, we only register as foreign entity if we foreclose and take the property back at auction. We do not do this if we are just holding the note.

Bob

Jamie Bateman · Answer

Thanks, @Chad Urbshott. I figured it had to be state specific (like so many things with notes), but your answer provides a lot of insight!

Bob Malecki · Answer

Chris what is your logic for registering if you only own notes in a state? it seems to be an additional unneeded expense from my perspective.

Jamie Bateman · Answer

Thanks, @Bob Malecki. That seems logical to me, although this is certainly an area (along with licensing) that I get very different takes on. I appreciate your weighing in!

Note Investing - Register as Foreign Entity?

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