Hey anybody every hear of equity stripping?

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Cody L.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Let say you own a $100k house that has $60k loan. You have $40k of equity that's at risk of a lawsuit. Now go to a bank and get loan on that equity. You won't be able to borrow $40k but you should be able to get $20k Don't draw the funds (unless you want to pay interest). Boom. You just cut your equity liability exposure in half. Please send me $499 for the info
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  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    I don't really have any faith in these types of tactics. If someone is truly hurt, first off they go after insurance. Anyone here dumb enough not to have any insurance on your rental properties? Next there is a thing called discovery where you are obligated to answer questions posed by the other side within reason. If you lie and are caught, it could mean prison. Next most folks like to use some form of legal entity to hold property like an LLC, partnership, sub S corp, etc. Get caught pulling a stunt like this and the odds are good the judge will rule to pierce the corporate veil. Putting a bogus lien on a property requires that an officer sign the papers that get filed at the courthouse. Now that officer who signed may become personally liable for the debts of the entity due to fraud. Lets say you use a fake mortgage and say you borrowed $500K on your property. The discovery will dam sure want proof of where you spent the money. If the money has disappeared then you can pierce the corporate veil because the owner just converted all the corporate money to his own use. Do you really think they won't ask those questions. Anyone here think a lawyer has never heard of this tactic and is fooled? Intentionally undercapitalizing a business is a basis for piercing the veil as well. I suppose this tactic may help in some cases but it seems pretty unlikely to me. You have to answer interrogatories or written questions, you have to produce written records of the entity through a subpeona duces tecum, and lets not forget the fun deposition where you are put under oath and required to answer questions. I would not put much faith in this tactic, and would concentrate on good insurance, and setting up and properly maintaining legal entities in an ethical manner. just my 2 cents.

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Jerry W.

    Thanks for expounding from an attoney's POV.
    The SIMPLE BEST SOLUTIONS:
    1. insurance
    2. DONT PLAY GAMES

    Most people that are not educated believe they can try and make these changes, bogus loans, etc...AFTER the threat of a lawsuit! Too late!

    1Reply
  • Tony Gatto
    OP
    Property Manager · Myrtle Beach, SC · Member since 2014 · 135 posts · 13 votes
    9y
    Originally posted by @Philip Aguilar:

    This is a form of asset protection. It allows you to show no equity or negative equity in your properties to prevent lawsuits. The way we do it is to have one of our entities file a lien against a property we own in another entity. For example we have a free and clear property worth 250k and I have a lien against it for 300k. If someone tries to file a lawsuit against the corp owning the property they will do an asset search and see that I am upside down 50k. Now if they proceed and win they will be forced to pay off the lien.

    0Reply
  • Tony Gatto
    OP
    Property Manager · Myrtle Beach, SC · Member since 2014 · 135 posts · 13 votes
    9y

    Where does the lien come from .... and now is it structured?

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Jerry W.  YUP  just another dude trying to scare people into asset protection when in fact most folks in the landlording business have plenty of protection with proper insurance... and most of these folks answer I will bet have never been in a deposition or any other real estate dispute and have no idea how easy it is for a decent lawyer to harpoon you in a depo... this stuff simply does not hold up as you stated... if the company is broke the veil Is pierced right there  rookie lawyers know this experienced one's will rip you apart.. LOL.... And frankly if you just handled your business in a non slumlord manner and as stated have proper insurance you would just hand over the lawsuit to insurance and let them go at it.... they settle out of court 99% of the time.. plantiff lawyer wants to get paid.

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  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    Thanks @Jay Hinrichs.  there really is no super secret sauce that always works.  Folks who sell this are the only ones who usually profit by it.  There are already laws in effect to protect investors if folks will follow those laws and be legal and ethical in their dealings.  if these tactics really worked, literally everyone would use them.  They really don't work.  Just run your business like a real business and be ethical.  Hopefully you will never be sued, but if you are, would you rather be the standup guy who was honest and followed the law?  Or would you rather be the shyster who filed false documents?  The judge or jury will probably decide the case on credibility, I know which way I would want to be viewed.

    1Reply
  • Philip Aguilar
    Real Estate Investor · San Antonio, TX · Member since 2016 · 31 posts · 6 votes
    9y
    Tony Gatto we create a lien for consulting services to the corp that owns the properties. I have my attorney file it and if we ever decide to sell the property or take equity out we have him remove it.
    0Reply
  • Chris Irelan
    Member since 2019 · 1 post · 0 votes
    7y

    https://www.govinfo.gov/content/pkg/USCOURTS-mdd-8_11-cv-01000/pdf/USCOURTS-mdd-8_11-cv-01000-0.pdf

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