SDIRA - Can I pay off the note with non-SDIRA funds?

Question

I have a $50k balloon note at 5% interest in my Self Directed IRA.  My property is barely cash-flowing and the note goes to 9% in December 2019.  I need to keep the property because it is upside down (sidenote: thanks Growth Equity Group for your unethical business).  I can't refinance it because of the value.  I have funds outside of my SDIRA and I'd like to just pay the note so that it at least cash-flows.  Is that legal?  Any other ideas?  I have another one up in December 2020 in the same situation...thanks!

Dmitriy Fomichenko · Answer

You should be OK on this part. As far as the loan I would suggest you attempt to do a loan modification with the lender.

Natalie Lund · Answer

@Dmitriy Fomichenko

I have a property manager that collects rent, pays expenses etc. whatever is left over they cut 2 checks.

Dmitriy Fomichenko · Answer

@Natalie Lund, what about expenses, how expenses are handled (be specific)?

Natalie Lund · Answer

@Dmitriy Fomichenko

Fortunately I have kept everything separated. All proceeds get divided accordingly and deposited into separate accounts, etc. The note and title are divided. I don’t see that as a problem. Is there something else I’m not considering?

Dmitriy Fomichenko · Answer

@Natalie Lund

It makes is worse! Mixing your IRA funds with your personal funds was very bad idea. You may have committed prohibited transaction. How do you handle financials of the property? Where does the rent gets deposited? Who pays the expenses?

You may want to consider contacting your lender and negotiating loan modification.

Natalie Lund · Answer

@Carl Fischer, @Brian Eastman -

Here is another bit of information on my situation - does this change anything?

My SDIRA owns 65% of the property and my LLC owns 35%.  Any thoughts on how to get out of this mess?

Carl Fischer · Answer

@Natalie Lund

Your Ira can sell a percentage of the property say 50%  for $7k to a non disqualified person. That person could then get another loan with his/her credit. However most banks won’t do loans less than $75k. Somebody else may make a loan because cd rates are 2.5% so maybe double it to 5% and lower the payment from the step up 9% interest rate. I hope this helps.

Natalie Lund · Answer

@Carl Fischer - I haven't found a non-recourse company that will refinance it.  Balance owed is $48k and approximate value is $65k.  I'm not sure how to sell part of the property - can you explain that one?

Carl Fischer · Answer

@Natalie Lund

You may be able to refinance with another non recourse loan or even sell a part of the property for additional cash flow or sharing of the costs.

Or sell it outright and take the hit. Sorry for your problems.

Natalie Lund · Answer

@Brian Eastman - bummer!  But thank you so much for taking the time to respond.  I guess my only option is to suck it up and take the hit. :(