Self created liens to protect free and clear RE?

Question

There is a thread in another BP forum debating the merits of keeping your RE mortgaged in order to make the asset seizure less desirable in the event of a lawsuit.

Assuming that is a strategy you want to pursue, Would it be possible to record a note on your free and clear property for 100% of the market value that has another entity you control as the owner of the note? In this scenario you are not paying on the note and no money was actually loaned. It's existence is merely to encumber your RE to protect it from seizure. Am I suggesting something totally illegal?

Llewelyn A. · Answer

In NYC, that could be very costly. There is a Mortgage Recording Tax of around 2.175%

So imagine you buy a property worth $2 Million, put down 20% or $400k.

Then you create another lien, say $500k.

That will cost you $500k x 2.175% = $10,875.

Further, if you really want to make this a valid loan, you would probably create a LLC, fund it the $500k, have it establish the new lien on the property, let it get paid the Interest.

Now you will have to pay tax on the Interest and filing fees for the LLC and have a CPA do your Tax Returns.

That might be worth it to someone, but to me, it's a little over kill when you can just get an umbrella policy for less than $300 per year that will cover you an additional $2 Million.

Ave Escobar · Answer

I am considering recording a 2nd trust deed lien on my California property via blockchain. Does anyone see a problem?