All Forum Posts by: Bill Walston

Originally posted by Bryan Hancock:

Would you mind expanding on your estoppel point above Bill? I have heard of informing the lender preventing calling claim several times on BP, but I have yet to see the legal dots connected.

Estoppel, in very broad terms, is a legal principle that bars a party from denying or alleging a certain fact owing to that party's previous conduct, allegation, or denial. The rationale behind estoppel is to prevent injustice owing to inconsistency.

Estoppel may arise when one person gives a warning to another based on some clearly asserted facts or legal principle, and the other does not respond within "a reasonable period of time". By acquiescing, the other person is generally considered to have lost the legal right to assert the contrary.

I think the folks to whom you have been talking feel that estoppel would, in theory, preclude the lender from bringing an action to accelerate the loan since it knowingly failed to claim or enforce its legal right to accelerate at the time it was informed of the transfer of the property.

This doctrine is closely related to the concept of statutes of limitations, except that statutes of limitations set specific time limits for legal actions, whereas under estoppel, generally there is no prescribed time that courts consider "proper." In general, the longer it takes for the lender to attempt the loan acceleration the more likely it would be that a court would rule against it. But you never know :)

As I said before, I favor informing the lender of the transfer so it cannot claim that the subject to seller and purchaser committed mortgage fraud by not disclosing a material fact (the property transfer). If the lender is estopped from accelerating the loan at a later date, all the better.

Thanks for sharing the Torok opinion letter Bryan. Torok essentially opines what most of us already understand about subject to deals:

1. They are NOT illegal;
2. They may be assigned (though I am not in favor of this) as long as the contract does not specifically prohibit such assignment; and,
3. They DO violate the "due on sale clause."

I think Torok does address the lender's right to call the note (albeit in a roundabout way) when he refers to the "contract provision, which allows the lender, at its option, to declare the loan due and payable if the real property is sold without the lender's prior written consent."

I agree that the lender should be informed of the transfer of the property, though probably not for the same reason as the folks to whom you have talked. They seem to think that informing the lender will prevent it from calling the note at a later date, a theory I conclude they are basing on estoppel. I'm not so sure that the fact the lender is waiving its right to exercise its option to call the note immediately would prevent it from exercising that right at a later date. But that's for a court to decide. My reason for informing the lender is so it cannot cry "FRAUD."

Originally posted by Dave T:

Not an accountant, not an attorney. Just a tax nerd.

And a very astute tax nerd at that :)

Like Chris says, if the contract has an assignment clause, you're covered. In fact, under contract law, most contracts are assignable unless there is a clause stating they are not. (An exception is a personal services contract.) Contract rights are property under most state laws and can be assigned, or bought and sold, just like any other property. That being said, it's a good idea to make sure that the contract includes a clause regarding assignment.

Originally posted by Derek Smith:

Thanks folks for you great advice and comments. Have you figured out a way to screen you caller to make sure it is legit. Bill mentioned not going to the house until he has a contract. I am new so how do you get the contract w/o seeing the place first Bill? Or are you buying site unseen? Thanks you all so much for your kindness.

I began getting a property under contract "sight unseen" years ago in order to keep sellers from wasting my time and theirs. I just make my offer contingent on my inspection of the property. Do I always make my offer sight unseen? No. But that's my usual practice.

Originally posted by Rob Gillespie:

Derek,

It is not like they are gonna show up at your home, if they really want you, they will call you to come out and see a home, when you get there you will get nailed. LOL!

Ha! Never thought of that...the devious rascals! Another reason I'm glad I make it a point not to run out to look at single family homes until I have a contract :-)

Originally posted by Mitch Kronowit:

Originally posted by Chris Weiler:

It is my understanding an LLC offers more protection than that. With most judgements the creditor is limited to a charging order.

A great deal depends on your state laws and the number of members your LLC has. In many states, a single-member LLC has little to no charging order protection.

Absolutely Mitch. Not only that, if the judgement is against the LLC there is NO protection from the charging order. The charging order prevents creditors who have a judgment against an individual member from taking the assets of the LLC in order to satisfy that judgement. That is why many courts are now taking the position you mentioned - that charging orders do not apply to single-member LLCs since there are no other members to protect from the individual member's judgement. In other words, the charging order is designed to protect the LLC from the outside liability of its members.

Originally posted by Mitch Kronowit:

Originally posted by Bill Walston:

This means that you would complete Schedule E of Form 1040 for the rental property (assuming the property is held in your name and not by a business entity).

Just a side note, but if your rental property(ies) are held in an LLC that hasn't selected an alternate status, then Schedule E will still be used.

Absolutely right Mitch - and a SINGLE-member LLC at that :-) I use them so infrequently I failed to mention it. Thanks for the reminder!

Originally posted by Derek Smith:

Thank you Bill I am going to research this as it is probably cheaper. The service I was signing up to is 6.95 per month for 3500 minutes. I forgive me but what is a GV voice mail?

Much cheaper - GV is free :)

Originally posted by Ashan D:

Hi all,

A big advantage of real estate is that it can be a large tax writeoff. The "depreciation" and mortgage interest writeoffs can save quite a bit.

If I invest in say mexican or canadian real estate will I lose those nice tax writeoffs that I know US real estate has, or does it apply to real estate in any country?

Thanks

All US citizens are required to report their worldwide income on their individual income tax returns. This means that you would complete Schedule E of Form 1040 for the rental property (assuming the property is held in your name and not by a business entity). You would include the rental income at the prevailing exchange rates when received and similarly translate your expenditures. You would be entitled to all the ordinary and necessary expenditures related to the rental, such as repairs, insurance, property taxes, maintenance, etc. If I recall correctly you are required to use a longer depreciation method (ADS depreciation) for foreign property.

Hope this helps.