All Forum Posts by: Chris K.

@Meena Price 

If you are doing business in PA as a foreign corporation, you have to register as a foreign entity. It's not a big deal but there are some fees associated with it. Failing to register can have some catastrophic consequences as evidenced by this recent case from the Pennsylvania Superior Court. 

http://www.pacourts.us/assets/opinions/Superior/ou...

There are also some other practical issues with having a foreign LLC. At some point, I assume you will use a lawyer. The lawyer may not be able to answer sophisticated questions about your corporate entity that is incorporated in a foreign state. Or the attorney may know the answer, but are unwilling to give you an answer for malpractice purposes. If so, you may end up having to pay a separate attorney in your incorporation state to get the answer.

@Andrew Besecker 

I think @Steve Babiak and @Justin K. makes a good point about railings versus back filing soil. I can't remember if you are trying to hold or flip this one. But many nice homes I see in our area don't necessary have a railing for these kinds of porches. 

They instead have built up soil around the porch, and plant some greens around it to make it look "homey." I assume you have landscaping budget built into this project, so you might be able to deal with the railing issue (and hopefully save some money) by creative landscaping. 

Overall, it looks nice btw! 

Hi @Stephany Primrose 

My advice is to start talking to lenders now about your plans. Different loans have different underwriting standards. So a lender will evaluate your situation differently for a Fannie/Freddie loan than a portfolio loan. To figure out exactly what you need to show, you will need to talk and network with the lenders. 

Networking with experience investors is a good way to start as well. They will have various ideas on how you can finance a project.  

@Nicholas Weckstein 

@Steve Babiak and @Adam Guiffrida already mentioned this, but Scranton has a very high transfer tax rate. That's unfortunately a cost of buying property in the City. 

Based on the numbers you shared, I have to assume that the $10k includes escrow for taxes, insurance, etc. From an underwriting perspective, those are not true "closing costs" but "operating expenses." But I understand that from a practical perspective, you have to come up with $10K on the day of the closing. 

In terms of whether to buy as a LLC, there are many factors to consider. The number one question is whether you want a conventional Freddie/Fannie loan. If so, LLC is not an option.

The mortgage person probably gave you bad advice about transferring it from your name to your LLC's name. That will likely trigger a transfer tax as @Steve Babiak mentioned. You would also most likely have to get another title insurance policy as well. 

@Cody Hahn I would trust @Steve Babiak's opinion on the audit issue since he has much more experience in the wholesale world. I do think it's a matter of time before the PA Department of Revenue starts looking for wholesale deals.

If I was a wholesaler and I used the assignment method, I would strongly consider paying the taxes. That’s in part because I'm a real-estate lawyer and I really can't feign ignorance of transfer-tax laws. So I would assume the Department would be happy to make an example out of me for deliberately not paying taxes. But more importantly, you are paying somewhere between 1 to 2% of the sale price (depending on how you structure the deal and where the deal is taking place). Hopefully that amount doesn't make or break your deal.

You can also use what people call the "option" method. For now, I think you can reasonably argue with a straight face that the option method doesn't trigger transfer taxes. But if it gets overused, I assume the Department will again modify the law to make it into a taxable event. 

Here is the basic issue. In Pennsylvania, you must pay realty transfer tax. As a general rule, assigning an agreement of sale is a taxable event. 

Now as a practical matter, PA Department of Revenue does not have the power to monitor all taxable events. So it typically relies on the property owners voluntarily reporting that a taxable event occurs.

Most wholesalers do not report their assignment of contract as a taxable event. So far I don't think Department of Revenue hasn't really pursued any wholesalers. But the risk is there.

Now if you the taxes, you have no worries. 

@Rick H. Below is a link to a memorandum that a big title insurance company sent to its settlement companies on this issue. As you can see, it's not that all tax sale deeds are unmarketable --- they just have to meet the underwriting standards. Tax sale involving deceased owners are an immediate red flag due to the fact that most counties simply do not have resources to conduct a proper heir search for judicial-tax sales. 

http://www.firstam.com/assets/pennattorneys/asset-...

@Jeanni Prescan The title-insurance company should give you a schedule of “exceptions.” Those are items the company will not insure for various reasons. I would review the schedule and ask two questions. First, will the title-insurance company insure the title with judicial-tax-sale issues as an exception? Second, will the buyer buy the property from you with such exception? If the answer to either question is “no,” then you will probably need a quiet-title action.

Now in my experience, @David Krulac is correct that PA title-insurance companies do not like to deviate from their underwriting standards. Perhaps out-of-state companies will feel different.

Now as David said, deceased owners can be trouble especially if they have many heirs. To use his example, let say there are 45 potential heirs and all the heirs are PA residents. If that’s correct, the sheriff’s costs alone (around $200 in the counties where I practice) will cost about $9,000. 

@Mags S. If the issue came up 20 years ago, you sold the home before the Real Estate Seller Disclosure Law ("RESDL") became the law. @Steve Babiak is correct that since RESDL, you must disclosure location of any "fuel tank." This is true regardless of whether you used the PAR approved form, or the minimum required form published by the State. 

Note that when your kids sell your home, they will need to disclose the underground tank. Of course, the law may change between now and then. :)