All Forum Posts by: Edward Schenkel

 @Steve Fitzgerald, this is a somewhat complicated question and I will need to consult with my trust and estates department next week. I would like you to give me a call next week to discuss further. However, I will give you my general thoughts. With respect to your first question, a trust can be set up where you name a trustee and then a successor trustee. You will need to clearly set forth the circumstances that allow or trigger the transition of a new trustee. The mechanics and specifics of this are really a question for my trusts and estates department, so I will check with them for you. 

With respect to your second question, it is a good question and I am not sure off the top of my head. I would think a trust insulates a trustee with the same protection as a LLC but to be honest, I have never been asked that question and it has never came up in my practice both in litigation or closings. The safest thing to do is simply create a LLC where the trust is the sole member. But you have peaked my curiosity and I will take a closer look for when we talk.

With respect to your third question, I cannot comment without examining the exact insurance policy but insurance is one level of protection. Insurance coupled with a LLC set up will allow you the benefit of more protection. Sometimes, insurance companies do not do what they are supposed to do in terms of covering a claim so it is better to also have the LLC set up an additional layer of protection.

Please give me a call to talk further. 

 @Cody Evans, since I am not familiar with CA law and not licensed there, I cannot give you any advice that is directly applicable but I may have some useful general thoughts. I will say that if you sign a contract for a home that is in foreclosure and you intend to sell/assign the contract, think about what may happen if you cannot sell/assign the contract. If you can do the deal you want and get out quickly, you are likely fine and can make a quick few bucks. But, what if you are stuck with the contract and must purchase the property? I would assume the contract is subject to the lien being foreclosed on. Then, if you cannot flip the contract so to speak, you will be stuck with an obligation to purchase a property in foreclosure. Then you will need to try to work something out with the foreclosing bank or face losing the property in foreclosure. You can also not perform, but that could be a headache and you could face a potential lawsuit. 

One thing you should think about (and go over with a California attorney) is drafting the wholesale contract in a way that gives you a backdoor out if you cannot sell/assign the contract. For example, maybe think about a provision that gives you a way out of the contract if you cannot work out a short sale with the bank for $X. That way, if you cannot sell/assign the contract and then cannot work out the deal you want with the foreclosing bank, you can get out of the contract cleanly. 

So my overall thoughts are draft the contract in a way that protects you and think ahead with the following question - what if you cannot wholesale the contract? Think about all the what ifs before you sign anything. 

 @Alex Dem, I have actually not encountered any foreclosures involving these types of companies that purchase municipal tax liens but I am definitely familiar with them. Although I do not think this issue has ever been raised or decided by a court, these purchased liens are treated with the same priority that municipal tax liens have the benefit of. I would think that there should be something on the land records recorded reflecting that the tax lien has been assigned to the company, but sometimes things that should be recorded are not. I think if you want to be safe so you know what you are getting into before you bid you can do one of the following: 1) Call the committee attorney and ask him if he or she has any knowledge of the tax liens being sold or assigned. 2) call the tax collector of the town or go down to the tax collector's office and get all of the information.

As a potential bidder, you don't want to be faced with any surprises after you are the successful bidder! Definitely do your due diligence. 

@Cathie Kovacs, good question. I would recommend the two separate LLCs - one for each individual property. That way, each LLC is capped from liability at the value of the property it holds. Therefore, if, for example, a tenant has a guest who slips and falls at the first property and sues the owner of that property, LLC1, the maximum exposure would be the property held by LLC1. If both properties were held by the same LLC, then the plaintiff in that slip and fall could go after both properties.

My advice is from a purely legal perspective to insulate you and your LLCs from potential liability. There may very well be an accounting reason to set up a parent LLC, but I highly doubt it. Also, connecting the LLCs in any shape or form (for example, through a parent company) is a bad idea. You will give a clever Plaintiff's lawyer ammunition to try to go after the other property. I think it is still worth asking an accountant his or her opinion but from a legal perspective, my opinion is no parent.

 @Chris Cannon, @Remigio M. had a good response. The bank will typically put in a bid that will cover their lien. In theory, the bank could put in a lower bid than their lien for the starting bid. I would think the bank would then be submitting a bid that is the minimum they would accept for to pay off their lien. However,  the bank's bid is typically the amount of their lien so they are paid off by the sale. 

Conversely, I have seem some rare situations where the bank wants the property and bids higher than its lien. This is usually not a typical bank, but perhaps a hedge fund or investors who bought the lien during the foreclosure for example. Then, after the highest bid was accepted, anything above the bank's lien would go to either the borrower who is in foreclosure or lienholders that are subsequent in right. 

In theory, the bank does not have to bid. I have never seen this, but in theory the property could be so bad (maybe contaminated) the bank does not want it. If, at the auction, no bids to cover the bank's lien are received, and the bank does not have any bid in, it is a good question what happens next. I am making an educated guess that the Court will either order a new sale date or award the property to the bidder who bid less than the bank. Again, I have never seen an auction though where the bank did not bid the amount of its lien. 

Hey BP, great questions everyone is asking. I will get to these in the next couple of days. I am with my family for thanksgiving break and am working from my phone only today. Happy thanksgiving to the BP community!

@Steve Fitzgerald, Just to clarify your question. When you said, "I'm going to have an LLC that I'll start as the beneficiary as well as probably my kids," is this the same LLC you intend to make the beneficiary of the trust or a different LLC?

 @Chris Cannon, I would be happy to answer any questions. I will give you a brief summary of how liens work with foreclosures. In Connecticut, there are two primary types of foreclosure in CT - Strict foreclosure and foreclosure by sale. The foreclosure by sale is more common in other states and the strict foreclosure is somewhat unique Connecticut, so I will first discuss foreclosure by sale and then strict foreclosure.

FORECLOSURE BY SALE.  If there is equity in the property, then the Court will order a foreclosure by sale. However, this is only after the borrower is given a chance to assert defenses and litigate his/her defenses if applicable. After the borrower is given a chance to assert defenses and those defenses are dismissed, the Court will order a judgment by foreclosure sale which is essentially an auction date. 

Let's walk through an example. Let's say the bank has a 100,000 mortgage (first mortgage) on the property and the property appraised at 200k. Lets say there is a tax lien for 10k, a second mortgage in the amount of 25k (second mortgage) that was recorded after the first mortgage, and a judgment lien of $5k that was recorded before both mortgages. All real estate tax liens get a priority over the mortgages. so the order of liens in this example is 1) tax lien; 2) judgment lien 3) first mortgage, the foreclosing mortgage and 4) second mortgage. 

At auction, anyone can bid. Typically, the foreclosing party must be paid off (and all other costs paid such as legal fees). The foreclosing party will enter a bid of its lien plus its costs typically, so the winning bidder has at minimum to pay off the foreclosing party's lien. So let's say I bid $125,000 and I am the successful bidder. 

I will be able to close on the property after the auction (provided there is no appeal). I will take title with tax lien and the judgment lien still on the property because they were PRIOR in right to the foreclosing mortgage (first mortgage). Since they were recorded before the first mortgage (and the tax lien gets priority automatically) they are still on the property after the auction and the closing, and you have to deal with them. However, since the second mortgage was subsequent in right, meaning recorded after the first mortgage, it is extinguished, and it has no right to look to the property to get paid (the second bank can still however sue the borrower but not your problem). 

STRICT FORECLOSURE is ordered when there is no equity in the property or the property is underwater. Instead of an auction date, every lien holder subsequent in right to the foreclosing party will get something called a law day. The owner will also get a law day. So in this example, the owner and the second bank will get law days. On that party's law date, they will get an opportunity to pay off the foreclosing party and take title to the property subject to the other liens that are prior to it. If neither the second bank nor the owner redeem, the first bank (foreclosing bank) gets the property but the tax lien and the judgment lien will remain on the property. 

Any questions? I know it is not easy, foreclosure law can get complex. 

@

You have the right to start to the eviction process on the 11th of the month if the rent is due on the first. The Connecticut administrative regulations (and many leases) provide a 10 day grace period. The first step is the notice to quit, as mentioned by a number of the posts above.

You ask an interesting question about what about the situation where it is postmarked the 9th and you receive it a week letter. I think it depends on the language in the lease. You should make clear it has to be received by due date, not sent. There is a general contract rule that a judge could apply in the absence of any clear guidance in the lease - that notice is effectively given when sent. This is to account for potential mail delays when not the sender's fault. A judge could use this rule or maybe not. It probably depends on the judge. 

I would make it clear in the lease that rent must be received by the due date so you have a stronger argument if this issue were put before the judge. I think on a practical level, I would send the tenant a note reminding them it is due on the first - not mailed by that date. I think it would be very hard to convince a judge to evict if the tenant is always a day or two late. 

Also, BP here is something VERY IMPORTANT. If the tenant does not pay the rent, and then you start the eviction process, and then they send in the rent, do not accept the rent if your goal is to get them out as soon as possible. Acceptance of late rent after the eviction will create a new lease by law and you will have to start the eviction process over. This can be prevented if you have special language in the Notice to Quit, which language IS NOT included on the form on the judicial website. Be careful. I will post something soon about tips for a good notice to quit and avoiding problems. 

I am going to post a tip in one of the following three categories:

Contracts

Leases

Zoning Issues

Foreclosure

Does anyone have any preference? I have lots to share about all four topics but BP can choose what topic I should I write about next.

Ed