All Forum Posts by: Jenifer Levini

@Account Closed I like the way you think. Unfortunately the State of California would never let the taxable event go by unnoticed. Its so obvious that every piece of property would be held in an LLC and taxes would never be raised again.

I had an entire discussion with my accountant trying to explain why this maneuver should be allowed a few years ago. 

Here's more info: https://www.boe.ca.gov/proptaxes/pdf/boe100b.pdf

@Timothy Metra

Hi, I read through your initial question but not all the answers here.

I'm an attorney. I want to help you change your thinking a little so it will be in line with how a court thinks. 

First, an LLC is an entity. Think of it like a person. A person is an entity too.

Now in your situation there are 4 entities: you and 3 LLCs. Each entity holds some assets and has different cash moving through. One entity can lend money to another, or give money to another. Each time money is transferred it is a taxable event. 

As long as you pay the taxes each time you take the cashflow out of each LLC, then there is no problem. Keeping fewer assets in each LLC so there is less to go after in case of a lawsuit is a good idea.

However it is important that you never intermingle your own money with an LLC's money. You must not pay for expenses related to the properties held in an LLC with either your personal account(s) or the accounts from any other LLC. Just keep the books completely clean and all monies separate and then your personal assets will be insulated. This is how all the big investors do it and grow rich. They form LLCs for each piece of property. They have a separate set of books for each property. They use the cash flow from each property to pay for itself then the excess is used to pay themselves.

In the situation where a bank calls the note, it depends on the terms of the note. Most banks require a personal guarantee when lending to an LLC. If this is the case, you are still on the hook, personally, for the loans.

Warmly, Jen the lawyer

Hi @Ashok Aletty, I'm a real estate attorney in the Bay Area. I help investors form LLCs, buy and sell properties, and with all of their legal issues. And I'm an investor too.

There are two answers to this question: The correct legal answer and the reality.

The correct legal answer is that once you form the LLC then you Quit Claim it from yourself to the LLC. When this is recorded the property is now owned by the LLC. According to the "Due on Sale" clause of your mortgage agreement the bank could call the loan and you would have to pay it back immediately. Then you would get another loan to the LLC at a higher interest rate, and also requiring a personal guarantee.

(By the way, the Operating Agreement of the LLC is very important in explaining how the land and mortgage are to be managed.)

The reality is that most banks do not have time to be hunting down changes of title. As long as the mortgage servicer is receiving checks every month, they seem to be happy. The checks can be coming from the account belonging to an LLC. As long as it references the mortgage number, they cash it.

If you need help forming your LLC or with any other legal issues please send me a private message and I'll send my contact info.

Warmly, Jen the lawyer

Hi @Steven Sierra, I'm a real estate attorney and I create the contracts that many of the wholesaler on here in California use. Each one is specific to the exact way that each wholesaler works. They each do things a little differently and that's reflected in the steps that are laid out in the contract. 

Once you figure out what youre doing, contact a local real estate attorney to create your generic contract for you to use over and over again.

Its good to have an attorney on your side. I can tell by your question that you are not fully aware of all the ways things can go wrong. And the professionals who pay for the good contracts are not going to give them to you.

"My two cents" from a lawyer.  @Rick H. was pointing out something you should consider - Quit Claim Deeds should only be used in a few very specific circumstances. In most cases you want to be sure to get a full Warranty Deed.

Spend an hour with a local real estate attorney to save yourself years of regret, before using a quit claim deed.

Jen the lawyer

Youre welcome. I'm glad CPA's jumped in to answer the tax questions. Their expertise is invaluable!!

Hi @Thomas Breedlove,

One of the greatest benefits of forming an LLC is the pass-through tax option. If you elect to be taxed as a corp, you are electing to pay taxes twice on the income. Why would you even consider that?

Jen the lawyer

Hi @David Marciano 

The thing that bothers me about your post is that it seems to ignore the property taxes that are accruing against the house. Is anyone paying those? If not, its likely the house will be foreclosed on and you'll lose this amazing property that has been in your family.

You'll want to get it in your name so all tax bills come to you, and for other reasons. The sooner the better so you can get a stepped up basis.

As @Jeff B. suggested, first get a title report to find out how much is due. if its already more than the value of the house, then your decision might be different. But if you want to keep this house, you cannot simply hide out and collect money. You have to become the legal owner. There are a lot of benefits to becoming the owner, including getting a mortgage.

After you have the title report go to a different attorney who specializes in real estate or probate and talk through whether you want to let this go or the begin the transfer process. 

If you continue to do nothing, the problem will be solved for you when it is sold at a foreclosure auction.

Hi @Johnny Yeung,

I'm a RE lawyer in California. Honestly, if I was you I'd hire a lawyer in Florida, if that's where all your properties are located. Forming entities in CA is really expensive. The state charges $800/year/entity. If Florida allows Series LLCs then you can do it for much less state fees. 

Just make sure you dont do any of your business in CA, otherwise you would have to pay state taxes and for entities here too. 

Good luck,

Jen the lawyer

Hi @Spencer Willhoit,

I am a California real estate attorney. I have clients in Long Beach. PM me to get contact info and to tell me what you need.

Thanks,

Jen the lawyer