Creative Refi Or Fraud?

Here's the scenerio:

You purchase a property for cash in the name of a LLC that you own, you rehab it and rent it, and now you want your money out to move on....

Can you enter into a sales contract to sell it from the LLC you own to another LLC that you own, present the contact to the lender as a purchase, and get your cash back out? You would be sitting on both sides of the table at the closing, writing and recieving checks.

There are a couple of reasons that I want to do this, one is obviously that I want to get my cash back out, which shouldn't be a problem. Two is that I do my rehabs in one LLC name and hold rentals in different LLC's for asset protection.

Will it work and is it legal?

Comments(3)

  • Tedjr10th March, 2004

    If the LLC has the credit to borrow the money I would see no problems. Some lenders want seasoning of the previous owner of 6 months to a year. You may also just refinance and do a cash out and then sell to other LLC. You should be able to get the same rate and terms either way but may still run into seasoning issues.

    Good LUCK and Thank You
    Hope this helps some
    Ted Jr

  • telemon10th March, 2004

    Well,

    I have the credit and have to sign for the LLC. Both LLC's are in my name so I will also sign the sales contract as a seller and buyer.

    Many lenders only want to loan on what you pay for a property + the rehab costs, not giving you any credit for improving the value of the property ABOVE the cash you actually put in. For example:

    Purchase a property for 25k
    Rehab costs are 15k

    FMV of the property is now around 60k with comps available, but you only have 40k into it.

    Many banks only want to give you 80% of the 40k not the 60k. So, really what I am trying to do is circumvent their process by presenting it as a purchase with the Purchase price of 60k. This gets my initial investment out, 8k in my pocket, and positive cash flow for the rental in the new LLC.

    I can beat them over the head and get the 60k value on a refi, but I am trying to find a way to make everyones life easier, and take care of the transfer to the new LLC as a bonus.

  • rajwarrior10th March, 2004

    You'll likely run into the same problem even if you're going thru as a purchase.

    LLC A bought property for $25K. LLC B wants to buy property for $60K 2 months later. A lot of lenders will want you to show WHY the value of the property has improved so much in only 2 months.

    If everything is handled properly, you should have no fraud problems, as each LLC is considered a different entity.

    Loanwise, it sounds like you need to find some better lenders.

    Roger

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