Legal Structure And Financing Question
I am a 21 year old college student. I have found a partner to buy student housing with. She is also a college student. My question is what is the best way to structure this venture. We are thinking of forming a LLC. We have the 20% downpayment money but minimal income and no assets for collateral. How can we get a mortgage in this situation without a parent/relative having to cosign? Is this possible? And what ae our best financing options then? Thank you very much.
The property is the asset. Get a commercial loan to do it. If you are going to vouch for your partner on the loan, make sure you plan on paying it off.
Working with partnerships is tricky. I would consult a lawyer, and state in the LLC that if any one of you are delinquent of their share of the mortgage, the other person can receive a Quit Claim Deed from the defaulting LLC member.
Even better yet, have the Quit Claim Deeds be handled by an attorney that pays the mortgage, that way all parties are protected.
Hey joel thanks for the help. I am a little confused though. We will be buying a duplex for our first purchase, is it possible to get a commercial loan on a residential property? Also for such a loan what is the dpwnpayment structure, will we have to put down more than 20%. Thank you.
Hi David,
The statute says MAY. It does not actually "require" that the memorandum be recorded. The ONLY thing that is recorded when you place your property in the land trust is the deed granting legal and equitable title to your Trustee -- period. The trust itself is never recorded.
I always retain 10% as an individual and assign 90% to my LLC. When it comes time to refi, you simply dismiss the trust, refi, then immediately reinstate your trust. I have never shown the bank any of my trust documents and never will.
If I have a tenant/beneficiary living in the property, I make him a beneficiary/owner of the trust. Any transfer that occurs is a transfer of personal property, not of real property. You must remember that the Trustee becomes the legal owner of the property and the trust controls it. The trust is personal property. My tenant is considered an owner by the IRS and is legally entitled to writeoff mortgage interest and property taxes, and to refi the property as an owner, and buy me out. Title company or bank objections just do not come into play.
I hope this addresses your concerns. Good luck to you.
Da Wiz
[ Edited by mtnwizard on Date 03/21/2006 ]
David,
You can tell the bank you wil go halfway with them. You will temporarily dismiss the trust and refi in your own name, but for business purposes INSIST upon taking title in your LLC -- The Lost Mountain Resort, LLC or whatever. You are entitled to take the entire 100% if you are Managing Partner.
One’s beneficiary interest (being intangible personal property versus real property) provides a high degree of protection against a judgment creditor’s partitioning of one party’s interest from that of another: thereby forcing the sale of part of the property or liquidating it and dividing the proceeds.
To best protect against such occurrence, it is highly advisable for land trust participants to hold their respective beneficiary interests in a Limited Liability entity such as, say, a Limited Partnership or a Limited Liability Company (LLC). In so doing, each beneficiary can then be free of concern about the misdeeds of the other (i.e., dealings that could otherwise easily involve the property’s title by either party’s creditor’s claims, tax liens, bankruptcy, legal actions in marital disputes, probate, etc.)
Hope this answers your concern. Good luck.
Da Wiz
Thank you for your response. We are now dealing directly with the broker. We are trying to talk to an attorney today. We know we most likely will have to follow through with closing and take a $3200 loss but I am trying to find out if I have any recourse with the listing agent. She did not give us any copies of our purchase and sales agreement till yesterday when we talked to her broker. We made a decision to sell based off her numbers she gave us in a net proceeds statement. They also gave us a copy of an older CCR that states there was pending assessments which we never got a copy of till yesterday. Just makes me want to scream. She knew of this assessment and chose not to disclose it to us so she could get this sale. Closing is on Tuesday. I appreciate that you took the time to respond to me. Thanks!
No problem. Let us know how it goes and good luck!
yeh_debbie
Per California Revenue and Taxation Code Section 62d, a change in ownership shall not include any transfer by the trustor(your mom), into a trust so long as (1) the transferor(your mom) is the present beneficiary of the trust, or (2) the trust is revocable by your mom. So since your mom was the grantor of the trust and is not the beneficiary of it, it appears to me that the property will be reassessed.
The way around reassessment would be to make your mom the beneficiary of the trust, then later have her assign her interest to you.