Meeting W/ Buyers--need Advice
We are meeting with the potential buyers of our rehab tonight. We have a house that appraises for $77,500. We have about $67,000 in the house. They can pay $35,000 now and the rest in 6 months. They have verbally offered $80,000, but at our meeting tonight I am sure they are going to try lower that amount. How do you go about neogating the amount? We would take less than $80,000, but we don't want to go too low, but we don't want to be so set on amount that we lose the deal. When I talked to RE attorney, he said to get a contract before we had him do anything. I guess he is referring to an Offer & Acceptance. We have only dealt with deals with a RE agent. Do we have to provide all the required forms, such as lead paint disclosures, etc. or will the title company do that or do I need to get the RE attorney to do it. Thanks for any advice!!
They made the mistake of offering 80k, stick to it, do not appear needy, I would have the contract already written up for 80k.
If you have worked with a realtor before, ask them for the appropriate paperwork. If you've left them in good standing, they should have no problem with providing you with paperwork.
GL
A little more education is due. YOu are asking for someone to walk you through what they have spent time and money learning to do. I will answer a couple of questions for you.
1. No you don't want to be the trustee. This would void the benefits of the land trust by placing your name once again on the records. Get a relative (preferable in another state) with a different last name to be the trustee. You can then be appointed "co-trustee" to handle the day to day stuff.
2. YOu would deed your rental to the trust using preferrably a warrantee deed but you could also use a quitclaim.
3. I do it myself, most lawyers don't have a real good knowledge of the process unless they have done several.
4. Add the trust and the trustee as "additional insureds".
As to "how to" that would be too involved and I would have to send forms etc. etc. etc. and then explain how to use them. Find someone in your real estate club that knows the procedure, do something for them and their time and learn the process....
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I'll try and answer some. You are backwards on the trustee thing, unless you want to be the one that's name is public record, use yourself as the beneficiary, not the trustee. Better yet, use the LLC as the beneficiary and a lawyer as the trustee.
1) Don't know about michigan but there are many caveats to land trusts with the agreements, etc. I would buy a book.
2) A warranty deed means you are guaranteeing a clear title and that the past owner still has beneficial interest. A quit claim says I am simply getting the title to someone else and not guaranteeing anything, so, which one depends on your situation.
3) Back to number one, I would spend the $30 or so bucks and get a good book on land trusts for Michigan, a good one for Florida is by Mark Warda but don't know about Michigan
4) You want to have your LLC as an AdditionalInterest on the insurance. You also want to add the name of the land trust to your policy, I would keep your name on there though and try not to change it, again, may be difference in Michigan stuff
5) Either one or the other, I don't see a point in having a seperate land trust and a seperate LLC for each property. I prefer one LLC and a different land trust for each property but I know people argue this one. You cannot prevent people from suing you, just make it harder.
GL
The Land Trust was invented by Chicago Title and Trust a long time ago (don't remember the date right now and I'm too lazy to look it up). The idea was that politicians, who didn't particularly want their name appearing in the grantor/grantee index of a property that later got bought to build a school (or whatever)on could let CT&T stand in for them (as trustee under Trust Agreement ###) and thus keep a low profile. Subsequently courts ruled in some states that the Trust was a legal entitity and that therefore claims against the trust (the little old lady who fell and broke her hip because the porch steps were rotten) could not pass through the trust to the owners of the properties and their other assets.
In Illinois most decent sized banks have a Land Trust department. For $100 (more or less) a year they will be your trustee and will keep your name mostly out of the public eye.
Some states do not allow land trusts of this sort and so you put together a more general kind of trust. But where the land trust is legal it is a cheap and effective way to achieve annonymity and some asset protection.
All,
What additional value is there in having a land trust and LLC or just a LLC over a personal umbrella policy? Let the insurance co. fight your battles, instead of you hiring attorneys to protect your LLC.
Your name is on mortgage, unless you purchased the property using the LLC, so how much anonymity really is there? I'm curious how many people can use there LLC alone to purchase property? Your tax return will have the K1 form so they can tie you to the LLC.
Help me understand the benefits gained by a LLC and/or land trust compared to the cost and maintenance involved with them. Thanks.
RW,
The land trust gives you anonymity. That is why you don't want to be the trustee. The LLC gives you Asset protection. Insurance in the form of an umbrella policy gives a litigous claimant a target - a chunk of money that is not yours.
Hi bnorton,
I agree with everything you just said, however, I believe there are holes. Lets say you're a member or manager of a LLC. The LLC is the beneficiary to many land trusts that hold real estate. You're receiving distributions from the LLC to live off of.
Scenario 1:
If someone sues you, they will see you're receiving distributions from a LLC, because it's on your tax return. Will this not leave you vulnerable to judgements against your distributions? How do you avoid this predicament?
Scenario 2:
If someone slips and falls on one of your properties and the owner of the property is the land trust, not you. In this scenario I believe the limited liability would be effective to protect the assets you personally own. Only the assests in the land trust would be at risk. In this case wouldn't it make sense to obtain a heloc to 100% of the appraised value so that the property has no equity?
Your thoughts...
Rwbemb,
Scenario 1. You are correct. If someone is suing you personally, they can go right down through the chain and theoretically get everything. The solution to this is a combination of a revocable living trust, and a family limited partnership. These devices if applied appropriately can be used to limit your risk of being personally sued. In addition, it is also important to have that umbrella policy as an easy target.
Scenario 2. What you are talking about is called equity stripping. It is a very effective tool for protecting your assets because the first, second . . . mortgagees get paid before any judgements are paid. It is important to structure your equity stripping carefully. Make sure you have a good attorney helping you with this.
great thread ...
so let's assume that I only want to use Land Trust to protect my name. Then I want to rent the place out to tenants.
On the lease agreement with the tenants, I still have to put my name down not the trust and therefore, the tenants now know who the landlord(me) is. Is that correct?
Why would you want to do that?
pampammer
I believe you would put down the LLC as the landlord and have tenants write their checks out to the LLC. Remember, you no longer own the property.
In any land trust the beneficiary/ies is/are the landlord. Landlording (managment) cannot be turned over to a paid entity. Doing so would constitute characterization as a homeowners association, and be taxed corporately (failing the trust).
As othrs have said, If your LLC is the beneficiary, then checks should be written to it.
Bill
Just gotta pick a nit a little here:
C'King says Land Trust was "invented" by ChiTitle...but as he knows, the trust, as a holding device that woulld outlive a life or two, and avoid jillions of bucks worth of probate expense and oodles of time, has been around for hundreds of years.
Trusts have been used for generations, actually several centuries now, by such folk as DuPonts, Mellons, Rockefellers,
Rothschilds, Fords, et al, and long predated the US of A.
The trust to which C'King alludes, I'm thinking, is the IL Land Trust, which is a somewhat specializd kind of animal, and is a critter of statute in the Land of Lincoln.
But the good ol' common law, contractual trust, is alive and well in all states and has been for a long time.
The new Uniform Trust Acts that have been adopted by some states are changing the landscape a little bit, in that they are mandating FULL DISCLOSURE of beneficiaries, etc.
For this reason the UTA is being challenged and in some cases being UNDONE stautorily in some of the states that have heretofore adopted the UTA.
Before ANY REI goes too deep into formation of any new trust in his/her state, he/she needs to inquire as to whether his/her new trust would have to be under those guidelines.
If so, he/she might prefer some other route, as some of us might not want full disclosure of who owns & benefits from our trusts.
I know I sure don't want the world knowing who my trust's beneficiaries are!
If I might add a thought or two here. I have read the guru's books, and tried to set up a Land Trust in PA, and was told by multiple attorneys that this was NOT a good idea in PA (my home state). Since I wanted privacy as well as asset protection, it was recommended to me that I form a Limited Partnership to be the OWNER of the properties. My wife is the 99% limited partner in the LP, and a newly created LLC is the 1% general partner. I own 100% of the LLC. This structure seems to work fairly well for privacy (although anyone on a mission could find who I am), and I hope I never have to find out if it works for the asset protection (but, since I, personally, am "lending" my cash to the LP to buy the properties, I have stripped the equity on each by filing a lien against the LP's properties).
However, something to think about before entering into this type of arrangement... my tax return cost over $3000 to prepare this year, which was twice the normal cost!!! I think that, if I had to do it over again, I would simply file a fictitious name registration, and simply buy insurance to cover the asset, since this would be MUCH cheaper, and would give me representation in the event i ever got sued. I am not recommending one way over the other, I am simply attempting to open the eyes of people who may be considering the same/similar road I have taken. My motto... "Learn from the mistakes of others, since life is too short to make them all yourself" Good luck to all!
Jeff M
And what are you going to do when the claim exceeds your insurance? Even if you win in court, you are still out the cost of representation. You risk losing everything.
I will weigh in on the lawsuit side with trusts and an LLC holding beneficial interest.
Especially when they are paying taxes on the amount that they have a charging order for and can't get any money to pay them with.... Bill Bronchick goes into great detail about this..
Yes you are protected and no you don't need family limitied trusts etc. etc. etc.
With an LLC a charging order cannot force the manager to distribute funds. Additionally, your creditor cannot make himself a member of your LLC. So if I owned an apartment building, someone slipped and sued me and got an order. I would let the money pile up inside my LLC for a couple of years using it to do repairs and makeovers etc. By the time they realized they weren't going to get anything they might settle for 10%
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JMattero,
You have gotten it from 2 sources now. The ficticious name idea with insurance will not protect your assets.
Stock,
Are you saying charging orders in an LLC have the same phantom income risk as they do with an LP?
All information is education and education is never a bad thing. The one important aspect of the Illinois-type land trust is that it is in fact accepted in all states, even Louisiana and Tennessee (...its just that those two states don't see it any more than a grantors trust with a line on the property).
The "Illinois land trust" is a trust form that is authorized by specific statute in nine U.S. states (Alabama, Florida., Georgia, Hawaii, Illinois, Indiana, No. Dakota, Ohio and Virginia…and authorized by cases in some 20 others.
Although without specific statute, or authority per se, the land trust model is acceptable in all states and acceptable in all others including La. and Tn. Assuming 1) there is no prohibition of land trusts in a states Statute of Uses, 2) the states fully accepts the Doctrines of Merger and Equitable Conversion, and 3) the state accepts the basis precepts of inter vivos, land, nominee or title-holding residential trusts.
The land trust is not unique to Illinois, its present form was merely initiated there by Chi Title for the benefit of a favored client (a Mr. Capone, it is said, who needed to get his name off title and hide his real estates assets).
Re. PENNSYLVANIA there is a lot of controversy there over the use of land trusts, but mostly by attorneys and REI gurus who have their own agenda and products and services to sell and who feel threatened by the land trust concept.
To wit:
PENNSYLVANIA No specific land trust authority, but functional by the land trust's exclusion from prohibitions within trust and land use regulations (See DCCA §45-1101 and e.g., Kyner v. Hershey, 14 Cumb. 61(Pa Common Pleas 1963); Estate of Evanich, 10 Pa. D&C.3d 226 (1979)
In order to avoid characterization as a passive or dry (or “failed”) trust, a Pennsylvania land trust trustee must have control over collection of rents, payment of taxes and management of the property…along with holding the property’s legal and equitable title.
Note that in Pennsylvania, a transfer of a property into a land trust, even for one's own benefit "may” be subject to transfer taxation (up to 3.75% of the transfer value of a property. However, note as well that transfer into an inter vivos trust (such as is the land trust) for estate planning purposes is done without a transfer basis (sale price), and without “business intent.” Such a transfer for estate planning purposes by a homeowner who would subsequently, perhaps weeks or months later, appoint a co-beneficiary might (“could possibly”) escape the imposition of transfer taxation if the original trustee were the owner of record him/herself (trusteeship to later be silently assigned to a third party).
This avoidance of conveyance tax would be due to the fact that no money is changing hands (at that point), and that there has been no sale of, or divestiture of ownership in the property per se, other than the vesting the title with a trustee for the benefit of the owner of record (See Section 9503(c) of the Pennsylvania State Business Trust Law. See also HB 134, 1997, Act No. 7, which essentially states that, “…as of 11/1/98 business entities of any type must all pay capital stock taxes at a minimum amount of $300 per-year.” In this context the question arises as to whether a simple inter vivos, estate-planning tool such as a title-holding trust, is in fact in any manner a “business entity.” All subsequent documentation comprising the land trust remains private, anonymous and forever unrecorded.
Note also that Pennsylvania law in general requires some specific termination activities for various business trusts and a termination filing-fee of $50 or so ($53 at this writing). However, in that a land trust is, in and of itself, purely designated to hold an asset for a specific period of time and not a business trust, the expiration of the trust automatically brings about its termination, thereby, logically by-passing the transfer tax requirements until the title is vested in other than the owner of record or its trustee.
Note: The foregoing information is offered for one’s thoughtful consideration, only as a “reasonable (possible) solution” to a common problem among Pennsylvanians. Check with an attorney knowledgeable in such matters before attempting to implement or rely upon these concepts. Although several local attorneys have been informally consulted on this issue, and were favorably disposed to this solution, there still are no definitive official opinions offered, and to date no opinion by any Pennsylvania state taxing official has been sought on the issue..
I agree that genuine asset protection is accomplished by having an LLC as the beneficiary of a land trust. But then, why involve a land trust at all? It is easy to set up LLCs that have other entities as the owners, your name need not be associated w/ an LLC or FLP nor a matter of public record. A land trust has serious drawbacks, among them 1) difficult to refi since the trustees are usually banks who won’t execute the necessary documents, and 2) 1031 exchanges are no longer an option for the beneficiary of a land trust. “Asset protection” plans which rely solely on anonymity work great until a serious legal challenge. As Bill Gatten said himself in these pages on 9/18/04;
“Regarding the asset protection angle, remember that a land trust within itself will not protect anyone from anything…it can only hide the asset in question from the prying eyes of the public. However, a diligent lawyer can go though various machinations to find out who the trustee is, deposit that person or entity and force them to reveal the names of the beneficiaries. The next step would then be to sue the beneficiaries, get a line on their beneficiary interest and force the disposition of the property to make judgment creditors whole.”
"DEFUGALTY" is not in my dictionary. Internet research states it is sometimes used in orally but seldom in writing. Jury is still out on whether academia will accept it as a word to define "conflict".
4KASH:
Doesn't it get rather expensive to set up all of these LLCs you are talking about? I am a newbie, but in my research in setting up an LLC, the total cost (not including lawyer's fees for making sure the partnerhip details are correct) is anywhere from $500-750, depending on the state of incorporation. Plus about $125 for each RE Agent in each state you are doing business. And we haven't even gotten into the cost of hiring someone to do all of the taxes for all of these LLCs.
I realize this method provides more asset protection, but when do the benefits truly outweigh the additional costs? What is "too much equity"--is this in the eyes of the beholder or is there a formulation?
Thanks for any insight into this confusing topic of a LLC & land trusts vs multiple LLCs.
Three LLCs and one FLP will suffice. In Nevada LLC fees are very reasonable. (In California, the annual tax is $800.00 each!). Aside from 6 or 7 free consultations with asset protection attorneys and some books, there is no need for an attorney to set up an LLC. In Nevada the filing it is two pages total. An equity reduction program involving equity stripping allows you to safely put multiple properties into an LLC because any equity will not be available to judgment creditors. The 1% general partner of the FLP can be an LLC w/o assets and not involved in a risk producing venture. The other LLCs are then conveyed to the FLP. The book mentioned in the link below is free and very informative. For instance, the author’s details in the chapter called “how anyone can find out what you own” gives actual case histories that his law firm conducted using asset search specialists who successfully found supposedly “secure” assets very quickly. Most of the hardcore evidence did not come from public record searches. The resident agent can be you, a friend, another LLC, etc. This costs nothing. Of course, that entity must be physically located in the state where the LLC is formed. All references here regarding LLCs/LPs means businesses with bank accounts, EINs, business licenses, etc. The only tax form the IRS requires for an LLC or LP is a very brief #1065, again two pages.
http://www.rjmintz.com/equity_stripping.html
What is wrong with this plan...Set up a new single member LLC (only $50 here in MI) for each property and have one "Parent" LLC be the single member of each one. This way when you sell you could sell 100% of the member rights (possibly avoid transfer taxes?) and be done with it. I don't like the idea of having all these individual LLC's just sitting out there holding property. Seems like finances could easily get messed up. If they were all together, or had the same parent LLC then you would only need one bank account no matter how many more LLC's you set up. One credit/debit card to pay for ANY property. One EIN number to apply for to get bank account. Only one set of financial records to keep since all the other child LLC's income would pass through to the parent. Correct? Then if at a later date it is decided a land trust is needed then the structure would already be in place and you could pick and choose which child LLC would be beneficiary.
ATTORNEY, I would like to hire an attorney to form a LLC and maybe a land trust I'm located in New York. I am doing a 1031 exchange from NY to Miami (condo)
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