Invest Like the Wealthy and Wise

When a judgment is won against a person for a particular amount, the first choice is cash. The next choice would be the quick sale value of real estate, including forcing foreclosure on your home. One of my colleagues still does this work to this day and while he does not enjoy having people removed from their homes, he has to get paid along with his client and that means every asset is up for grabs.

If the bank and other friendly creditors own the property then there is nothing to turn over. At the end of the day, the creditor or their counsel is looking for how much equity you have in the home.

If you are in business or have a sizable estate, you may want to keep your equity lean so that it is off the negotiation table. Stripping equity makes sense on so many accounts. First, we’ve all heard the cliché that it is unwise to have all your eggs in one basket. Why? Because if you drop the basket with all your eggs they are all finished. The old adage is not just for the sake of it but is a wise wealth-making concept. Do you think the folks in Laguna Beach whose homes slide down the side of the hill were better off if the home was completely paid or outside of that home earning interest somewhere or invested in another piece of property? I hope the answer is obvious to you that you would want it outside of that now demolished home so that you had access to it.

Where should I put it you ask? Many readers are using real estate in multiple jurisdictions and this makes sense. You should not keep more than 10% of your equity in the properties unless that would not pencil out properly in having the renter cover your loan. The other significant asset many clients are using is savings grade life insurance because this contract can be structured to not provide for creditors of the beneficiary during a period when you are under attack. You can also put a large amount into a single premium immediate annuity (SPIA) that is irrevocable and you divest your control over it while it pays directly to the insurance company to fund your tax-advantaged savings account, better known as the investment grade life insurance.

If you’re not sure about investments, you can also get personal equity lines from family and friendly companies. A good idea is to get a loan from family members, create a functional promissory not that has flexible payments and higher interest rate for the premium of having the flexibility e.g., pay in lump sum 5 years from now. Then they put a deed of trust on the property and that encumbers a portion of the equity.

This process involves:

A friendly third party that holds a lien on your property.  This friendly party may be a corporation, which you control.  The “friendly” corporation places liens against your real estate and other immovable assets to strip the valuable equity.

HIGH ASSET PROFILE

Before:

Appraised Value $200,000

- $40,000/Mortgage             

+ $160,000 = Equity (at risk)

Now this same asset with an equity strip.

After:

Appraised Value $200,000

- $40,000/Mortgage

- $150,000/ Lien

+ $10,000 = Equity

Real estate is immovable.  Therefore, there are specific challenges to reducing the amount of equity accessible to abusive creditors.  We reduce the equity, through equity stripping.

This process works wonders along with a Delaware Series LLC because you can have a property seeded in one of the Series and another Series that has its own bank account and name as a creditor on the property with a filed deed of trust on the property. You have to create a credible document to substantiate the financial substance but this is done all the time with businesses and real property to keep the ownership reduced.

What if I lose a case and a creditor finds out I control the entity that has a lien against the property. This is one of the little risks but is difficult to lose as long as you run your entity like it has a real business purpose and respect the transaction like it is a true arm’s length dealing.

You can always use a global solution as many of my clients have using a foreign bank to take out up to 90% of the available equity and then settling the money on a trust that has an agreement with the bank to oversee it. The capital never transfers out of the jurisdiction, costs about 1.5% per year on the loan amount to maintain, offers a rate of return on the CD that offsets other fees so it is a wash but it protects property like nobody’s business. There are so many interesting ways to provide for estate taxes, create wealth abroad that is legitimate and protects the money that we can explain them all in this article but we invite any of Rick Stuart’s readers to request an appointment if they have any concerns in their financial and estate planning strategy. Even that little hairline fracture left untreated over time can have cataclysmic results in your financial planning structure.

James Burns

Law Office of James Burns

Is Advanta in Breach of Contract on Credit Cards?

As of July 30, 2009 - Advanta Bank Corp. stated that they were closing all business credit card accounts. They cited in the letters that went out that an independent trust which owned the balances cards and provides funding for new transactions was pulling out. As such, you need to keeping paying your balance but Advanta will be unable to provide further credit.

Now under basic contract law which is the thread between your agreement with credit card companies there is an offer, acceptance and consideration. Advanta offered me credit and I accepted and the consideration is the the act of providing credit with my obligation to pay it back with interest. Now, as a result of Advanta losing a trust that was funding these, they suddenly are in breach in my mind and as a result, they are asking me to modify my agreement without new consideration which is a requirement to modify the terms of any agreement.

A breach occurs when the bargained-for exchange is not honored by the other party, in this case Advanta Bank Corp. I believe I’m entitled to an order of performance which is the extension of credit otherwise what incentive do I have to pay back any balance on this card? They have not offered me additional consideration like to pay less or go without interest and I think this is not only a breach but unconscionable that Advanta could not act it good faith and fair dealing and assumes the public is stupid and unaware of their rights.

I implore all consumers, if your card is cut off please get a copy of your original agreement and all addendum and see if they have the ability to do this or take the credit card company to arbitration since they make that a part of the agreement. I intend to call and get my card settled for a lot less since they are in non-performance and breaching their agreement.

Wake up and take back your power and let them know you’re not going to be insulted and slapped around any longer. Chime in and let us know about your credit card stink by leaving a message below.

Sincerely,

James Burns, Esq.

Guaranteed Modification

A lot of people tell me about companies that offer a guarantee for modification services and my reply  is: “who do you know that has called them on it?” There is usually dead silence because how good is a guarantee? It is only as good as a company is prepared to honor it so examine all the small print. There are not many companies that can afford to expend resources on a modification win or lose and not get compensated.

From the law office standpoint I liken it to the same set of circumstances as if I was to represent a person in court, I cannot guarantee the outcome and to do so is unethical because you, the client might not give me all the facts or can withhold information about trying to do it on your own previously and then we try and encounter huge obstacles. I’ve had clients that did their own submissions and failed (because they gave too much or wrong information) and they don’t tell us and then we meet with resistance. Now we’ve been able to get them through but because this happens there is no way to guarantee the outcome and we expend thousands of dollars of time and effort in each case so we just cannot offer a refund. Our guarantee is best efforts and if your situation is modifiable you’ll get modified and we don’t even need to go there about rejection and if that happens, maybe it is exactly what needs to happen because not only does the person not qualify for the home now, they won’t be able to afford it with any program so they should think short sale and move on. Many properties will not make sense and most banks do not offer a principal reduction because they cannot get permission from their investors to eat that much of their expected profits. The old adage of when does a negative -30 + 43 = 0 and that is any time the market goes down 30% it has to get back to 43% just to put you back where you were before it dropped.  I see many instances where the properties are down 50% and the borrower might now recover the home value in their life time and getting out with a short sale really makes financial sense.

On the fees, if you’re using a law firm and they are going to give it to you for a fixed fee, grab that and run if it is around $3,000 to $4,000. When I was at a law firm we had software that started to calculate our hourly from the time the phone was picked up until we hung it up and we were taught to keep the client on the phone and run it up. Every fax that went out was $1.00 per page and every photo-copy was .30 cents per page.  The hourly of an experienced real estate or finance attorney is going to be $375.00 per hour or more and they may have processors or paralegals that are going to be $100 to $150 per hour. When you average 40 to 100 hours per file you are going to get your money’s worth because it takes hour upon hour and constant follow-up with the banks…more than most people who work will every have. I can’t see a modification starting out less than $5,500 under typical law firm billing and the client could expect to get a back-end invoice for about the same because of the time and expenses for faxing, photo-copying and FedEx that takes place. Therefore, a completed modification would normally be upwards of $10,000 by the time it is done. Grab a modification for a fixed $3,000 to $4,000 because it is a super deal.

You can always go to a non-lawyer but you are really putting yourself in a position to have your documents used against you since a broker or any other helper cannot afford you the attorney/client privilege. You need to make sure your submission is not used as a smoking gun against you especially if you were a stated income loan and you and your broker or loan officer expanded your income for the purpose of qualifying on the loan.

If you want solid assistance at a fixed legal fee price, please contact my office.

Sincerely,

James Burns, Esq.

“Buying Foreclosure Without the Exposure”

Start your retirement planning early

Real estate investing is exciting because we get the opportunity to use wealth pillars like leverage which allows ordinary people the ability to considerable wealth in a short time; I know because I’ve seen it happen. Another exciting aspect is there are always opportunities to make strong returns, regardless of how the market is doing and right now that is especially true as we bear witness to hundreds of thousands of foreclosure nationally per month. But like other forms of investments, real estate investing takes discipline, education and smart decision making to become successful. I’ve met with clients who made impulse purchases and the result is usually disaster.

There are fundamentally at least eleven reasons why real estate deals are always available no matter what the real estate market is doing. There is no magic here, just human circumstances that create opportunity if you know how to look for them.

1. Divorce
2. Job loss
3. Job relocation
4. Bankruptcy
5. Health problems
6. Incarceration
7. Reduced income – market conditions
8. Death
9. Failed business
10. Military duty or activation
11. Adjustable rate mortgages – on stated income that was unreal

Right now all eleven of these personal circumstances are widespread since American is in two military conflicts, unemployment expands monthly, record business failures and layoffs and numerous professional incomes reduced due to market conditions. In my own practice of modifying loans I see that there was a serious abuse of the stated income loan that has now come to boil and are popping left and right leaving folks unable to make the payments. The inability to make adjusted payments should be no surprise as there was no way for them to ever afford the home with their current income.

Enter the REO. An REO (real-estate-owned) is a form of distressed property and is similar to buying a short sale (sale of a home for less than the owner owed), except the property is already back in the possession of the lender or bank through the foreclosure process. In an REO situation the banks end up owning the property when no one bids to cover the amount owed against the property at a public auction. REO homes are often considered the best way to buy a distressed property because the seller is already out of the picture. It’s just the investor or their agent, the bank or the bank’s agent negotiating the transaction. Some REOs can be purchased directly from the lender for pennies on the dollar especially for those who can buy them in bulk. However, if you combine the purchase of an REO with a system for investing where you don’t have to do anything but collect your checks then you can leverage your time and resources to make and find more opportunities.

Normally REOs are purchased on what is referred to as tapes and the more money you have to spend the better the tape but on these large tapes there are the good, the bad and the ugly which are properties that you wouldn’t want because the fix up costs eat into the profits. Also, to get really good deals or the actual pennies on the dollar you have to come in with millions if not billions the way the hedge funds do who typically have purchased most of the good deals by the time the individual investors or small investor pools can get a hold of the REOs. Nevertheless, there is an old fashion way of acquiring these properties if you have the time to fly all over to numerous states and get into the underground or you can rely on a systematized approach to investing in this distressed market where you’re able to not only get all good properties (bedroom communities), the system operators actually cherry pick and buy properties that are livable, fix them up bring you not only positive monthly cash flow from your systematized property but also has built-in exit strategies that put a cash windfall on top of your positive cash flow.

All the most successful business in America follows a system. Once you have real estate you are in business in a sense, you’ve become a real estate entrepreneur and why wouldn’t you want a system to take care of your investing? To make sure we understand what a system is specifically here is a great definition: System (from Latin systma, in turn from Greek systma) is a set of interacting or interdependent relationships, real or abstract, forming an integrated whole. The concept of an ‘integrated whole’ can also be stated in terms of a system embodying a set of relationships which are differentiated from relationships of the set to other elements, and from relationships between an element of the set and elements not a part of the relational regime.[i] Now this is just a very technical way of saying things that work together or “special sauce” if we were to look at Kentucky Fried Chicken (KFC™).

The system works like this, you buy the property, management places a new buyer in the home that will pay you the going rate for rent is in the area as their new mortgage payment to you, and you’ve just become the bank. For example, say rents at the local apartment are $500 and you only make $1,000 to $1,500 net after taxes. If I came up to you and said hey, “how would you like to own a home for $500 down and $500 per month,” the same you’re paying right now in rent, what would the reasonable person do? They are going to want to own and you have them on a land contract, no landlord/tenant relationship here so you don’t fix sinks, toilets or anything else…it is their home. You just hold this contract like the bank and are akin to the note which is reverse engineered at $500 at 10% time 10 years amortized. Did you get a deal? Of course you did and until this person repairs their credit so did they because we made it affordable just like a car dealer would…it’s all about the payment.

Management collects your $500 per month minus a 10% servicing fee for collecting and disbursing your money and making a website available to you on line where you can manage your property and check on it and see pictures both interior and exterior.

The lynchpin in this type of investing is the land contract. A land contract (sometimes known as a “contract for deed” or an “installment sale agreement”) is an agreement between the owner of a property and a person who wants to buy the property for an agreed-upon purchase price.

What are the Benefits of using the land contract you might ask? Well, there are plenty but they include, not having to fix anything, you don’t pay taxes or insurance, payments are predetermined and there are minimal liabilities (asset protection).

Finally, for the first time you have multiple exit-strategies inherent in your real property investment. I usually ask real estate investors that come in to my office two questions - #1 what is the exit strategy? And #2 did you buy retail, wholesale or discount? In both cases they give me a look like I spoke a foreign language at them. In this system these two threshold concerns are integrated because you have the exit strategies and you are definitely buying discount.

You or your new buyer could choose to refinance as it behooves them to get conventional financing which may be lower than structured in your land contract. For example, if you had an investment entry point of $23,900 and a $37,900 sales price fixed in your land contract. After a year of timely and seasoned payments the land contract Buyer’s credit is restored. Buyer can refinance property to lower interest rate and cashes out your $37,900 note which creates a high return on investment (ROI).

Alternatively, since you own this note you might choose to sell it to a note buyer. For example if you have an investment of $29,900 which you sold for $90,000 ($500 down@ $500 per month @ 12% interest) and after the loan seasons for 12 to 18 months you have the option of selling your note in a marketplace that is a trillion dollar industry. So you sell your note for $67,500 (25% discount). But you’ve also received the $5,400 in monthly income for the past year. The combined profit is in Excess of $40,000 or more with the monthly payments and the note sale even though it is discounted. That’s another hard to find ROI particularly if you’re accustomed to market returns from mutual funds and the like.

You can always just hold because you have an investment of $29,900 with a documented sales price of $60,000 via the land contract.

This system has been a huge success with waiting lists of approved applicants nationwide just waiting for properties to come available as the secondary buyers. We are watching this program transform families, neighborhoods and communities. In addition to the socially redeeming value of this program, it provides investors with massive advantages. Some of those include:

1.       Triple Net - Your buyer is responsible for taxes, insurance and maintenance

2.       Pride of ownership - Your buyer typically improves home and maintains well

3.       Lower Default - Owners paying the same amount as they would for rent rarely default

4.       Socially redeeming - You can help a hard working family become home owners

5.       Cash flow between $450 - $650 - for properties purchased all under $30,000.

The next five to ten years will be defining and you have the power to change your financial future if you only get off the sidelines and in the game. I played football in college and whether you were at a real game or a practice scrimmage, while you were on the bench at the sidelines you were helpless to change the outcome of the game. It was only when you got in the game and you knew you placed your entire being into the game that you hand control to change an outcome and in effect, you can only take control of your own personal destiny by getting in the game.

To prove the point that you can be more victorious in a down market you’ll want to take a lesson from the playbook of Floyd Bostwick Odlum. He has been described as “possibly the only man in the United States who made a great fortune out of the Depression.”

After struggling as a corporate attorney in Salt Lake City, Odlum received an offer to a law clerk at a New York firm, and in 1921 became Vice-President of his primary client, Electric Bond and Share Corporation.

About 1923, Floyd Odlum and friends along with their wives pooled together a total of $39,600 and formed the United States Company to speculate in purchases of utilities and general securities. Within two years, the company’s net assets had increased 17 fold to nearly $700,000. If Mr. Odlum got started with $39,600 during the Great Depression, can’t you get a few friends or family together and pool funds to get in on this once in a lifetime historical opportunity to purchase discounted REOs at a modern price-point of $29,900? We only see great declines once or twice in our lifetimes and who can predict the next one as this one came without warning; will you have done something by then?

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” — Thomas Edison, Inventor

Success Driver,

James Burns, Esq.

www.3pillarreo.com

(949) 440-3243