Author: Jeff Breglio (10 articles found) - Clear Search

Asset Protection – Basics #1

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Asset protection is always in the background of real estate investing. But it should never be far from sight!

We work hard every day to build wealth through real estate, and that can be substantial and fund our retirement. The last thing we want is to lose what we’ve worked so hard to create. That’s where asset protection comes in.

Protecting assets can be very simple to highly complicated. I get asked all the time about complex trusts and layered structuring to out-of-state LLCs. After being the asset protection business for over 20 years, my opinion hasn’t changed. Start basic and then let your protection grow as your assets grow.

There are lawyers who will “sell” you a big, expensive package of “bullet-proof” asset protection structures. When I went to my first Rich Dad, Poor Dad event, there was a lawyer on stage with a silver briefcase that had the full asset protection entities and documents. This cost $5000! And all it included were fill-in-the-blank forms to create LLCs, Family Limited Partnership, S-Corp and a few other documents. You still had to fill out the forms correctly and file them with the state and pay the fees. I had a client purchase the set of documents and was instantly disappointed in herself when she found out I could do everything for her for half the price.

I tell this story for a reason. Be careful of purchasing so called “asset protection packages” at real estate events. Rarely are they beneficial, and you’re probably overpaying for what you get. Further, you probably do not need all of that structuring up front. Read More...


The Foreclosure Process

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Foreclosure is the process of taking back secured real estate on a defaulted loan. It can only begin once a true default has occurred, which we discussed in our last post. Utah uses a non-judicial foreclosure based on the trust deed. Other states must go through the court system.

Once a default has occurred, you must provide notice to the borrower of the default and give him 30 days to bring current. This is called the “Notice of Presentment.” If he does not bring current in 30 days, you can file the notice of default. This notice and 30-day waiting period, however, can be waived by the borrower if it’s included in the note. Make sure it’s in yours.

The true beginning of foreclosure is the notice of default that is recorded on title to the property. This marks the 90-day waiting period during which the borrow can bring the loan current. He must bring the loan fully current and within the 90 days, and the lender must accept it. If default is not fully fixed or later than 90 days, the lender can move to the auction phase. Read More...


Loan Defaults

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If you are going to be a lender, you’ll need to understand how your borrower might come into default and what to do about it.

The first way to default is failing to comply with any term of the note. This includes making a monthly payment or paying off the note when due. Monthly payments can be tricky. Your note needs to be clear about what constitutes just a late payment versus one that causes a default. General mortgage rules give the borrower 15 days from the due date to make payment without penalty. Then, he can make payment up to 30 days with just a late fee. Then, if payment is not made within 30 days, the note is in default.  Remember, however, that your note can modify any of those payment terms! You just need to know what those terms are. Your note should also be clear on the exact day the note is due.

Also, default can occur under ANY term of the note or deed. Your documents should include that maintaining property insurance and the payment of property taxes are both required or it will result in default. Your note may have other terms as well, such as not putting any other lien on the property. The key here is to really understand your note and deed. This is why you should have and provide your own loan documents that cover all the terms you require. You won’t get this from a title company. Read More...


The Risks of Hard Money Lending: Part 3 of 3

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In Parts 1 and 2, we explained that loaning your own money could be a licensed or regulated activity. We also explained that loaning other people’s money for a fee is always a licensed activity. The other risk I see is when investors are doing these loans without the proper protections. Here is a good checklist to follow.

  1. Confirm the licensing issues for the kinds of loans you or your pocket lenders are making.
  2. Be competent at valuating the property and do so yourself. Do not rely on the borrower’s numbers. Learn loan-to-value!
  3. Always use a well-prepared promissory note (loan document). I see many that are not sufficient. You should have one drafted by an attorney, not a title company.
  4. Always secure the loan with a trust deed (mortgage). ALWAYS!
  5. Always run the loan through a title company or attorney’s office that confirms the recording of the trust deed in the appropriate position! The biggest fraud in real estate is people simply giving others money.
  6. I recommend title insurance on all first and second position loans.
  7. Oversee the project. Keep in contact with your borrower.
  8. Understand how to make modifications to the loan if necessary.
  9. Understand what constitutes default and the foreclosure process.

Lending is risky from both a licensing standpoint and protection of funds standpoint. Good hard money lenders understand how to comply with regulation and protect their money. In the next two posts will cover defaults and foreclosures. Read More...


The Risks of Hard Money Lending: Part 2 of 3

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In Part 1 we defined various types of loans and mortgages, which you should read if you haven’t. Be clear that making a closed-end, first position loan for the purchase of real estate is a licensed activity. This is where a lot of investors are taking a big risk.

This is because many investors are loaning funds without understanding the licensing issues. And many others are getting friends and family to loan them money. This can put your Uncle Joe or Aunt May at risk as well. While there may be arguments or exemptions that permit making these loans, there are arguments that it requires a mortgage originators license! The Division has broad authority over these kinds of loans!

Just because there are arguments in your favor, does not mean you will be successful if you—or your lenders—are investigated by the Division. If they deem that you have engaged in mortgage loan origination, the fines can be very steep. Before you engage in making or getting these loans from others, you should truly understand the rules and risks, and how to structure these loans correctly. That is beyond a blog post. You should consult an attorney.

In the above examples, I have assumed that the lender earning the interest is loaning his own money. There is a big difference if you are loaning other people’s money in which you make a fee or spread. What you’re doing now is “connecting” a money-lender with a borrower for compensation. This ALWAYS requires a license! Read More...


The Risks of Hard Money Lending: Part 1 of 3

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Over the last year, I have seen a dramatic rise in “hard money” lending not only among investors, but by friends and family of investors. Almost all are doing so without understanding there are rules and risks with lending. To understand these rules and risks, we’ll start with defining lending terms.

Private lending is any loan between a borrower and a non-institutional lender. This could be a loan from your father for the purchase of a car or education. Private loans can be unsecured or secured on things like vehicles, personal property or inventory. Private loans are generally not regulated.

Hard money lending is a private loan that is secured on a hard asset like real estate through a trust deed. Also, these loans are often referred to as “mortgage” loans. Mortgage loans are regulated. And may require a license to provide!

A closed-end mortgage is a loan for a fixed principal amount that is paid down, like most mortgages you think of. An open-end mortgage has no fixed principal. A HELOC is an example of an open-end mortgage. Mortgages, as you probably know, can also be in a first or lower position. This relates to which mortgage is recorded first. Read More...


Trusts and Real Estate, Part 4 of 4: The Asset Protection Trust

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The asset protection trust is more accurately called the Domestic Asset Protection Trust or “DAPT.” It is a highly protective, irrevocable trust and less than 20 states even allow them. Utah is one of the! Assets owned by this kind of trust can be protected from lawsuits, debt collection, judgments, bankruptcies and even divorce.

This is a different kind of trust than the family trust. In the family trust, you leave your assets to beneficiaries, like your children. In the DAPT, you actually leave the assets to yourself as beneficiary! That means they are still your assets; but they receive the protection as if you’ve already given them to someone else. That’s the key difference. However, it’s not for everyone.

First, this is a complicated and detailed trust. It’s usually more expensive to create and maintain than the other two types of trusts. Second, while you do have access to the income from trust assets, you cannot take “regular” distributions. So, if you need that income to live on and pay monthly bills, you can’t put those assets in this trust. There are also restrictions on who can authorize the permitted distributions. Read More...


Trusts and Real Estate, Part 3 of 4: The Family Living Trust

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The family trust is to most common type of trust used in the United States. Most people have at least heard of this kind of trust and many have created one. The first thing I want to say is that EVERYONE needs a family trust! Whether you’re single or married, with or without children, or have small or large estate, you need a family trust.

The family trust is the core of your overall family protection plan because it is designed to own, control and allocate your assets after you die. Without a trust, your estate will end up in probate even if you have a will. Probate is an expensive, public court process. It typically costs more than a family trust. Your estate and property become public information. And the court will end up dictating who receives your assets.

Most family trusts come in an estate plan package of documents. You’ll get a “pour-over will” that works in coordination with the trust, powers-of-attorney and the health care directive. This last document is also called the “living” will that provides end-of-life instructions to family and doctors in the event you’re on life support. These documents are designed to function in different circumstances and at different times to help control your assets. Read More...


Trusts and Real Estate, Part 2 of 4: The Real Estate Trust

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This article continues our discussion of trusts, specifically the real estate trust. First, only a couple of states, like Florida and Illinois, have true “land” trusts. I won’t get into the legal details on how they are different, as that gets complicated. Just know that unless you live in these states you are NOT using a land trust. This gets confusing as many investors attend educational events where these trusts are taught or sold without distinguishing them.

The rest of us have something a little different. We call these trusts real estate trusts, asset holding trusts, property trusts or the like. They are really just simple living trusts but should be created by a knowledgeable attorney. They are designed to hold title for privacy purposes and facilitate transactions such as wholesaling or even selling real estate.

Trusts are a kind of legal entity (like LLC) that can own things. They can be a named buyer on a purchase contract and be named on county land records. Because trusts are not registered with the state, no one will know who owns them. That’s where the privacy comes in. They do, however, have a trustee (think, manager) who will be named on county land records. So be aware of that. Read More...


Trusts and Real Estate, Part 1 of 4: The 3 Trusts Used in Real Estate

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All investors will certainly hear about the use of trusts in their real estate business. Most investors may encounter these trusts in some way. A few will use them regularly. The fact is, there are a number of different kinds of trust used both in real estate and our personal lives. This set of 4 articles will highlight the types of trusts most commonly encountered by real estate investors. Here we generally cover the 3 trusts used in REI, and then we’ll follow up with an article on each one.

The first one is most commonly called a “land” trust. This is not super accurate! Only a few states actually have true land trusts as they are very specific types of trusts authorized by the state. For the rest of us, we use property trusts, real estate trusts, holding trusts or the like. These are simple revocable (changeable) trusts designed to simply own real estate—either by contract or title. These trusts are used for privacy purposes and to facilitate many REI transactions.

The second trust is the standard family living trust. This is a much larger and complicated trust as it’s designed to define, control and allocate your assets after you pass away. You can think of this trust as a traffic copy, directing things when you can’t. You should work with an asset protection attorney to create your family trust because this should be part of your overall asset protection plan and work with your other protection vehicles, like LLCs. Read More...