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Article of the Month for October 2007 Printer friendly version

Holding Title To Foreclosure Purchases

by Ward Hanigan

When buying foreclosures at auction, one contemplates buying lots of them a year—flipping them for profit as fast as possible, especially here in California. Thus the need for a versatile, safe method of holding title to property, without the threat of creating any inadvertent clouds on title during your holding period.

Therefore, for speed of creation, privacy, and no annual fees most foreclosure pro’s in this area use the title holding trust format. And most of us want to use a separate trust for each foreclosure purchase for the added benefits of a low profile, diversity and liability containment.

It’s undeniable that investing in foreclosures presents an above-average risk to possible lawsuits. An excellent way to stifle vexatious litigation at the onset is to telegraph that there’s “no getting blood from this turnip”. And the absolute best device for that chore is the Limited Liability Company (LLC).

So, if we combine all the benefits of the title holding trust, along with the litigation shield of the LLC, we can utilize the best attributes of both entities.

I particularly like to hold title in trust, with an LLC as both the trustee and beneficiary of all our various trusts. That way we achieve the unfettered use and versatility of a trust within the stronghold of an LLC and can use it in conjunction with an untold number of different trusts. So we end up just paying one $800 yearly fee to the state for our master LLC, neatly avoiding the annual assessment of thousands of dollars in superfluous fees to California’s Franchise Tax Board.

When you have partners, have each one create their own LLC. Some states, like California, allow a one-man, limited liability company. That way each partner’s own LLC could hold their prorata share of the beneficial interest in each trust property they're invested in. Your master LLC would be the trustee for all the individual property trusts and would execute a separate Foreclosure Joint Venture Agreement with each partner’s LLC.

It's also noteworthy that IRS treats a single member LLC as a pass-through entity. Thus there's no tax complication for your investors, as a consequence of using the LLC.

Since it's so simple to create an LLC on-line, we show each of our investors how to do it and get the chore done in 10 minutes or less.

Information provided by this website is for informational purposes only and is not a substitute for professional advice. Please consult your investment advisor and/or attorney before entering into any transaction. Read our privacy policy.

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