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Article of the Month for September 2014 Printer friendly version

The Upcoming Demise of a Fabulous Privacy Tool

by Ward Hanigan

The impending evisceration of § 11932 of the California Revenue and Taxation Code will stop us from hiding our transfer tax declarations apart from appearing on the face of our transfer deeds after January 1, 2015.

The Code allowed us a legal, simple way to keep the price that we either bought or sold property for, a private matter… just between the buyer and seller.

Once I discovered this fantastic device in 1972 I never failed to use it on ALL of my hundreds of real estate transactions thereafter. And I took great delight in passing on the nifty maneuver to all of my trust grads over the ensuing four decades.

So for forty years I kept the nosey public clueless…since they couldn’t figure out what I originally paid for my properties, nor what I resold them for later. Thus my transactions stayed very private.

The public always wants to know what you originally paid for your property…so they can scale down their offering price during their negotiations with you. Thus, by keeping my gross spreads private, it made it a lot easier for me to more rapidly re-sell my flips, and make a lot more profit in the process.

So what’s going to change for the worse, after December 31, 2014??

Probably the most dramatic and far reaching change would be the striking reduction in the number of properties that are sold “subject to” their pre-existing financing.

Initially I’d expect there’d be an overnight surge of non-recorded lease/option transactions…rather than a regular sale that would no longer be hidden from public scrutiny.

Another, more involved ploy, would have the seller deed his property into his grantor trust and then sell his non-recorded beneficial interest in the trust to a buyer. Yes, there are a few more things involved in this maneuver, but this is the gist of the workaround.

Finally the mandatory, public disclosure of the purchase/sale price history of a property will make it a lot harder for your buyer’s lender and appraiser to swallow.

At present there are three more months before the new regulation goes into effect. So I’d advise you to complete as many deed transfers as possible before January 1, 2015.

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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