Florida Asset Protection Blog

Nevada Law Helps Asset Protection Planning With Some Partnerships And LLCs

The 2009 Nevada legislature passed an interesting estate planning statute designed to increase the effectiveness of family limited partnership (FLP) and family limited liability companies (FLLC) for estate tax planning. The bill, SB 350, went into effect on October 1, 2009. An article about the new law appeared this week in Lawyersusaonline.com. Lawyers USA Online. I was intervied by the author, Correy Stephenson,  in order to discuss the bill's effect on asset protection planning.

The bill provides for new business entities called Nevada Restricted Limited Partnerships and Nevada Restricted Limited Liability Companies. The "restriction" aspect means that the LP or LLC is restricted from making distributions to its partners (members) for a period of up to ten years. The restrction against distributions effectively locks money inside these entities. In theory, the applicable restrctions warrant greater valuation discounts from fair market value of assets held in these new entities. For families with taxable estates a greater valuation discount means lower estate tax bills. Estate tax planning is the primary benefit of the Restricted LP and LLC.

I think that restrictions against distributions conmplated by the new Nevada law may also have an asset protection beneift. The judgment creditor's remedies against the debtor's interests in either a partnership or LLC is limited to a charging lien against distributions, if any, when made. If a judgment debtor was not receiving cash distributions from a partnership or LLC controlled by himself or a family member the creditor's charging lien would yield no recovery. However, the judgment creditor could pursue a court order requiing distributions be made by the general partner or manager. In my opinion, the judgment debtor would have a better defense against compelled distributions where the partnership or LLC owned by the debtor was a Nevada Restricted LP or LLC, all other things being equal. As the law is so new it will take a long time before its terms are tested in an asset protection court case.

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Second Mortgage Sabotage Of First Mortgage Modification Plan

I would like to ask you, the blog readers, to help a reporter who is investigating  practices in the mortgage modification programs. A national business publication is investigating overly aggressive second mortgage lenders. The reporter, Mr. Robert Berner (312-451-7149), is looking at situations where a second mortgage lender sues a homeowner after the homeowner has already entered into a modification agreement with the first mortgage. The second mortgage gets a judgment against the homeowner and then garnishes the owner's bank accounts or salary which causes the homeowner to default under the first mortgage modification agreement. These second mortgage lenders are sabotaging the modification programs set up and encouraged by the government to help homeowners. In some cases where the same bank holds the first and second mortgage the bank modifies the first mortgage and then sells the second mortgage to a third party investor which then agressively collects the second or even sues the homeowner for delinquent second mortgage payments. These mortgage lenders appear cooperative in modifying their first mortgages but then undermine the same modification by collecting or selling the second mortgage.

A related mortgage issue I have heard about from my own clients occurs when a homeowner has checking accounts at the same bank that holds his home mortgage. Some clients have reported that when they missed a mortgage payment the bank invaded their checking account and pulled the mortgage payment out of their checking account without notice. I have previously posted my general advice which is to move your accounts out of the bank that holds your home mortgage if you miss a mortgage payment.

Please get involved. If you have had a mortgage modification plan ruined by a second mortgage holder who sued you during the modification process, or if you have had your mortgage lender grab mortgage payments from your checking account at the same back before a foreclosure or other lawsuit was even filed, call Mr. Berner (312-451-7149) and discuss your experiences.

Good Article About Credit Rating Myths

Many people, if not most people, facing a foreclosure or bankruptcy are very concerned about the impact on their credit rating. Clients frequently ask me how will the foreclosure, short sale, or bankruptcy affect my credit and how can they rebuild credit. Credit rating is not a legal issue; I don’t know any legal procedures relevant to credit restoration. From time to time when one of my own clients is in the mortgage underwriting business or car lending business I pass on to my clients or blog readers what these people tell me about credit rating.

This past week the Wall Street Journal published a clearly written article about credit scores. The article summarized the important factors affecting credit score and gave practical suggestions about increasing credit rating. Those concerned about the impact on credit rating of their current financial difficulties should read this article. Credit Scores: Shattering Some Common Myths

Criminal Prosecution For Mortgage Fraud During Real Estate Bubble

Many of my clients are facing the prospect of lawsuits for personal liability on account of default on mortgages. Some of these clients have invested in many investment properties which are now upside down and unsustainable. During the real estate bubble many people inflated their income and assets on mortgage applications. My clients often ask me if the mortgage company will refer their case to the government for criminal prosecution because the clients had lied to their mortgage company in order to get financing. This week I received a call from a criminal defense attorney who was referring a client to me for asset protection advice. During our conversation I asked him if the mortgage companies or the government were prosecuting mortgage fraud related to the real estate bubble.

The criminal attorney said that state and federal governments are actively pursuing mortgage fraud cases against large builders and mortgage companies. He has seen no criminal prosecution related to owner occupied properties. The attorney said that so many people lied to get financing for their own homes that the government has not way to fairly decide who to investigate and does not have resources to handle so many cases. The FBI is prosecuting some investors who fraudulent obtained mortgages on numerous investment properties where the mortgage fraud is egregious. The attorney has been told by prosecutors that the FBI will not even consider prosecuting mortgages less than $500,000 and will rarely investigate mortgages under $1

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida    

Lenders May Delay Condo Foreclosure To Avoid Paying Dues

Clients often ask me why it takes some banks so long to begin foreclosure on default loans. Part of the problem is backlog at the mortgage companies or their attorneys. Some banks are deliberately delaying foreclosures for reasons discussed this week in a Wall Street Journal article Condo Boards Take On Lenders . The article states points out that mortgage lenders are liable for unpaid condo dues when they take over the property after the foreclosure sale. In Florida, lenders are liable for as much as six months of late condo dues once they take title after foreclosure.  Some condo associations  are themselves foreclosing on bank owned condo units. The mortgage bank is being forced to pay accrued condo  fees in  order to hang on to the foreclosed property. The Journal article states that some mortgage lenders are delaying foreclosure to avoid HOA liability

Mortgage Foreclosures: Courts Make It Easier To Negotiate With Mortgage Lenders

People facing possible mortgage foreclosure often complain that their mortgage lender won’t talk to them about loan modification or that they don’t know how to reach any lender representative with authority to resolve their situation. Some courts in Florida are making it easier for homeowners to negotiate with their mortgage lender. However, help is not available until the case is within court jurisdiction in the form of a foreclosure lawsuit.

Some of the judicial districts in Florida are requiring court supervised mediation in all foreclosure cases when the property is owner-occupied. Mediation slows down the foreclosure process, and more importantly, it requires that a lender representative with authority to compromise on the lender’s behalf to sit down at mediation, face-to-face, with the borrower or his attorney and discuss in good faith a compromise other than foreclosure. A lender who does not attend a scheduled mediation can be sanctioned or have the foreclosure suit dismissed.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Newspaper States Mortgage Lenders Liberalizing Loan Modifications.

A large proportion of people seeking bankruptcy or asset protection advice are homeowners facing mortgage foreclosure. Up to now, most of my clients report that their mortgage lender and mortgage service company were reluctant to modify mortgage terms and payments although an increasing number of mortgage lenders had eased procedures for short-sale approval. This past Saturday’s Wall Street Journal had two articles about mortgage lenders’ new programs to help homeowners avoid foreclosure by mutual modification of mortgage terms. Examined closely, these new programs, while welcome, apply to a limited segment of homeowners with problem mortgages and upside down houses. J.P. Morgan Chase is the first bank to make an ambitious effort to modify their clients’ problem mortgages. J.P. Morgan took over the assets and liabilities of Washington Mutual which was one of the country’s primary subprime lenders. The bank is considering modification of up to $70 billion of mortgage debt owed by up to 400,000 homeowners. The details reported by the Wall Street Journal suggest that J.P. Morgan’s new program addresses a limited group of borrowers. The bank apparently is targeting primarily homeowners with so-called option adjustable rate mortgages which loans permit borrowers to make minimal payments that don’t even cover the interest. If only minimal payments are made the mortgage principal balance can increase each month by the amount of accrued interest. In the case of the increasing principal balance and a decreasing property value the mortgage lender’s loss exposure may increase month to month; this is not good for either the borrower or lender. The Journal said that J.P. Morgan will try to switch these homeowners to fixed rate loans with payments the families can afford. The other mortgage modification plan reported in the Wall Street Journal is the government’s FDIC program directed to borrowers from the defunct lender IndyMac which the government had taken over. The FDIC now administers these mortgages through a new entity called IndyMac Federal Bank. After examining its borrowers’ tax returns the new program would modify the terms and balance of the mortgage so that the homeowner pays no more than 38% of his current income toward the mortgage, real estate taxes and insurance. The program has limits. The FDIC is considering modification of IndyMac mortgages only when the borrower occupies the property; investors and speculators are not eligible. It is likely that no private bank or federal mortgage relief program will help investors. The government’s stated policy is to keep people in their homes and not bail out private real estate investors. Another limitation applicable to the FDIC program, the Journal reports, is that the FDIC will not rework a loan if it thinks it can make more money by foreclosing and selling the property. posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Homeowner Mortgage Mitigation in Final Rescue Bill

I have previously posted on this Blog information about homeowner mortgage benefits in the initial bailout bill that was rejected by the House on September 29, 2008. I have reviewed the final, revised bill signed into law on October 3, 2008. The final bill contains essentially the same mortgage modification provisions. The bill directs the Treasury to encourage mortgage service companies to mitigate foreclosure by adjusting the interest rate, payment terms, as well as the mortgage balance of certain home mortgages. The law is written generally and without details. The Treasury Department likely will issue federal regulations which state whom is entitled to benefits and the procedures to request mortgage modification.

Draft Of Financial Recovery Act Promises Foreclosure Relief

The current draft of the governments’ financial recovery act, formally the “Emergency Economic Stabilization Act of 2008" contains several provisions designed to help homeowner prevent foreclosure. The terms of the Act, being referred to as "the bailout bill", are drafted in general, unspecific terms, and certainly there will be many government regulations needed to implement the new law before any agency can actually provide foreclosure relief. The foreclosure relief provisions are found in Sections 109 and 110 of the recovery package.

Section 109 of the bailout plan states that the Secretary of Treasury shall implement a plan that seeks to maximize assistance for homeowners and to encourage mortgage servicers to take advantage of the HOPE Program under the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures. The new law directs the Treasury Department to coordinate with out government agencies to identify opportunities for the acquisition of classes of troubled assets that will improve the ability of the Secretary to improve the loan modification and restructuring process and to permit bona fide tenants to remain in their homes under the terms of their leases.

Section 110 of the bailout bill states that Federal managers of mortgages on residential real estate, including multi-family housing, shall implement a plan that seeks to maximize assistance for homeowners and to encourage mortgage services to minimize foreclosures.

The financial recovery law leaves the details of implementation to be worked out in future federal regulations. Considering the time it normally takes to implement federal regulations, the new law does not deliver immediate relief to people facing foreclosure today. The mortgage lending industry will see relief long before benefits reach homeowners. It will be difficult to find regulations that fairly provide foreclosure relief to deserving homeowners without creating new avenues for abuse through manipulation of benefits provided by this law.

published by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Florida Supreme Court Asked To Resolve Protection of Single-Member LLC Interests

The Eleventh Circuit Court of Appeals has asked the Florida Supreme Court to resolve an important issued about asset protection benefits of a limited liability company. The Florida Statutes state that a creditor’s remedy against a judgment debtor’s membership interest in a limited liability company is a charging order against the LLC’s distributions to the debtor member. Some attorneys have raised the issued of whether limitation of collection remedies applies to membership interests in a single member LLC when the debtor is the single member. A few courts in other states suggested that single member LLCs do not have the same protection from creditor collection as do multi-member LLCs. Most states have not distinguished between LLC protection on the basis of membership number. The issue have never been addressed by any Florida court.

The Eleventh Circuit Court of Appeals, in a decision dated May 29, 2008,certified to the Florida Supreme Court the following question: “Whether, pursuant to Fla. Stat. 608.433(4) a court may order a judgment-debtor to surrender all ‘right, title and interest’ in the debtor’s single-member limited liability company to satisfy an an outstanding judgment.” The appeals court recognized that the Florida Statute restricting creditor remedies does not distinguish between single-member LLCs and multi-member LLCs. On the other hand, the Court noted that Florida’s LLC Act states that a member ceases to be a member upon the assignment of his LLC interest (a charging lien is an assignment), and if a single-member LLC assigns all of its membership interest to the creditor the LLC is left without a member with authority to take necessary management actions on behalf of the LLC.

The Florida Supreme Court may resolve the issue. The case is FTC v. Olmstead et. al. Circuit Case No. 06-13254

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida