Have cash, must short sale, face a judgment, what to do?

Yesterday I got a phone call from an interesting person in the entertainment business and she told me the following facts:

She has a few bucks saved up.

She is self-employed.

The entertainment business is tough on people over 50 and that's what she is. So prospects for future income aren't quite so bright.

She signed a mortgage (two actually) on an out-of-state rental property in a recourse state. And even if she had signed the same contract in a state like California, where the lenders really can't go after you on a first mortgage deficiency, she would still be personally liable for the second mortgage. But her property is in a state with deficiency judgments on first mortgages.

The property she bought is vacant and she can't afford to keep making the payments.

It is worth maybe 60% of what it was when she bought it.

And, she can't afford to pay out all this cash to the lender in a short sale.

Real Estate Short Sales when you have cash

And that's the rub. If you do a short sale, you will have to at least fill out a financial statement. The lender will know where your cash is at. Now what do you do?

This lady can't afford to give a substantial percentage of all the money she has in the world to the banks. And of course, when she signed the mortgages, she had no idea, obviously, that she would face personal liability for the notes she signed.

The lenders typically will ask you to put in cash if they see you have it. They will ask about money in 401(k)s and IRAs and such, but they legally can't get their mitts on it, so you can say "no."

But many of us self-employed types have our nestegg, everything in the world that we have saved up, in the form of liquid assets like stocks and bonds. That money is in brokerage accounts and at the drop of a hat, they will turn it over to Uncle Sam or a creditor.

Freedom and liberty means making sure you protect yourself and avoid common mistakes such as signing a mortgage without knowing your personal liability, and being careful how you do real estate and other big money transactions.

So let's talk about what she can do, and how you can prevent yourself from being in the same situation. If you are a Realtor, you are self-employed and in a business where you can make a fortune. But you have to hold onto whatever money you save up.

Self employed people and mortgage short sales

One option is to hold your assets like stocks, bonds and real property in a family limited liability company or family limited partnership. The idea is that the title is held by an entity, not by you personally. You have some type of ownership interest, and so does your family . It is possible that if you have no family, you can still benefit from such an arrangement.

If a creditor gets a judgment against you, such as a mortgage deficiency judgment, they have to put a "charging order" against your interest in the limited liability company or family limited partnership. They can't just go and raid what's in there. They have a claim only on what you take out. If you take nothing out, they can get nothing.

This has been pretty good for a lot of folks. It isn't foolproof. But the idea in all these types of arrangements is to raise the costs of collecting a judgment against you. Make it real hard and the creditors won't bother spending all that time and money. They are more likely to agree to settle with you for very little money.

Another option is to take your money and keep it in gold coins. Or silver coins. I like this option because gold and silver will probably outperform "paper" assets anyway for quite awhile. You do have to tell a creditor where these are located in event they get a judgment against you and haul you into a "Judgment debtor exam."

The point is to make it difficult for people to collect but do so legally and above board. They have to do the following:

1. Get a judgment in the state where your real estate is located
2. File for a "sister state judgment" in the state where you live
3. Give you notice of all this and ample chance to defend yourself
4. Serve you with a summons for a judgment debtor exam

Don't wear fancy jewelry at the exam: they can take it from you! But if you have exercised reasonable precautions, such as those above, you make it much more expensive for them. When they search public records for your assets, they don't see your name anywhere. All these steps make it harder to collect, and put them in the mood to settle for very little.

But as they say, an ounce of prevention…

How to avoid as much financial risk and be happier in your career

I follow certain rules.

1. I avoid co-signing or guaranteeing loans, if I can.
2. I try to buy real estate using techniques that do not require me to sign personally or guarantee a loan.
3. I have a family limited liability company set up and some of my assets are in there. Not all of them — you can't make yourself poor. You have to leave enough in your personal estate so that you can't be accused of impoverishing yourself in order to foil your creditors.

And my family LLC is for estate planning purposes, so I can pass along my assets to my family and they can share in the management of my businesses and finances, under controlled conditions.

See a good lawyer and don't take my advice. I'm just some Guy on the Internet.

Just don't think you are immune to some financial debacle coming atcha.

Don't think that they can't get a judgment against you. Or that nothing will ever happen to you. There are a thousand things that can happen to jeopardize people's savings and it is really too late to do this stuff after it's happened.

And lots of this stuff isn't covered by insurance.

Avoid liability when you don't need to take it on

Listen: the government routinely swoops down and arrests people and confiscates all their money before trial, as "possible ill-gotten gains." They don't have the money to pay their lawyer, even. And they end up cowed into pleading guilty to some charge, regardless of what they did or didn't do. Happens to MILLIONS of people in the USA. It has happened to a number of good people that I know…it has probably happened to people you know, too.

And if you are a Realtor, you are a target. You are in a business that is in the gunsights of the lawyers and the regulators. You are squeaky clean but just one deal that you did, and forgot about, could bite you at some unexpected time.

Anyone in real estate today is in a high liability business. If you are a multiple property investor and upside down you can do some of this stuff. See a good lawyer, an estate planning lawyer, and learn all you can.

And the real solution is to arrange your affairs before anything happens, and lower the chances of it happening.

It can happen to anyone. Every day in the US, innocent people are arrested for "financial crimes" and charges of fraud. Their money is confiscated as ill gotten gains until they can prove their innocence. They end up pleading guilty because they have no choice. Don't let it happen to you! Take precautions with your money and finances, and avoid working with people who are doing short sales or real estate transactions dishonestly.

Buy properties for your own portfolio without signing personally. I teach you how to do this in my Mortgage Relief Formula home study course.

Also, learn how to do short sales and you can make a lot of money — make sure you don't let your clients lie to banks and financial institutions. It isn't worth it. Just walk away from deals like that. I teach you how to negotiate your own or other people's short sale in the Mortgage Relief Formula. And for a limited time, you can get my Mortgage Relief Formula and access the famous "Mr. X" short sale insider audio.

Mortgage Relief Formula teaches you techniques of debt settlement and buying with no money and without personally signing. It also teaches you how to negotiate short sales and how to do loan modifications and lots of other stuff. I provide it to you instantly for a pittance compared to similar products that cost $3000. And you get my absolute 60 day all-clams-back guarantee so if you don't like it, you just send me ONE email and I pay you all the money you paid me — and you keep the course!

I invite you to rip me off. I know that you'll be thrilled with the course and you won't want to. But I invite you to. I've spent maybe $20,000 on courses and I've intended on getting my money back and never did. Because the courses ended up delivering such value. But my course is much less than that type of money. Anyone can afford my course and that's why so many folks are ordering it. And I don't get very many refund requests.

So now, just click here to get your 60 day trial and get the Mr. X interview as a special bonus, available for a short time.

click here to get your 60 day trial and get the Mr. X interview as a special bonus

 

 

 

 

 

 

 

Photography CC , gold coin by http://www.flickr.com/photos/montanapets/, and  police arrest by http://www.flickr.com/photos/grendelkhan/