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cheerry777 · Aug 19, 2008, 03:49 AM

A seller is trying to sell the right to own 50% of his house. The house is valued at $600K and owes $400K. I'm paying $50k to own half of the house and the seller agrees to continue making mortgage payments to the house. The house is incorporated as part of his company and is used as part of his business.

What is the best approach to this tranaction to protect myself from any liability of lien? How much right do I have to the equity in the property?

excon · Aug 19, 2008, 05:40 AM

Hello cheery:

The bank has a $400K interest in the house. The owner has a $200K interest. He can sell you half of HIS interest, but the bank isn't going to give you any of theirs. So no, you will not get a $300K interest for $50K

If you proceed with this transaction, the bank will call the loan, and you'll lose your $50K.

excon

rockinmommy · Aug 19, 2008, 06:52 AM

Originally Posted by excon

Hello cheery:

The bank has a $400K interest in the house. The owner has a $200K interest. He can sell you half of HIS interest, but the bank isn't going to give you any of theirs. So no, you will not get a $300K interest for $50K

This is 100% correct. Unless there's a lot more you're not telling us... this falls in the category of "if it's too good to be true...." WHY would the owner "give away" half the equity? If he's that desperate for $50K I'd be worried about his ability to continue paying the note.

Originally Posted by excon

If you proceed with this transaction, the bank will call the loan, and you'll lose your $50K.

Almost all mortgages have a "due on sale" clause in them. That means that if the property changes hands (includes quitclaim deeds) the bank CAN immediately call the note due. On performing mortgages I've NEVER heard of it happening - especially in this climate where banks are having a hard time getting people to make their payments. But excon is correct - in theory - they would have every right to call the note.

ScottGem · Aug 19, 2008, 06:57 AM

Since this house is owned by a corporate entity, the bank may be more likely to call the loan.

cheerry777 · Aug 19, 2008, 10:24 PM

Thanks, guys for your earlier response. So Lets use actual numbers. The house is appraised to worth $1,090,000. The seller owes $760,000 on it. The house is incorporated, LLC as part of her business. She wants to sell 50% of the house ownership for $30K. Her current business is enough to pay for the mortgage so I won't have to make future payments.

She needs about $15K to make the payment up to date or to do a loan modification with the bank. So she's willing to carry the other $15K.

If I buy into the partnership of her Business, do I automatically own part of the house since the house is part of the business? If that's the case, does she need to use quitclaim to give me 50% of the house title?

If the business has old debt, will I be responsible?

--Thanks in advance for those who replied

hkstroud · Aug 19, 2008, 10:43 PM

You don't listen very well do you? An LLC is set up to avoid liability, not own assets. You are about to be taken to the cleaners.

cheerry777 · Aug 19, 2008, 11:23 PM

Originally Posted by hkstroud

You don't listen very well do you? An LLC is set up to avoid liability, not own assets. You are about to be taken to the cleaners.

If I'm added into the LLC, wouldn't I be owning part of the business asset, which is part of the house?

hkstroud · Aug 20, 2008, 06:12 AM

Don't believe it. The business probably has no assets but probably has obligations. You want to pay $30K to buy someone's else's debt, probably credit card debt in company name. An LLC is a limited liability company not limited liability corporation. The purpose of a LLC is to protect owners personal assets. You don't put those assets in company name, that defeats the purpose of LLC. You going to lose $30K and be liable for another $30K.
Don't take apprasial as absolute, they are only estimates at time made, they can be influenced. In today's market house is probably worth less than what is owed. Do you want to be liable for $750K.

Do you want to be liable for someone else's action but have no control? Do you want a bankruptcy on your record. Do you want to loose everything you own? It has been explained to you that your name can't be put on the deed to the house with out paying off the mortgage and you name on the new mortgage. You ain't never going to own part of that house.

Give it up or give up all plans of early retirement.

Don't know how to say it more strongly. You going to be back here in 3 months crying about how you lost $30K and got a mountian of debt which you didn't create. You are being set up. You are being scamed. Don't even discuss the matter with this person any more, she's too quick for you.

rockinmommy · Aug 20, 2008, 06:28 AM

I'm sorry that you're not getting the answer that you want.

But I agree with the last poster. (I think I already said this, but... )this definitely falls into the category of "if it's too good to be true, it probably is!"

I, personally, would run the other direction.

There are much better ways to get into business if you have that kind of money to invest.

Red flags ALL OVER the place on this one!

(just out of curiosity, have you seen documentation on all of the info you've given us, or is it just what this person is telling you?)

froggy7 · Aug 20, 2008, 07:48 AM

And finally, if you are going to ignore all our advice and do this anyway, get a lawyer to look over any documents before you sign, so that you will know what you are getting yourself into. Quite honestly, the most likely thing I can see happening is you give her 30k, she claims it's an "investment" in her LLC, the company goes broke, and you are out the 30K with no recourse, since it was invested and not loaned.

ScottGem · Aug 20, 2008, 08:10 AM

Originally Posted by cheerry777

The house is incorporated, LLC as part of her business. She wants to sell 50% of the house ownership for $30K. Her current business is enough to pay for the mortgage so I won't have to make future payments.

First, a House cannot be incorporated. A house can be owned by an LLC, it may even be the sole asset of the LLC. The LLC may have been set up just to buy the house. But the house itself is not incorporated.

The LLC can sell you a half interest in the house. If her current business was enough to make payments then why does she need to sell you something worth over $500K for $30K? That's not good business.

cheerry777 · Aug 21, 2008, 12:32 AM

Originally Posted by hkstroud

Don't believe it. The business probably has no assets but probably has obligations. You want to pay $30K to buy someones else's debt, probably credit card debt in company name. An LLC is a limited liability company not limited liability corporation. The purpose of a LLC is to protect owners personal assets. You don't put those assets in company name, that defeats the purpose of LLC. You gonna lose $30K and be liable for another $30K.
Dont take apprasial as absolute, they are only estimates at time made, they can be influenced. In today's market house is probably worth less than what is owed. Do you want to be liable for $750K.

Do you want to be liable for someone else's action but have no control? Do you want a bankrupcy on your record. Do you want to loose everything you own? It has been explained to you that your name can't be put on the deed to the house with out paying off the mortgage and you name on the new mortgage. You ain't never going to own part of that house.

Give it up or give up all plans of early retirement.

Don't know how to say it more strongly. You gonna be back here in 3 months crying about how you lost $30K and got a mountian of debt which you didn't create. You are being set up. You are being scamed. Don't even discuss the matter with this person any more, she's too quick for you.

I understand. Thanks for the infor. What if I do a title check on the business to make sure there's no debt or obligation tied to it? Would that lower the risk?

cheerry777 · Aug 21, 2008, 12:44 AM

Originally Posted by rockinmommy

I'm sorry that you're not getting the answer that you want.

But I agree with the last poster. (I think I already said this, but.....)this definitely falls into the category of "if it's too good to be true, it probably is!"

I, personally, would run the other direction.

There are much better ways to get into business if you have that kind of money to invest.

Red flags ALL OVER the place on this one!

(just out of curiosity, have you seen documentation on all of the info you've given us, or is it just what this person is telling you?)

I've seen the appraisal from last year. It's legitimate. She got the appraisal because she was refinancing. She owes some property taxes and probably behind with payments. She was in a lawsuit a year ago or more. So she's trying to sell part of the ownership to get the money to make her mortgage current. She's willing to carry $15K, and receive $15K now. So that would cut down the risk by half.

I will try to get a 30min consultation with an attorney regarding this if I decide to follow through with it.

ScottGem · Aug 21, 2008, 05:38 AM

Originally Posted by cheerry777

What if I do a title check on the business to make sure there's no debt or obligation tied to it? Would that lower the risk?

You still seem to have this block in understanding what we are saying. Doing a title check on "the business" doesn't make sense. But yes you want to do a title check on the house. That's just SOP in buying real estate.

I think you are blinded by the numbers. You see getting a half share in a property worth over $1 Mil for just $30K. For some reason that doesn't scare you. It sure would scare me. And you really don't seem to have a firm grasp on understanding the complexities of this kind of deal. Using terms like incorporating the house and title check on the business, show a lack of knowledge of such transactions.

A year old appraisal isn't very good in these volatile times, especially one done by a bank looking to refinance.

Another factor is the possibility of the bank calling the mortgage. If you don't get their permission to transfer ownership they could do that. This looks like one of those if it sounds too good to be true, it probably is deals.

cheerry777 · Aug 22, 2008, 03:06 PM

Originally Posted by ScottGem

You still seem to have this block in understanding what we are saying. Doing a title check on "the business" doesn't make sense. But yes you want to do a title check on the house. That's just SOP in buying real estate.

I think you are blinded by the numbers. You see getting a half share in a property worth over $1 Mil for just $30K. For some reason that doesn't scare you. It sure would scare me. And you really don't seem to have a firm grasp on understanding the complexities of this kind of deal. Using terms like incorporating the house and title check on the business, show a lack of knowledge of such transactions.

A year old appraisal isn't very good in these volatile times, especially one done by a bank looking to refinance.

Another factor is the possibility of the bank calling the mortgage. If you don't get their permission to transfer ownership they could do that. This looks like one of those if it sounds too good to be true, it probably is deals.

Your answers help. Thanks. It is a risky deal. The house may worth 1 Mil, but it only has $300K equity in it. I'll talk to an attorney about it. What is the risk involved if I'm buy into half of the business that's incorporated?