Epic Real Estate Investing - Due on Sale Clause and LLC Transfers | 449

Episode Date: August 21, 2018

It's Tax Hacker Tuesday, and today, Tim Berry and Matt Theriault teach listeners about the due on sale clause and LLC transfers! Learn how to stop being scared of the due on sale clause, two ways to get around the clause, and how Tim found a loophole for one of his clients. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Did you know that up to 50% of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn't it about time you play on a level playing field with the wealthiest 1%? Now you can. Tim Berry, attorney at law, shares here each and every week current tactics and strategies that anyone can implement to hack the tax code. Protect your assets and keep what's rightfully yours.

It's time. for Tax Hacker Tuesday. Welcome to the Epic Real Estate Investing show. It is Tax Hacker Tuesday with my attorney and friend, Mr. Tim Berry. On Mondays here at Epic, we show you new and creative ways as well as time-honored ways of making money using real estate. And on Tuesdays, we show you how to keep it. So if you have any questions for Tim that you'd like to have answered here live on the show, you can go to Taxhacker.com forward slash questions and post it there.

And then we'll answer here on the show. That's kind of how it works. Hey, Tim, how are you? I am doing epic, Matt. How are you doing? Epic, I like it. It's funny how my family, when we go out, we see epic everywhere. We see it in the airport.

We see it at restaurants. And now my son, he's seven. He says, look, Daddy, epic this, epic breakfast, epic brunch, epic beers. You'll see the epic t-shirt, have an epic day. Look at the epic notebook. It's like, it's funny. That's cool. We call that our reticular activator.

Riticular activator. And how do you even spell it? that. I know. Well, I didn't say I knew how to spell it. I just know what it's called. I can pronounce it. But it's the, it's the portion of your brain that's responsible for awareness. So you get the new car and you think you're the only person that's driving that new car. You're the first one to get it. And then all of a sudden, now you notice it at every corner that you weren't the first one, right? There's a tax question in there somewhere. Yes, you can write it off. Okay. So we do a lot of creative real estate investing here at Epic and a lot of, of different creative acquisition strategies, creative exit strategies, and one of those strategies being a subject to strategy where you take an over ownership of a property subject to the existing mortgage. And one of the questions that always comes up is that due on sale clause. We were talking earlier and you had something that you want to talk about, the do on sale clause and the LLCs. I don't know, go with that. What did you have in mind talking about with

that? Because everyone's always interested in the do on sale. They're terrified of it. and it paralyzes people from taking actions that they could otherwise take. Yeah, no, I totally agree with it. And here's the thing. Let's talk about the basics on the due on sale clause. It's just a paragraph on your deed of trust on your promissory note saying if you move the property, they could call the note due. And the weasel word there is could.

The bank has the right to call it if they want to. Now, if you move the property, it's not like you're violating a law, so you're not going to have whatever his name is Mueller coming. investigate you and try to haul you off to jail or something like that. It's a civil issue. It's just a contract issue. And all it says is, once again, the bank has the right to call that if they want to. Now, Matt, how many real estate deals have you been involved in or heard of or what have you? I stopped counting a while ago, but shoot, thousand plus. A thousand plus. I've been involved in, you know, five or six myself, and that's a vast understatement,

but I have yet to hear of that due on sale clause being called. Now, I was working with a new client recently, and this guy's an engineer. He's an Uber engineer. Well, he doesn't work for Uber, but I meant that as an over-the-top type engineer guy. Part-time gig. Yeah, part-time. And so he's reading through all the terms and clauses on his mortgage, and he's saying, hey, look, Tim, I got these rental properties, and I can't move them into the trust, like what you're

talking about. I can't move them into an LLC like what you're talking about. It says it's going to violate the due on sale clause. I said, you know what? You're probably right. It probably will violate the do on sale clause. And I'm talking the same thing I'm saying now, but I have yet to see it. Now, Mr. Engineer, Mr. Boy Scout engineer says, well, gosh, I'm not comfortable with something that's going to violate the clauses. And I said, we'll tell you what, call up your lender and see if there's anything we can do. And the lender, to his credit, was very emphatic saying, If you move these assets, it's going to be a violation of the due on sale clause. Now, I thought, you know, there's got to be some little loophole here or something somewhere.

So I did a quick internet search, did my little Google Fu, and I found a cool little thing inside the Fannie Mae servicing guide. And this is as of June 13, 2018, there's a section inside the Fannie Mae servicing guide that specifically says black and white. properties can actually be moved to LLCs and it gives these various provisions that you've got to follow. And the provisions are nothing major. It's got to be in good standing. It has to be controlled and or owned by the original borrower. Just basic stuff. So those people who are freaking out about the due on sale clause, you've really got to dig down and see, why are you worried about it?

what are you being told? And it's not so much what are you being told, but what's reality? What's the actual rules for that particular loan? Because 99.9% of the time, anytime someone tells you something can't be done, there's probably some legal exemption or loophole where if you look long and hard enough, you're going to find it where it can in fact be done. Yeah, it's so interesting. There's a thing in this Fannie Mae servicing guy that says you can do it, right? Yeah. And that's the bottom. online. I mean, Matt, once again, you just boil it all down to the essentials. There might be something inside the do-on-sale clause that says you can't do it, but the Fannie Mae servicing guidelines, which is what pretty much everyone follows, says it can be done. Right. So there's two points I always point out when

people bring that up. The way that most do-on-sale clauses are worded, the fact that if you even think about moving it to an LLC, you have violated it. Yep. So tell your engineer, he's already in violation. Second thing is transferring it to a trust is a very standard normal estate planning practice and that right there will raise no red flags with your bank and they won't even pay it in your mind. So is that pretty accurate? Yeah, for the most part.

It just comes back to simple basics. If the bank started calling all the notes of people who have transferred properties into LLCs and or trust, you know, we're going to have a real estate market crash because so many people aren't going to be able to make those payments and now they're going to have so much real estate, so much product inventory on the market is going to drive prices down, which is going to screw the banks right back over. Yeah, the banks would be shooting themselves on the foot by doing that. They would. It'd just be stupid. Yep. Well, Garrett, there you go. Banks aren't stupid. Most of the time. Every now and then they are, but, you know, they have stupid rules and laws,

but boy, they always seem to survive when everything goes wrong, so they know what they're doing, right? Is there anything else to say on that? Are we good? I think we're good. It just is, yeah, the do-onsale clause is out there, but look at it long and hard, and there's probably a good chance you're going to find a way

that you can get around it, either A, through the actual terms of your mortgage and or deed, or B, inside the guidelines of the people who actually own it. Got it. When you say the word get around it, that probably sparks some questions in people. And as you had mentioned, I think it's important in reinforcing. It's not against the law. You're not in a violation civilly or criminally or anything like that. It just breaches the contract. So it's just contract. There's no real estate due on sale, jail, right? Yeah. And if I can try and redeem myself on the get around, the way I see it is you got a brick wall.

that brick wall is about 10 feet. You can either try and climb that brick wall or you can look off to the side and see the little path that's all legal, all allowable, and walk around that brick wall, get around it, and keep on moving with your destination. Right. So there's a little door in the brick wall. You just have to shuffle down to the right a little bit. Yeah, there you go.

You got to have the secret door knock. There you go in the handshake and all that stuff. Yeah. Tim, we put together this tax hacker blueprint a couple months ago. And we've had a lot of the listeners. Go ahead and take advantage of that. How is that going? It's going fantastic. 100% of the people last week went ahead and wanted to do that. And this kind of ties in with that because the tax hacker blueprint, it's not just for tax savings. We also look at the asset protection. I wish the point of saving 50 bucks if the entire value can be taken away by some

stupid lawsuit later on down the road. So we do the asset protection and that's going to require moving real estate over to a trust or to an LLC. And now we've got a neat way that you can do it and not have to stay up at night worrying about it. Nice. Nice. Well, super. I appreciate all the good work you're doing over there for the epic audience. Yeah, notice, thank you.

It's been honored to work with you. And I've noticed that taxes are, this tax hacker Tuesday is a far more interesting subject to the audience than I would have really imagined because it looks like we get a little bit of spike. in our downloads on Tuesday. So, dude, you're becoming famous and you're making me look good. Well, Matt, here's the thing. People can't sleep on Tuesday nights. And so they play this instead of the fan. And bam, it puts them right out.

There you go. Tim self-deprecating Barry. All righty. So, hey, whenever you're ready to have Tim customize a tax hacker blueprint for you, you can go to tax hacker.com and answer a few questions about your situation. you can tell Tim a little bit about what you'd like to have happen, and then his team will take it from there, and then he'll even give you a copy of his free book navigating Trump's new tax plan. And yeah, pretty simple, taxhacker.com.

Tim, any last bit of advice? No, thank you for the kind words earlier, and look forward to helping people out. Sweet. All righty, so that's it for Tim and myself today, and we'll see you next week for another episode of Tax Hacker Tuesday on the Epic Real Estate Investing Show. That's it for today as we dream of a tax system that works just for you. But until then, you have Tim Berry. See you next Tuesday for another episode of Tax Hacker Tuesday. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.