Real estate investing Archives

Bankruptcy Update: Questions to Ask a Bankruptcy Lawyer Before You File

Even in a hot real estate market, property owners can get into financial problems. Having a good attorney knowledgeable in bankruptcy, short sales, etc. is important. Here is an update on bankruptcy from McFerran Law, P.S., some attorneys we recommend to clients:

Questions to Ask a Bankruptcy Lawyer Before You File

Financial troubles are tough and bankruptcy can seem scary. You want to find a lawyer who can make it easier. You need to know if bankruptcy is really the right thing for you. But what do you ask a prospective lawyer to make your decision? Actually, it probably doesn’t matter what you ask. It matters how the lawyer answers.

Here’s a starter set of questions to get the conversation going:

Do I have a meaningful alternative to bankruptcy?

Asking about alternatives allows the lawyer to talk about the scope of your financial difficulties. It allows you to gauge whether the lawyer can only see you as a buyer for what he sells.

In fact, most people who sit down with a bankruptcy lawyer really need bankruptcy. They have ignored the signs that the situation is beyond repair for a long time.

So, the answer that bankruptcy is appropriate isn’t a black mark on the lawyer. Inability to explain why the alternatives don’t work well is a negative.

What’s the most serious complication for me?

Few cases are problem-free. Whether it’s protecting assets, passing the means test, or finding the money to fund a Chapter 13, almost every set of facts has bankruptcy challenges.

You want to know if the lawyer is forthcoming about the expected rough spots. Can he talk candidly about what might be challenging in your case?

How many cases like mine have you handled?

While the answer may be short, you do want to talk about the lawyer’s bankruptcy experience. Generally, the larger portion of a lawyer’s work load that is bankruptcy, the better.

Bankruptcy is a recognized legal specialty and if your case has a complexity, experience is an asset on your bankruptcy team.

Who will work on my case?

A bankruptcy legal team usually includes both a lawyer and staff. Much of the work in preparing the important schedules is routine.

What you want to avoid, however, is a business model where all the work and the analysis is done by those without a law degree. Bankruptcy is not just “filling out forms”. It is important to grasp what conclusions those forms lead a judge or a trustee to.

Ask, too, how you and the lawyer will communicate when you have questions during the process.

What is not included in your fee?

Those drowning in bills often think price is important in picking a lawyer. About the only time I think it’s important is that the unreasonably low price indicates trouble. Either you aren’t getting much service at that price, or the lawyer can’t compete on quality and therefore cuts the fee.

Ask if lien avoidance or reaffirmation issues are extra. Ask if there are costs beyond the court’s filing fee that you must pay. Ask about representation should there be a trustee audit, a 2004 examination, or an adversary proceeding.

It’s attitude that matters

As I said at the top, these questions are as much about the lawyer’s approach to you and your case as they are about the answers.

Is the lawyer comfortable with you driving the agenda?
Can he/she explain admittedly complicated matters clearly in a way you understand?
Are your questions welcomed?

If communication between you and your lawyer isn’t open and valued, there’s trouble ahead. You need to be comfortable enough with the relationship to disclose the troubling or the embarrassing. Otherwise, you and your lawyer are playing without a full deck.

It needs to be OK to say “I don’t understand” or “I’m worried”. Otherwise, you may be setting off into the bankruptcy jungle without a current map or an adequate guide.

Don’t be afraid to leave an initial meeting with a lawyer without making a commitment. If you are uncertain about the fit, think it over.

If you are facing significant financial strain and want to explore how bankruptcy could provide you relief, then we invite you to contact McFerran Law, P.S. Our legal team has accumulated more than thirty-five years of bankruptcy law experience and is ready to help you explore your financial options during this difficult time. Call us at 253-284-3838 to schedule a FREE one-hour bankruptcy consultation at any of our offices in Tacoma, Seattle, Everett, Kent or Silverdale.

Post provided by:
Martin Prybylski
Attorney at Law
McFerran Law, P.S.
3906 S 74th Street
Tacoma, WA 98409
253-284-3811

Buying foreclosures class follow up

We had a great class last week. The students were fun and we had lots of good questions.

Here are the slides from the class:

This is an embedded <a target='_blank' href='https://office.com' rel="noopener noreferrer">Microsoft Office</a> presentation, powered by <a target='_blank' href='https://office.com/webapps' rel="noopener noreferrer">Office Online</a>.

And here is a peak at the current foreclosures available in Snohomish County:

and in King County:

Its a new year, time to check your credit report

The new year is a great time to check your credit report if you haven’t done so recently. And, there are now more free ways to track your credit than ever.

Government mandated website for requesting your credit report

The first way to check your credit report is one we’ve recommended for a long time. Simply go to AnnualCreditReport.com. This is the website the federal government required the credit reporting agencies set up so you could get a copy of your credit report from each company, once a year, for free. Its still the only way I know to get a copy for free, from all 3 agencies. Simply fill out the request form and get a copy. Since you get reports from all 3, you could choose to spread the requests throughout the year, so that you see how things change over time.

My experience, though, is that one or two agencies will have more complete information on you than others… and this can vary by part of the county you are in. For me, Experian has the most complete info.

What’s the difference between AnnualCreditReport.com and CreditKarma.com?

I learned about CreditKarma.com from TechCrunch. Credit Karma will provide you a copy of your Fair Isaac (FICO) credit score and copies of your credit report from TransUnion and Equifax (but not Experian). Those are the two main differences in information… the Annual Credit Report site does not provide your credit score (though you can order it), and it does provide your Experian Credit report.

Why does Credit Karma provide this information for free? (Or, rather, how does it make money from providing this information?) It uses the information it gathers from the credit reports, which you gave it permission to do, in order to present you offers for financial services you might need, and then gets paid if you buy those services. In theory it doesn’t sell your information to anyone. Most importantly, it doesn’t charge you directly for either the score or credit reports.

Both sites provide information about challenging incorrect information.

No matter where you go, be sure to check your report regularly. This will help prevent identity theft, incorrect information, and also let you know where you are having problems like missed payments. Make a point of doing it today!

Online real estate education from Tellus RE

As we wrap up the old year, and get ready for the new year, we thought it would be a good time to remind you that we have online real estate classes you can take. We have both licensing classes if you are thinking about becoming a real estate agent, and we have a wide variety of other classes that are good for fun or even Continuing Education credits of you actually have a license.

You can find a description of our classes here: http://tellusre.com/real-estate-licensing-and-continuing-education-classes

Or check out a course demo.

Our classes are provided through our partnership with the Rockwell Institute.

Notes and slides from the May 2014 Buying Foreclosures class in Monroe

We had a great class this past week… Buying Foreclosure and Short Sale Real Estate. The class was held in Monroe as part of Sky Valley Community Schools.

After our classes, we always like to share the slides and any handouts to our students and friends. Here are the slides from this class:

As part of the class, we always like to view this great video of a real ‘auction on the courthouse steps’. This auction was in Pierce County:

During class we provide lists of local foreclosed (bank or government owned, AKA REO properties) and short-sales (distressed properties). Instead of the print list, which can get dated quickly, here is a search of foreclosed properties on our website: (Just for fun, we sorted most expensive to least.)

http://properties.tellusre.com/idx/results/listings?tb=0&pt=1&idxID=a045&county%5B%5D=406&county%5B%5D=1247&srtd=desc&srtf=listingPrice&a_bankOwned=yes

1031 Exchange tips – Exchange with property improvements

Build To Suit

What happens when you cannot find a replacement property that is worth the same price of what you sold in a 1031 exchange? One option is to make improvements to the property being purchased. You can literally build the property to suit your needs or the needs of a potential tenant.

Essentially, you can use exchange funds to pay for the improvements made to the property that can be accomplished before the 180^th day of the exchange. It is almost that simple if you are only dealing with a sale that is free and clear. The only factors that can complicate this have to do with debt and lending issues.

The Process?

In simple terms, the Qualified Intermediary (QI) steps into title during the initial purchase, acts as a general contractor to facilitate the payment of improvements, repairs, and even some personal property that is added property. Then, as soon as the work is completed, or we reach the 180^th day, that improved property is conveyed to the exchanger to complete the purchase leg of the exchange.

What Improvements Can Count?

Virtually any capital improvements can count towards the value being added to the property. The QI cannot directly pay the exchanger for labor and the value of improvements is simply their cost. As mentioned earlier, personal property can be included, as long as its value does not exceed 15% of the total value of the finished property. An extreme example was the purchase of a fork lift for use in a warehouse being improved in an exchange, or a lawn mower purchased for a rental.

What If the Improvements Are Not Completed?

The property does not need to be habitable to qualify; it simply needs to be attached. A lumber package sitting in the driveway is only personal property until it is attached to the land. There is no inspection required; you only need proof that the money was spent. Guidelines and case examples use the “snap shot rule”. In other words, if you were to take a photo on the last day of the exchange, whatever is visibly completed can be counted.

Use of an LLC

Very often forming an LLC for the process of an Improvement Exchange is an effective way to package the improvements and tie them to the property. Any agreements made with any contractors during the process would remain in effect, and the final transfer of the improved property are smoothly conveyed by a simply Assignment of LLC Interest. This topic can often lead to many other questions, and that is why I am here. To talk to me about any of these, you are always welcome to call me directly for no charge.

Thank you to our friends at http://www.MBS-law.com for sharing this useful information, and letting us share it with you.

Here is the contact information for Kevin Hummel, Manager, Tax Deferred Exchange Practice Group

McFerran & Burns, P.S.

Offices in Tacoma, Kent, Seattle (Northgate), Everett and Silverdale.

Phone: (253) 284-3814 or Toll Free 800-236-4948, option 4

kevin@mbs-law.com

Tax Deferred Exchange Tips – Pulling cash out of an exchange

Our friends at McFerran & Burns, PS (www.mbs-law.com) have shared these tips regarding tax deferred exchanges.

Pulling Cash out of an Exchange

This is a common subject of questions when an Exchangor is selling a property with a large taxable gain. Sometimes it just makes sense to pull out “Boot” in an exchange. This is a term commonly used by the IRS or tax professionals to define taxable funds within an exchange.

Where does that silly name come from? It is not defined in the tax code, or in any court cases. There are several theories, like the ones that talk about the early West where in a swap of items, something might have been slipped into a boot (like tobacco, sugar, or money) to settle a discrepancy or sweeten the deal. My favorite though is when Congress was discussing the exchange process, a Senator from The South drawled, “Are you trying to tell me, you can do an exchange and pull out some cash to boot”.

Keep in mind that when you do pull cash out of an exchange, that amount becomes taxable but it does not necessarily ruin or disqualify the exchange.

Timing

The Qualified Intermediary can only release funds at certain times defined by the IRS:

The most common time would be as you are closing the sale. The escrow closer can be instructed to release certain funds during that initial closing process. Please know that once those funds have been released out of the exchange, they cannot be returned to the exchange account.

The next opportunity would be after the 45^th day, if no properties have been identified. Of course not identifying any replacement properties means that the exchange has failed and all funds can be released on the 46^th day or later.

The next opportunity would be after the 45^th day and you have closed on all identified properties, then all remaining funds can be released. It is common for us to instruct the closer of the last transaction to release all remaining funds to the exchanger while funding that last purchase, as long as there are no other properties identified.

The final opportunity is after the 180 days of the exchange has passed.

No matter how often exchangors are reminded that they cannot pull their funds out at any time, they often request it. After all, isn’t it their money?

Other Examples of Boot

Boot is also created if there is debt paid off in the sale, and it is not replaced in the purchase. In other words, the mortgage is paid off in the sale, but there is no debt or cash added in the purchase to replace that. The IRS views debt relief the same value as cash in an exchange. Another common situation that can lead to boot in an exchange is when escrow includes the proration of rents and deposits on the Settlement Statement. Those are actually relating to the business operating on the property, not the purchase or sale of the real estate.

For more information

If you would like more information, be sure to contact us. We may help you get in contact with our friends at MBS if we can’t help.

Thanks to our friend, Kevin Hummel, CES, manager of MBS’s Tax Deferred Exchange Practice Group for sharing this information.

Latest multifamily market report video avaiable from Dupre + Scott

Dupre + Scott, local multifamily market experts have released the latest in their weekly video updates. You can view the video below and read the full article on their site at http://www.duprescott.com/productsservices/articleinfo.cfm?ArticleId=650. I recommend keeping a close eye on the updates from Dupre + Scott. They make it sound like things are going to get challenging for apartment owners in a couple of years, as all the units under construction come on line. But, between now and then, its good to be a landlord.
What happened while you were on vacation

Did you get away for an early winter break in January? Well, if you did, here’s what you’ve missed already this year. Based on trends in January, 2014 is shaping up to be a very exciting year in the Puget Sound region apartment market.

NWMLS releases year-end results for 2013

The Northwest MLS (NWMLS – http://www.nwmls.com) released year end results for 2013 recently. The NWMLS is the local residential MLS and sales are primarily single family homes and condos.

It should come as no surprise the 2013 handily beat 2012 for sales, both in number of closed transaction and dollar amount. There were 11,000+ closed transactions (a 17% increase) valued at 25.5 Billion dollars (a greater than 24% increase) You can find the full news release and numbers on the NWMLS website: http://www.northwestmls.com/index.cfm?/News–Information

Tellus Real Estate partners with Rockwell Insitute for discounted real estate classes

We are excited to announce that Tellus Real Estate Solutions has become a satellite school partner with Rockwell Institute. We now offer online real estate classes are perfect for prospective real estate brokers interested in getting their real estate license, new agents that need to renew their license, experienced agents looking to obtain their managing broker’s license, and real estate investors or anyone else interested in learning more about the real estate industry.

You can register for classes using this link http://www.rockwellinstitute.com/WebSite/Register/Reg.asp?xid=D9EDEF779E85 or check our real estate school page for more information.