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Monday, February 08, 1982

02.08.2007 - Thursday Open Thread

This is your open thread for Thursday, February 8, 2007. Please post random links and off-topic discussions here.

I'm traveling back from Atlanta today, so although I realize that the local papers' stories about January will be posted today, I probably won't have time to post about them until tonight. Just an FYI.

35 comments:

T,V & Mr.B said...

From London..."Europe's biggest bank, HSBC Holdings, said its charge for bad debts would be more than $10.5 billion for 2006, some 20 percent above analysts' average forecasts, due to problems in its U.S. mortgage book."

That is 10.5 BILLION with a B dollars. Holy sh...!!!!!!

Maybe being the worlds 3rd largest bank, 10.5 billion ain't much, .... bull sh... it's still a lot. just think of the impact on smaller banks. Now I know why the UN said a month or so ago that they were worried about the US housing markets impact on the worlds financial institutions.

The defication is coming in contact with the rotary oscilator....in other words, The sh.. is hitting the fan!

matthew said...

And to think TV and B, this is just the beginning of the ARM resets, imagine what the situation is going to be like in a few years.

tacoland said...

AP
Senate Banking Committee to Hold Hearing
Wednesday February 7, 6:35 am ET
Senate Banking Committee Scheduled to Hold Hearing on Mortgage Lender Practices


NEW YORK (AP) -- The Senate Banking Committee will conduct a hearing Wednesday on lender practices within the subprime mortgage space.
Representatives have been invited to testify from Mortgage Bankers Association, National Association of Mortgage Brokers, The National Association for the Advancement of Colored People, American Association of Retired Persons, and the Center for Responsible Lending.
Lehman Brothers analyst Charles Marr said predatory lending legislation is expected to be a top priority for House Financial Services Chairman Barney Frank, D-Mass, and Christopher Dodd, D-Conn.

T,V & Mr.B said...

Man, I am no doomsdayer,(some simple minded optomists might disagree) but holy Bat-turds! this doesn't look good.

synthetik said...

The water finally broke on my New Century short position (NEW), down 29% today to $21.50/share.

Burn baby, burn.

synthetik said...

Maybe this HSBC will be the catalyst for the "Next Time Down" in the markets.

*fingers crossed*

If that turns out to be the case, all I have to say is "It's about freakin' time!"

Kimsie said...

"Senate Banking Committee to Hold Hearing
Wednesday February 7, 6:35 am ET
Senate Banking Committee Scheduled to Hold Hearing on Mortgage Lender Practices "

If they had done it 3 years ago it might have done some good.

T,V & Mr.B said...

"If they had done it 3 years ago it might have done some good"

Done some good in what way I guess is the question. prevented such a run up in home prices? Or prevented the impending fall of home prices?

maybe without the loose lending practices, the speculative buyers might not have run the prices up. but if it would have prevented the fall of prices that is happening now, then I don't think that is necessarily a good thing.

Richard said...

If they'd have done it 3 years ago, consumer spending would have been alot lower and we'd have been in a long drawn out recessionary period.

Richard said...

Here's a question - why would someone buy a house, then less than 2 months later Quit Claim it to an LLC?

I've never seen this before. The property in question is this home at 8003 5th ave

rolandovich said...

richard:

The reason people quitclaim their house to an LLC is they are holding the house for investment purposes and want to avoid personal liability in case a tenant injures himself on the property. However, they can secure better financing if they buy it in their own name as residence. Then after they get the house, they quitclaim it to an LLC. The funny thing is their lender will always have a due on sale clause, which allows them to call the loan in if the house is transferred to another party (including an LLC). Further, their insurance policies will almost always be voided by such a transfer so it actually does them no good.

So who puts this thought in the minds of these investors? I'll let all of you venture a guess.

deeplennon said...

The KC breakouts are very very interesting this month for Seattle.

breakouts link

Seattle combined down 9.53% MOM and only up 0.79% YOY. The lowest YOY gain for Seattle in the history of available KC breakouts going back to Feb 02.

Yeah it's only one month.. but very very interesting. Seems to fly in the face of the theories that the suburbs are more vulnerable to price erosion than the short commute city homes.

Lake Hills Renter said...

A new house is up for sale on my route to work in residential Redmond. It was bought less than a year ago, lived in ever since, and is now FSBO. The gentleman I've seen in the yard didn't seem the flipper type, so I'm wondering if his mortgage is biting him. Other houses on that street were up for way too much last year.

S-Crow said...

Quit Claiming people on and off like a light switch may trigger excise tax and has surprised many people who do this cavalierly. Particularly when refinancing. And this in turn may cause legal ramifications for those who have suggested this technique to their customers: ie, lawsuits recovering excise tax, not to mention potential lost equity depending upon the situation.

I'm not an attorney and this is not legal advise, nor should be construed as legal advise. Anyone reading this should consult legal counsel for their specific situation.

I'll post about this soon.

Joe Consumer said...

Richard:

The best way to limit liability is to move the property into a land trust, with the LLC as the beneficiary. The IRS ruled that a mortgagee can't exercise the due on sale clause when a property is moved to a trust like this. The compromise was the individual who took out the loan is still on the hook.

Also, the quit claim to the LLC would be totally above board if the property were bought with cash then moved. This happens with builders who buy a home to tear down..once they go into building mode, they move it to the LLC they created for that project

rolandovich said...

(1) Quitclaiming, in and of itself does not have any impact on Excise Tax. The WAC's (Washington Administrative Code) is very clear on when excise tax is due and it relates purely to consideration paid and debt assumed.
(2) Land Trusts don't do anything, in fact they are not even legally recognized in WA State aside from being a grantor controlled trust that has no liability protection at all. Don't buy into what those seminar people teach - they are using legal concepts that don't work/don't do anything in WA.

The best advice all day - Don't listen to anyone on a blog (including Rolandovich!). Ask your real estate attorney who is paid by the hour and disinterested from the transaction. Don't take legal advice from Real Estate Agents or others whose income depends on a deal closing.

Joe Consumer said...

Rodo:

Clearly, you aren't advised by an attorney.

Of course a land trust (which is simply a trust with a specific function) has no liability protection. What it does allow, is the ability to 1) mask the identity of a property's owner, and 2) per the aforementioned IRS ruling, allow a property to be effectively moved into an entity (as beneficiary) without risk of triggering a bank's due on sale clause.

My real estate attorney (also a defense attorney in IRS cases), who in fact educates other attorneys in asset protection, is the one who advised and facilitated this structure.

Furthermore, the beneficiary of my land trust is an LLP, where the general partner is a corporation. If some ambulance chaser comes after a big payoff, they hit the corporation, which gets cut loose.

So please, before speaking up next time, know what you are talking about.

Joe Consumer said...

Sorry, Rodo..got a little fired up there....my Danish anger started to flare.

You're not claiming to be an expert, or are you giving advice.

My apologies (I wish comments could be edited - and not just deleted - by users)

rolandovich said...

Joe - Apology accepted. I think this is a fascinating topic for discussion and further learning.

I'm not aware of the IRS ruling you are referencing and the Due On Sale caselaw I have read seems very broad. But, lets say one can place an investment property in a landtrust as described by yourself without violating the Due On Sale. Here is what I don't understand;

(1) You could obtain a commercial loan in the name of an LLC. Close the property in the name of an LLC and thereby obtain fairly good liability protection so long as you keep your finances separate from that of the LLC.

(2) You could go forward with the process you described: That requies (a) Land Trust; (b) LLC to hold property; (c) LLP to manage land trust; (d) Corporation to act as GP of LLP. That all sounds awefully complicated to me. Sure, it may be harder to find out where your assets are, but are you receiving enough liability protection on the margin to off-set the far easier LLC purchase of property? Also sounds like a lot of fees to your attorney... is it possible that he is the true "ambulance chaser" in this case?

Lastly, If your investment property is held by this land-trust/LLC intertwining but the loan on the property is still in your personal name, I believe that in any lawsuit you would open yourself to liability under the "breach of the corporate veil" doctrine because you have failed to keep business and personal assets separate.

Again, just my thoughts. You want legal advice, hire a Real Estate Attorney. I'm just engaging in friendly banter.

WTF said...

The Bay Area has the flu...

Lake Hills Renter said...

Haven't seen this posted yet: Median home price plummets by $40,000

MisterBubble said...

Those comments in the PI story are hilarious. You have to love the people who are blaming the MSM for the crash ("it's just the media being sensationalist!") -- talk about selective memory!

deeplennon said...

The P.I. story made the lead paragraph in the latest Ben Jones post.

link

great to see a Seattle post.. it's been forever.

T,V & Mr.B said...

"That's odd," Bob Melvey, assistant manager at Windermere Real Estate's Ballard office, said of the Seattle numbers. "My personal experience doesn't jibe with the stats."

Hmmm.. I woulda never figured prices would drop.. How odd. Excuse me while I pull me head outta my a..

Joe Consumer said...

Roland:

My properties in the entity/land trust are SFRs. Loans to an LLC for these types of properties are difficult without a strong credit history for the LLC itself. This is why the trust scenario makes sense for asset protection. With commercial properties, where income determines value, it's easier to get a loan as an entity (though a sponsor with good credit and assets is usually required by the bank...with the sponsor often being one of the principles in the LLC).

Regarding breaching the corporate veil, even though my name is on the loan, my entity makes payments to it. The deed itself is in trust with the entity as the beneficiary. No breach there.

When I get home, I'll dig up the IRS code that governs the issue of trusts and due on sale clauses.

rolandovich said...

Joe- I look forward to reviewing your IRS citations. Fee free to click on my profile and email the information to me directly. Thanks.

hapalicious said...

Synthetic,

does the 30% drop in that stock correllate to a 30% gain for you since you had it shorted? if so, not bad for a day's work.

Joe Consumer said...

Roland:

Citation authority for the land trust issue is as follows (from my notes with my attorney):

12 USC Sec. 1701j-3(d)(e)

Joe

Chad said...

>does the 30% drop in that stock correllate to a 30% gain for you since you had it shorted?

Yes. I shorted it about 5 months ago and it had dropped about 15-20% since then as well.

Amir said...

hahahahahah!

rolandovich said...

Joe -
I have found John T. Reed to be quite persuasive when it comes to "due on sale clauses".
Take a look at: www.johntreed.com/dueonsale.html

In that article he discusses the very citation given to you by your attorney. Mr. Reed's conclusion seems to be the exact opposite from your attorney.
Unfortunately in the Law there frequently are no clear answers. Perhaps this is one of those situations. Regardless, I believe that Mr. Reed's article on Due on Sale clauses is quite educational.

Joe Consumer said...

Interesting article. I'll send it to my attorney for his POV,and I'll let you know what I discover.

Joe Consumer said...

Roland:

Just got off the phone with my attorney. Frankly, after reading through the citation, as well as Reed's article, it seemed that since my properties are occupied on a lease with an option, the due on sale clause would still kick in.

He pointed out a couple of things. First, he took issue with Reed's reasoning about why the due on sale clause exists. Reed uses the analogy of loaning a car to a friend. My attorney told me this is a poor analogy. The reason for the clause is not so that the mortgage is stuck with someone who was bad credit or something like that; rather, it is in place specifcially because the lender has interest in the property with the deed of trust only while the original borrower is on title. Once title is deeded, the mortgagee loses all right to the property (though they can still go after the original borrower, but with no underlying property as security, collection is much less likely).

Also, regarding the exemption of the due on sale clause, Reed scoffs at the idea that an owner who has lease optioned it can be exempt from the due on sale. This got my attention, because looking at the citation (d)(4), that appears to be the case.

My attorney clarified it that if any of the cases 1-9 apply, then the clause is exempt. He said it should be read as a single sentence, and to remark the 'or' after number 8. In legalese, this means that an 'or' can be read after every one of those clauses.

Finally, which clause exempts me given my land trust situation. In number 8, an exemption is given with an trust where the borrower is the beneficiary. Since the beneficiary is a LLP, where I am a majority partner, this applies.

My attorney made three additional points:

1)Attorneys are trained to interpret any law from many different directions..it's healthy. So if you personally got advice to the contrary, that's not necessarily negate either side.

2) From his reading of Reed's article, he feels that Reed isn't an attorney, but a layman interpreting legal languange, which in his opinion, is leading Reed to make some mistakes in interpretation.

3) Finally, case law has backed up his interpretation. Once a judge saw the citation, he dismissed two separate cases, citing previous case law.

Great conversation, Roland!

rolandovich said...

Joe -

Unfortunately I disagree with your attorney. I don't want to belabor the topic of "due on sale" clauses and land trusts. Lets let our respective arguments rest for that topic.

However, I am very curious about the 2nd paragraph of your post where you state that the Lender can't foreclose on a property if the property is deeded to another entity.
You said: "Once title is deeded, the mortgagee loses all right to the property (though they can still go after the original borrower, but with no underlying property as security, collection is much less likely)."

This is false. The DoT is an interest in real property. So long as the debt is not paid in full when the transfer occurs, the DoT will remain against the property and the lender can foreclose.

I know this from a lot of personal litigation involving hard-money loans. In short, the DoT remains with the property unless paid.

I'm sorry I don't have any citations for you - but if you email me directly I may be able to email you some scanned articles.

I would love to know who your attorney is and talk to the guy. If your guy is right then maybe I should fire my attorney ;-)

Joe Consumer said...

Roland:

You may very well be right. He just briefly touched on the whole reason for the due on sale clause...I was more interested in the trust part of it.

I'll email you directly to get those scanned articles, and will gladly share my attorney's name.