X-Banker

The Time Has Come To Fight Foreclosures

September 12th, 2008

By The XBanker

In this difficult real estate market, many investors are advised to just turn in the keys and walk away from a property they can’t afford. The lender will sue for foreclosure, the borrower will not defend the case, and the property will be sold at a foreclosure sale.

In many states the lenders (or, in future years, those bottom feeders who buy such judgments for ten cents on the dollar) will pursue the borrower for a deficiency judgment. Meaning if you owed $400,000 back, you still owe $300,000. Years later you will still have someone chasing you for the money and your problems will continue long past turning in the keys on a failed investment.

It is now becoming clear that your best strategy is to fight a foreclosure. Hire an attorney to defend a foreclosure complaint. There are many defenses to be asserted, including a developing theory of predatory lending practices. As well, there are many appropriate procedural tactics which can be used to delay a foreclosure. When lenders run up against an aggressive defense, they are much more open to negotiating a settlement. They don’t want to spend a great deal of time or money on one case that has become a problem” for them. And as we know, they have a lot of cases to work on these days.

We are hearing of cases from around the country where lenders are becoming frustrated with defendant challenges to their foreclosure actions. Frequently, deals are struck whereby in exchange for the borrower allowing the foreclosure sale to proceed the lender agrees not to pursue a deficiency judgment and further agrees that the property value equaled the loan amount, thus avoiding the tax on forgiven debt. Borrowers are thus able to truly walk away from a property without the nagging concern of someone later pursuing a deficiency judgment or Uncle Sam later wanting money for debt forgiveness taxation. The attorney’s fees of between $2,000 to $5,000 in most cases are a small price to pay for getting clear of tens to hundreds of thousands of dollars in continuing obligations.

The time has come to stand up and fight foreclosures. Gain the leverage you need to release yourself from years of liability. Our office handles foreclosure matters in Nevada and California. In other states you will want to locate a competent real estate litigator in your area. Good luck.

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Does A Car Lease Affect My Credit?

September 12th, 2008

By The XBanker

Here’s a question from a reader:

Does signing a car lease and making those payments impact personal credit in any way? The short answer is, “It may.”

If the car lease is a personal lease, and is reported to the credit reporting agencies (most are, but not all), it will affect your credit. Whether it helps or hurts depends on all the other information in your credit report. If you already have a lot of debt and payments, then it could be negative. If not, it may be a positive.

Even if the lease doesn’t impact your score much, it can affect your credit in other ways. I recall one entrepreneur, for example, who was charged a higher rate for her mortgage due to an expensive car lease payment that appeared on her credit report. Except it wasn’t hers. When she got it removed, her interest rate improved.

If the vehicle is leased under a business lease, and does not appear on your credit report, then it will not affect your personal credit.

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In Credit Crunch, Business Comes First

September 8th, 2008

By The XBanker

Business owners are electing to pay business debts at the expense of personal debts, reports Experian(tm). In a comprehensive study covering 2.7 million business owners over the course of a year, the global information services company found that found that business owners with a severe mortgage delinquency were more likely to pay their business obligations instead of their mortgage.

Experian’s research showed that because of deteriorating equity, high mortgage payments and limited refinancing options, business owners chose to ensure the business’ survival, preserving their source of income at the risk of losing their home. That’s the bad news.

Here’s the good news:

Business owners were less likely to experience a 90+ day delinquency on their mortgage than other consumers. In fact, by April 2008, the average home owner was 1.5 times more likely to experience severe mortgage delinquency than the average business owner

Additionally, Experian’s study found that small-business owners are relying on commercial lending options more often than personal financing options, to support their businesses. We think that’s smart business and it may very well allow the business owner to keep their business even if they have to start over personally.

But of course, the downside is that business owners’ personal credit can impact their business financing. Experian, which sells a credit score that blends the business owner’s credit with the credit of the business, points out that consumer scores work great for assessing consumer risk, but their blended score performs nearly twice as well as a consumer score for assessing business risk.

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Grab Your Free Chapter!

September 4th, 2008

By The XBanker

Garrett Sutton and I contributed a chapter to the Entrepreneur Start Up Guide: Start Your Own Information Marketing Business. Our chapter was about how to finance your info marketing start up, and of course we talked about business credit and creative financing strategies!

Now you can nab a free chapter of the book here. It’s offered by Robert Skrob, the info marketing guru who pulled the book together (in an amazingly short period of time I might add!). And in the true tradition of info marketing, Robert’s offering a bunch of good free stuff for would-be entpreneurs.

We’ve learned a lot from Robert and his colleagues who authored chapters in the book. So if you’ve ever thought about getting paid for that stuff in your head, I would recommend you go ahead and get your chapter (or ideally the whole book!), get inspired, and GET STARTED!

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Less Privacy Ahead for Corporations?

September 3rd, 2008

By The XBanker

Are you aware of what certain U.S. Senators would like to see when it comes to corporate formations?

You might be very surprised.

The Incorporation Transparency and Law Enforcement Assistance Act, or Senate Bill 2956, was recently introduced by Senators Barack Obama, Carl Levin and Norm Coleman. These senators want to know exactly who owns each and every corporations or LLC formed in every U.S. state.

Granted, certain U.S. criminal minds have used corporate privacy to shield their fraudulent actions. Yet methods do exist to learn of this information. So why the concern? Some government officials now claim that international terrorists are using U.S. entities to hurt us. We have heard this song before as our civil liberties get chipped away. And so under this legislation the basic privacy in conducting one’s affairs will be sacrificed at the temple of complete government knowledge to combat what may not be a problem.

Stay tuned. But for now know that the bill as proposed would contain the following:

• Requires states to obtain a list of beneficial owners of each corporation or LLC formed under their laws.
• Requires states to ensure the beneficial owner information be updated annually.
• Requires states to provide information to law enforcement upon request.
• Requires entities with foreign beneficial owners to provide certification from an in-state formation agent that the formation agent has verified the identity of those owners.
• Establishes federal, civil and criminal penalties for persons knowingly providing false beneficial ownership information.
• Provides exemptions for publicly traded corporations since the Securities Exchange Commission already oversees them.
• Authorizes states to use an existing Department of Homeland Security to use already appropriated funds to meet the requirements of this Act.
• Gives states until October, 2011, to require beneficial ownership information.
• Requires the Treasury Secretary to issue a rule requiring formation agents to establish anti-money laundering programs to ensure they are not forming U.S. corporations or other entities for criminals or other suspect persons.

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Problems Building Business Credit Part Two

September 2nd, 2008

By The XBanker

In a previous post, I replied to a reader who is skeptical about building business credit. Here is some more correspondence on this topic:

I appreciate your response to my question. My business is two years old and I have perfect business credit with DNB and an intermediate score with Experian. Additionally, far as personal credit, I did all I could to increase the score.

I have a student loan that will not be paid off any time soon. In the beginning I believed that building perfect business credit would be the perfect solution to my problem. Of course, after I followed the steps I realize ultimately personal credit still plays a factor. I have several trade accounts with small credit lines nothing serious.

But I am looking to obtain a line of credit from $100-$200,000.00 dollars. That is the reason I formed (my corporation) to acquire an existing company. Technically my company is a start up, but through building credit I established creditability of paying on time and my company has matured to the time banks require businesses.

Ms. Detweiler, I’ve been at this for six years with no results. I hired every consultant I can think of. Should I give up? What would you do in this case?

This is a great conversation, because it illustrates some of the myths floating around about business credit. Read the rest of this entry »

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Series LLCs: Where Angels Fear to Tread

August 27th, 2008

By The XBanker

There’s a lot of talk about Series LLCs. More and more people are wondering if they’re a smart idea. The short answer is that they aren’t – they haven’t been tested, giving them limited applications if they have any at all.

First, some background. LLCs alone are an excellent structure for many different uses. For instance, they work well as a method of holding high dollar assets like real estate. If you own commercial or rental property, it’s important that you hold title to that property in an entity. If this entity (most likely an LLC) is run and managed properly, it can protect you from any personal liability.

Many people own a number of different investment properties. They want to protect both their investments and themselves by placing them into one or more LLCs. The task then is scenario, every investment is held under a different LLC. That’s not a popular answer for people who have lots of investments, but it’s built on sound reasoning. Think of LLCs as giant shoeboxes. As many investment items as you like can be placed inside, but they’re all at risk if something happens to the box. If a lawsuit happens, every investment you’ve placed into that LLC will be in danger.

The solution is to separate your investments. Ideally, you should use a separate LLC for each one. If you can’t, be sure to examine the equity you have at stake in every investment along with its liability potential. Then group them in LLCs accordingly. As an example, it’s not a good idea to include a single family beach front rental in Maui in the same LLC as a duplex on the wrong side of town. You may have several thousand dollars of equity stored in the house on Maui, which is placed at risk by including it in the same LLC as the rough edged duplex. Keep them separate. However, if you own three single family homes in Idaho, each within about twenty thousand dollars of equity, you might feel that placing them together is an acceptable risk. But that segregation strategy can get expensive.

If you have ten properties, using ten different LLCs might seem confusing and costly. Series LLCs seem to provide a solution as statutes in certain states allow you to create separate series within a single LLC, the debts and liabilities of which are only enforceable against that series. These laws allow LLCs to establish separate series of interests, members and managers, giving them separate duties, powers and rights. Those include the rights to profits and losses with respect to specific property and obligations. In states that have this kind of enabling legislation, each series within the LLC works as a separate entity under state law. This is why many people are attracted to series LLCs – they theoretically have the ability to shield property in different series from liabilities incurred in or against one another without paying state fees for multiple entities. This means that an LLC containing two properties can choose to place each into a separate series, so that liabilities from one can’t cause problems with the assets of the other. (Remember the same effect can be created using two different LLCs to hold these two properties.) Many people prefer series LLCs because at first glance they appear to be cheaper to set up. However, this assumption is false. It’s actually more complicated to set up a series LLC, making it more expensive than the basic type. In California you might find a series LLC appealing because the Franchise Tax Board charges an annual fee of eight hundred dollars for each entity. Many people think that setting up a single series LLC means paying only one fee in California. However, the Franchise Tax Board takes the position that each series counts as its own LLC for fee purposes, meaning you’ll have to pay the same whether you set assets up in series or in their own separate LLCs.

The biggest problem with series LLCs is that many states (including California) don’t have series legislation and may choose to ignore the laws of the state where the series was created. That’s because you’re subject to their rules when doing business in their state. The example of the attitude of the California Franchise Tax Board applies to fees, but liability protection is also an issue. Since series LLCs are so new they’ve never been tested by courts, even in the states that permit them. That means there’s no guarantee that limited liability protection will be extended to each series until every state rules on the subject. It’s hard to see how a court would choose to grant this kind of protection inside one entity, and only time will tell if courts will do this. But do you want this type of uncertainty when you are trying to protect your assets?

Again, one should be concerned about how series LLCs will be treated by the states that don’t have laws permitting them. If you set up a series LLC in Nevada then register it as a foreign entity conducting business in the state of Massachusetts, each series in the LLC own a separate piece of property. If there’s a lawsuit in regards to one of these properties you can’t be sure that the Massachusetts court will honor the series structure of the LLC, applying Nevada’s law to the real estate and activities that are located in Massachusetts. If they do, the claimant can collect only against the property in that series. If they don’t, the claimant can collect against the properties in other series as well. States are expected to give full faith and credit to legislation of other states, but the answer is uncertain. Exceptions do happen. It is also important to note that the American Bar Association did a review of series LLCs and declined to endorse them. You can be certain that future court cases will take note of this development.

Since the laws about creating series LLCs are different in every state that permits them, it might take a long time before enough case law is accumulated to give us any level of comfort about using them. If you want to make sure your assets have good, solid protection, it’s a much better idea to avoid corporate structures that don’t provide reliable protection. Avoid series LLCs as a form of protection until a definitive case law is established and rely instead on known, tested entities such as individual LLCs.

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Protect Yourself from Your Assets

August 21st, 2008

By The XBanker

How can you best protect your personal assets? Here are some things to consider.

• Keep Your Personal and Business Assets Separate

If you don’t insulate your own assets from those of your business, you could be in trouble. If you operate your business in the form of a sole proprietorship or as a general partnership, these businesses are not registered entities, which means that your personal assets are not insulated from those of your business.

As an example, if you’re a sole proprietor and an angry customer sues you, any assets you own such as your house or car are not protected. Nor are financial assets such as your bank account. These can all be taken should a judgment be found against you.

Or perhaps you’ve formed a two-man partnership with your friend. This may perhaps be an even worse idea than a sole proprietorship is. What this means is that you are as liable for your friend’s errors as you are for your own. You are also liable for anything purchased in the name of your partnership. Remember that one partner’s signature is enough to bind both partners to a debt or other type of obligation. Again, this leaves you unprotected and without any recourse should something happen; you could be left holding the bag.

To protect yourself, use a registered corporate entity, such as a C or S corporation, a limited liability corporation, or a limited partnership. You’ll need to keep your company’s registration up-to-date, hold annual meetings and keep annual minutes, keep business clients separate from your own, and avoid signing any business-related documentation in your name. This keeps your own assets separate from those of your business. By the same token, you are also protected from any debts or disasters incurred by your business.

• Protect Your Business Assets

You need to protect your business and real estate assets from yourself. A limited liability company is an excellent way to help protect key assets. For example, if you have a rental property, you should hold assets either in a limited partnership or in an LLC. These protect you from personal liability if anything should happen on the property and it also provides you another advantage. Should someone become injured on your property, you are protected from being sued directly by the tenant. Remember that the business’s assets are still at risk of suit should the tenant decide to sue. However, if you have adequate insurance, you can help protect yourself from having the claimant lay claim to your assets so as to satisfy your obligation. This strategy comes with a caveat though.

A comprehensive commercial insurance policy can help you keep the property instead of having it end up as a part of a court-ordered settlement. What should you look for? The liability insurance should cover injuries to third parties on your property. It should cover trespassing, especially if you have undeveloped or vacant land. If you have people working on your property as your employees, you should also have Worker’s Compensation insurance. The insurance should also have “increased cost of construction” additions if your building should become damaged or require reconstruction. That means you’ll be covered at today’s construction prices instead of those of previous years. If you are a landlord, “loss of rents” riders can help you recover costs in the event your building is damaged and uninhabitable so that you can pay relocation costs or receive income from the property while it’s being rebuilt to offset right losses. A final consideration is a “higher limits” rider, so that you have extra protection in the event a catastrophic claim is filed in one of these categories.

But as we know, insurance companies have an economic incentive not to cover every claim. They find reasons to deny coverage. So while you will have insurance you will use entities as a second line of defense to protect your personal assets from your business claims.

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Don't miss this free teleseminar series!

August 12th, 2008

By The XBanker

My fellow XBanker co-founder Garrett Sutton and I have been asked to be part of a tremendous teleseminar series for business owners. Not only am I presenting during this virtual event, but I am attending these sessions myself as a guest because there is so much I want to learn from the other presenters in this power-packed event. I’ve heard a few of them speak, and there are others I can’t wait to “meet.”

Oh, and it’s free…so how can I resist? How can you?

Here’s the official announcement, but I’ll give you my opinion: if just one of these presentations puts money in your pocket you’re way ahead of the game!

Who Else Wants To Learn ‘Secrets’ That Most Small Business Owners/Online Marketers, Entrepreneurs, Writers and Coaches Will Never Know About How To Really attract more leads, close more sales, set up automatic marketing systems, increase profits, and keep more of your cash each month as you build wealth?!

Give us about 28 hours over the next few months and we’ll force 22 of the world’s top marketing & small business experts to reveal their most powerful, most clever, and most profitable & guarded secrets for unparalleled personal & financial success.

Learn more and register here.

Not sure? Here is an example of what you will learn;

The Freedom Formula author Guru Christine Kloser who will show you “How to Put Soul in Your Business and Money in Your Bank”

Rich Dad’s Advisor Garrett Sutton will tell you about the 5 mistakes most small business owners make when setting up a corporation

Million Dollar Lifestyle Business Coach Melanie Benson Strick shows you 101 Ways to Triple Your Income by Outsourcing Your High Payoff Activities

Branding expert Kim Castle shows you through interactive exercises how brand worthy your business is.

James Roche, (The Info product Guy) will show you how to get paid for your knowledge via his Info Marketing Action plan (iMap program)

PR and marketing expert Susan Harrow will show you How to Get a 6-figure Book Advance

Online Marketing expert Katrina Sawa will tell you what you need to know to get more exposure and clients FAST

Elizabeth Potts Weinstein (CFP(r)& Attorney) shows you an Easy, GUARANTEED System to Take Control of Your Cash Flow in Just 15 Minutes per Week

For full details and to register for the FREE events!

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Save Your Business in Bankruptcy

August 11th, 2008

By The XBanker

My Xbanker colleague Garrett Sutton has written extensively on the value of incorporating a small business, and here’s another reason to do so:

Incorporating can literally save your business.

I doubt many sole proprietors realize that filing for personal bankruptcy (due to medical debts, divorce or many of the other reasons people file) could mean the end of their business.

I didn’t.

But in a recent post on the Bankruptcy Law Network, California bankruptcy attorney Cathy Moran describes a recent case in which a couple who owned a business as a sole proprietorship were in danger of losing it – even though it was doing just fine – because they had to file for personal bankruptcy due to real estate investment debts.

She points out that:

…(the) business was a sole proprietorship. If we filed Chapter 7 now, Chapter 7 trustee’s first reaction to a going business is to shut it down. The trustee is concerned about his liability for regular business debts the operation may incur and the possibility that a customer may be hurt on the premises. The trustee wants to preserve the status quo by shutting the doors, even if there is nothing in the business that he can sell for the benefit of creditors.”

In this case, she was able to incorporate the business to save it.

But as another California bankruptcy attorney Douglas Jacobs points out in another post, waiting until you are contemplating bankruptcy to incorporate your business is risky business. It can be considered a “fraudulent conveyance” and can backfire.

If you haven’t been convinced yet that you need to incorporate, what else can I do to convince you that you need to check it out? It may literally save your business.

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