CW 153: The Truth About Asset Protection with Legal and Tax Strategies Featuring Mark Kohler Attorney & CPA

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Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show. This is episode number 153 and I'm your host, Jason Hartman. Good day to you. It's a stormy day again here in Southern California and all of those global warming people probably think it's cooling because it's warming. We're in our new office now and I guess this is my first talk to you from our new office. And I just interviewed John Perkins today. He is the author of Confessions of an Economic A Game As Old as Empire and his new book entitled Hoodwinked. So we'll have that show up here in the future, but we just recorded it today. It was really, really interesting. Today we're going to talk about two things really, but they're sort of on the same subject matter. And one of them is what to do if you are in trouble on a property. What are your options? What can you do to get out of a troubled property? If you've gotten yourself into a situation that isn't supporting you and your goals and you want to fix it, what can you do to get out? So we're going to talk about that. And again, that situation may have been brought about by a change in your personal circumstances or it may have been brought about by a change in the property. It may have been brought about by the change just in your plans and what you want to do, what your goals are. So whatever the reason, we're going to talk about how to get out of that. And then after just a little bit on that, which I'll talk to you about, we're going to have an attorney on the show and that is Mark Kohler and he wrote a book entitled Lawyers are Liars. And I'm sure many of you listening may agree with that. Even if you are a lawyer sometimes you'll agree with that. I know not all lawyers are bad. They get kind of a bad rap, but a lot of them are pretty bad. So anyway, we'll do that, and Mark will be talking about asset protection and how to structure your entity and your corporations and your LLCs and just manage your assets properly. We're going to talk about doing it in different states. What are some of the favorable and unfavorable things in different states? So make sure you listen to that interview that we'll have here. Coming up in just a moment. The other thing I want to say to you about that, though, is a word of caution. A lot of people when it comes to this asset protection stuff, because we get questions on it all the time. They're sort of putting the cart before the horse sometimes where they're so worried about protecting assets, and they haven't really even built any assets assets yet. So I don't want you to go overboard worrying about protecting yourself if you don't have anything to protect yet. So there is a balance here. You want to think about this if you are building some assets and if you want to protect yourself from current and future liability, of course. But you don't want to get so mired in this that you wait to invest or you wait to start a business, because sometimes you horse around so much with this whole area. And I've just seen people do it, and that's why I got to say this of asset protection. They never actually do anything and create anything worth protecting. So there is a balance. And I just want to point that out to you. Let's talk about getting out of a troubled property. So what if you are in trouble on a property? What do you do? Well, the first thing I want to say before we go into this is that we at Platinum Properties Investor Network, myself, our team here, we are not lawyers. We are not qualified to advise on legal matters, and we're not qualified to advise on tax matters either. So we're just giving you some concepts that you can then take to the appropriate professional for consideration. So I do want to make that disclaimer. We're not experts in this. We're real estate people and educators, but not tax or legal advisors. The first thing you want to do if you are in trouble on a property, and this is the best thing of all, is you want to consider getting a loan modification that is without a doubt the best route of all. Now, loan modifications are sometimes not too difficult. Sometimes they're very difficult or completely impossible. There's a lot to know about this. It's sort of a New area. The last couple of years it's sort of been the Wild West. I was able to modify 11 of my loans on properties I had myself. And I was able to do that without ever being late on a mortgage payment or having any damage to my credit or anything like that. However, I have tried to modify nine more of my loans and I haven't had so much luck on those. So it's a hit and miss thing. Now, as you may know, we have published. My publishing company, the Hartman Media Company has published a Do it Yourself loan modification kit, which I'm not giving you a big sales pitch on it here, but it's only $49 or $47 or something like that. And it's a 50 page workbook and a two and a half hour audio download that you can get at the website jasonhartman.com and that is a good place to start rather than running out and hiring one of these really expensive loan modification firms that's going to char you $3,500 or something like that. And that's just for one loan. You might learn about loan modification, which is a somewhat involved thing, and be able to do 10 of your loans yourself. I don't know. It's hit and miss. I think on my first 11 of them that I modified myself, I had some good luck and I was just able to do it and it worked great. And some of those techniques in the loan Do It Yourself loan modification kit were employed and they worked. These other nine I'm struggling with. I'm having a harder time. I'm still committed to it. I still think I'm going to get those loan modifications, but do I have them yet? Nope, not yet. I'm working on it. The other option is to refinance. Refinance to a lower interest rate. Different kind of loan structure, different kind of loan balance. Refinances are generally not working too well. We had a prior show where we talked about. We had Randy on that show and we talked about two refinance programs that may help you. I don't know the show number offhand, but if you're a regular listener, it's back there. And if you want to just go find that show, it's@JasonHartman.com or on iTunes. In that show we covered what's called the HASP program.

Where we talked about how you can refinance a property even if you're upside down or underwater on the property a little bit. Not a whole lot, but you can do it if you're a little bit underwater on it. So there are some options there that may help. Listen to that show for more details. But generally speaking, if you're in trouble, the refi usually isn't the way out because it's usually not available to you or you wouldn't be in trouble in the first place. The next option, and actually these next few options involve calling your property manager. Actually, the next two involve your property manager. So if you have a manager and you're not managing your property yourself, I would highly recommend that you call your property manager up or shoot them an email and say to them something like this, say, you know, I'd really like to sell this property to the tenant who is in place in the property. Now, I am not looking to sell it any other way. I don't want to put it on the market for sale. I just want to see if the tenant will buy the property from me. And if they buy the property from me, of course you'll earn a commission and that could be a good deal for your property manager. Now, state by state, property managers vary. In some states, you have a different license for property management than you do for selling real estate. And a lot of these companies have a real estate sales department in their office and they'll just refer it over to an agent there. So many times your property manager can be the real estate broker as well. It differs state by state. But just the point is tell your property manager either you want to talk to the tenant personally or you want them to talk to the tenant. And you don't want to get the tenant all freaked out here thinking you're going to sell the property. Property. Unless you're just going to blatantly completely put it on the general market for sale. What I think you want to do is go with a softer approach and just say, look, I'd like to sell this property to you, my tenant. You've been there, you've been a good tenant. Even if they haven't been such a great tenant, just tell them you want to try and work a sale with them and they may be more than happy to buy the property. And your property manager or the local market specialist that we referred you to, if you bought through our network, can help you with that process. If you bought a property through us and you're in trouble, that's going to be pretty unlikely because if you followed my advice, you stayed out of trouble. But some of you listening occasionally, you don't really follow my advice. So I know we all go astray sometime, but probably what you did is you bought that property through somebody else. And most likely what happened is your eyes lit up. It was at the peak of the market as the bubble was about to burst, and you bought a property in South Florida or Las Vegas or California or any of these markets that we really never recommended, and you bought it at the peak and got yourself into trouble because you were counting on something big to happen in the future, namely appreciation. And guess what? It didn't happen. Remember, one of the ten commandments of successful investing is the property must make sense the day you buy it or you don't buy it. So keep that in mind. But we all get into a situation for one reason or another at some point and we run into a problem. And so that's what this talk is designed to do to help you with that. Now, if this property is upside down or underwater, so to speak speak, meaning that the mortgage is too high to allow paying closing costs to get out and paying off the loan, you can work with your lender and do a workout or a short sale, and your property manager or your local agent in that market can help you do that. If you need help with us, and whether you're one of our clients or you bought a property through somebody else, talk to our investment counselors here, and they can possibly refer you to an agent. I'll give you an example of this. We have contracts, I believe now with agents, brokers, or builders or banks in 42 different markets nationwide. And currently we're only recommending about 10 or maybe 12 of those markets right now. So we have agreements in our network with people that we're not really actively working with only because we don't really like their market at the moment. For example, I spoke with our Utah agent last week. Now, we're not doing any business in Utah at the moment, but we still have connections in different parts of the country because we used to do business there. The prices got a little too inflated, and so we stopped recommending that market. So talk to one of our investment counselors here and we may be able to provide a referral for you if you don't have someone. So you can have this property manager or the local agent do a regular sale or a short sale where the bank actually will reduce the loan balance of your loan to allow you to sell the property. Ideally, you don't want to upset your tenant. You just want to sell it to the tenant in place in the property. So talk to your property manager or your tenant directly about doing this. Again, the caveat here is don't get your tenant all worried that you're going to sell the property. Just talk to them about them buying it. Just say, I'd like to sell it to you. Nobody else in particular. I just wanted to see if you'd be interested in buying it from me. So that applies in a regular sale or a short sale first. Best thing, though, is a loan modification. That's the very best thing of all. The next thing. What else can you do if you're in trouble? Well, if you're in trouble, you might be able to do another sort of workout or sort of compromise with your lender and offer them what's called a deed in lieu of foreclosure. Basically, what happens here is you turn over title to the lender and you hand them back the keys and you say, look, you'll take this and you agree. By taking over the property, I've transferred title to you. You're going to foreclose on me? That could work. Now, I just want you to know your lender is not under any obligation to accept that deal, but they may, in some cases be willing to do it. In fact, they do it fairly often, I'd say. And the reason they would do it is because it makes economic sense to them, because they know that if they have to go through the cost of foreclosure and the time of foreclosure, it may cost them a lot more money. The other thing, and hopefully you don't have to go to this one, is a foreclosure letting the property go completely in a case where you stop making the payments and the bank eventually takes it back. Now, some lenders are fairly swift at this, and they can do this in just a matter of a few months. Other lenders, I mean, I've heard stories about lenders taking 16 months to foreclose on a property, and sometimes the owner is collecting rent all along, or if they're a regular homeowner occupying the house, they're living there for free the whole time. And I got to tell you, this is what's called the moral hazard. Because what is happening in our society nowadays is people are actually doing this as a part of sort of business planning, if you will, where they're literally planning to go into foreclosure. They're kind of weighing this out and they're saying, look, if I can stay in this property for many months or maybe a year or maybe even longer, and it's going to damage my credit and that's going to hurt, I'm just gonna do It I was at a cocktail party recently and I talked with a bankruptcy attorney and I asked him what's going on in the bankruptcy world and he said that many of his clients were intentionally deciding to declare bankruptcy now so that in 18 months or so they can fix their credit as much as possible and be back in the game. Because they're kind of trying to time the market and they're thinking there's going to be a lot of, of troubled assets that they can buy cheap and hopefully they will have rebuilt their credit at that time. Look folks, this is a risky strategy. I'm not recommending this. It's pretty tense, pretty risky. A bankruptcy or a foreclosure, they stay on your credit report for a long time and ideally you don't want to do this. The other thing I want to talk to you about is if you go into foreclosure or do a short sale, be very careful. Well, in a foreclosure you don't really dictate any terms that I know of, but in a short sale you could, you can negotiate terms of that. I have heard some stories. Stories and someone sent me an article recently where it said that banks, lenders were going after borrowers that were doing short sales or foreclosures for what's called a deficiency judgment. Now I'm not a legal expert, but here's my take on that. It depends what state you're in because some states are what's called a non recourse state and some states are a recourse state. Now in a non recourse state, if you get a purchase money mortgage, meaning you use that loan to buy the house on the original purchase and you've not refinanced that loan or put a second trust deed on the property after purchasing it. Then in a non recourse state, California is an example, I'm sure there are many others and I don't know state by state. That's why you need to talk to a lawyer about this stuff. You are not liable. They can't come after you personally for any deficiency. All they can do is look to the property as the collateral, the entire collateral for the loan. What a lot of people don't know is that even in a non recourse state, California being the example, if you've refinanced that property, then that becomes a recourse loan. However, don't feel too bad because my take on this is that lenders don't have time to go and litigate with all these borrowers for a Deficiency judgment. Now I'm not sure how this process works. Again, I am not a lawyer, so you gotta ask a lawyer, a competent lawyer. There's a lot of really stupid lawyers out there too. So be careful who you're talking to. Through our network we offer that prepaid legal membership. That may be a helpful thing. One of the things I love about that is for 26 bucks a month you can have a lawyer in all 50 states. Again, even in the prepaid legal network the quality can vary. So it's good to get always a second opinion. So here's the thing. My understanding of it is on this deficiency judgment stuff, I think people may be over worried about this because I've heard some reports that there are 3 to 7 million foreclosures in the pipeline in the United States. Now they don't know that this will actually come true. These are just properties they think are susceptible to foreclosure. In other words, they're upside down, they're underwater, the borrowers aren't paying on time, whatever those metrics are. I don't know all the details, but anyway, I've heard that there's still quite a few foreclosures in the pipeline to come through and there have already been a lot of foreclosures, millions of them. So if the lender has to go and sue the borrower to get a judgment against them for the deficiency, if that is the process, and as far as I would know, I think that's the way it works. Are they really going to do that? Are we going to see 3 to 7 million new lawsuits filed? I can't imagine that the lenders have the time or the resources to do this. However, I don't want to say that and have you be the one borrower that they made an example of and they did pursue it, just know that they may have the right to do that. And you don't want to gamble too much and maybe they won't do it because they might really do it. These are just all questions I'm bringing up. Again, you got to talk to a tax professional about the tax implications of short sales, foreclosures, deeds in lieu of foreclosure, that kind of stuff and a regular sale as well. Because on a regular sale, here's a consideration you have. One of the beauties of investing in income property is you get this non cash write off, this phantom write off called depreciation. Well, if you have qualified for that write off and if you've been able to take that write off, if you sell the property, you may have to pay what's called recapture on that depreciation you took. Now you may not, because you may be selling it at a loss. So again, I'm not a tax expert. Talk to your tax person about the tax implications. Talk to a smart qualified attorney about the legal implications, but talk to your property manager. Because if you just open a dialogue with them about now, don't tell your property manager, hey, I'm just going to let it go into foreclosure. You don't want to panic them. If you're thinking about that, don't do that yet at least. But do say that you'd like to consider selling the property to the tenant who is in the property. And the tenant may just turn around and buy the house from you and you'll be out of it. And that's really a nice way to do it. The best thing, loan modification, second best thing, selling the property, the tenant in place. Those are some of the considerations you want to think about when doing this. Another thing you want to think about is you want to think about entities and entity formation. Now, this is not going to be for this troubled property, probably, but it's just general thoughts for the future of your business, of your real estate investments. So that's why we've got the interview with Mark Kohler, the author of Lawyers Are Liars. Before we get to that, I've got a special opportunity for you. This is a contest. And what you need to do to enter is you simply need to go to jasonhartman.com contest, type in your information. It'll take you 20, 30 seconds. It's real fast. And click submit on the form. And this could get you a free ticket for two people to the Masters weekend that we've got coming up on March 6th and 7th. So go ahead and enter that. We're going to give away a few free tickets for that, and then we're going to give away a few discounted tickets for it as well. So jasonhartman.com contest and you go there and you may win free or heavily discounted tickets to the Masters weekend. And if you haven't already registered for the Masters weekend, if you're not feeling lucky. But go ahead and enter, you might as well. Even if you pay, we will go ahead and refund your money if you're a contest winner. So even if you want to register just to make sure you come to the event, go to jasonhartman.com and click on store and then events and you can register for the masters weekend on March 6th and 7th. And by the way, we've got the Creating wealth boot camp. The next one, it's a couple months away coming up May 22nd. Alright, so you can register for that as well. But the Masters weekend, remember the price goes up on that in just a few days. Here we're gonna have to raise it another $100. The early bird pricing goes away. So be sure to register for the Masters weekend. It only happens twice a year. And this one's gonna be pretty special, the most unique one yet because we're gonna have some money making experts as well. We're not just going to talk about creating wealth through income property. We're going to talk about making money with Internet marketing with a home based business. And it's no particular business by the way. It's whatever business you might be interested in, whatever your passion is or your area of interest or whatever you've got going on already. So go to jasonharmon.com register for the upcoming events, get a copy of the Do It Yourself loan modification kit if you like. Look at our other information. We're constantly upgrading this new website we have and also enter the contest@jason hartman.com contest. Here's the interview about asset protection. Here we are.

I'm here talking to Mark Kohler today. He is an attorney at law and a CPA out with a new book entitled Lawyers Are Liars, the Truth About Protecting Our Assets. And I've looked into this asset protection stuff for a long time now, folks, and I've heard a lot of sales pitches on it. And I think in the asset protection world there are a lot of people being preyed upon that are basically being sold a lot of stuff they don't really need. But then again, how can you argue with, you can never be too careful. So anyway, let's talk about that all today. Mark, welcome to the show.

Well, thank you very much. Thanks for having me. Jason, it's an honor. Love what you're doing and you're students and the people you educate, your clients. It's an honor to be with you guys. It's just an honor.

My pleasure. So tell us a little bit about what's going on in the world of asset protection. I mean, society or the court system doesn't really want people to use schemes to protect assets because nobody should be judgment proof. That basically puts them above the law, right? Yeah. Can you really do this? I mean.

Well, absolutely. I mean the theory of incorporating in and of itself is a legitimate way to protect yourself. And there's many things you can do with asset protection strategies. I'm sure we'll talk a little bit today about my chapter about O.J. simpson and.

Well, yeah, his retirement plan when Petrich Shelley attacked it.

Yeah, the model. He's like the classic asset protection model to follow. Not life model, of course.

Right.

But yeah, there are so many proper ways and strategies and things you can do to protect your assets. The schemes and the scams are why I had to write a book, because I'm sick and tired. As you see, many, many people get ripped off. I'm sick and tired of it. And there's no book out there as a watchdog book in asset protection. Everybody writes an asset protection book to sell their stuff, but not someone that's going to call out the liars. And that's why I had to write a book on this. I mean, it just drives you insane.

Well, again, Mark, I got a compliment you on your book because it's footnoted. You back it up. It looks very, very complete. Again, I'm no expert here, I'm a layman and I've heard a lot of these pitches, though, on asset protections. I've read a little bit about it. And what can people do to protect their assets?

Well, that's a great question because the book is really divided into two halves. Here are the scams. Watch out for the scams. And so highlight, of course, five or six scams.

That's a great way to start. Maybe we'll start with that. What are the fiverr? Just, just kind of bullet point on the five or six scams. You bet, you bet.

And then the second half is what really works. So we can probably dig into that later. But the scams are the big ones, ones just to avoid. The first one that I of course talked about is the silver bullet type strategy where people say you can hide your assets. Whenever someone says hide or silver bullet, that's a key indication to run because any lawyer or planner that's helping you legitimately is going to understand there's nothing you can do for 100% protection. You can put up barriers. Whenever you see that silver bullet, one size fits all plan, that's the first scam. So watch out for that. If you're in a room with 20 other people or on a show or you're listening to a salesman and he says this is what everyone should be doing, that's the first scam out there because they think they can sell it to everybody.

Everybody's different.

I mean, your plan, Jason, could be very different than mine. We could both own real estate, both have a family, both have a business, which we do. But your plan can be different than mine, and these scam artists out there prey on the one size fits all approach.

Thank you for listening to the Creating Wealth Show. This is Jason Hartman, your host and we appreciate you following the show. We have many, many episodes, hundreds of episodes, and some of the older episodes have been archived and placed in our Members section and that applies to this one. So we include a sample that's about 25 minutes long and then for the rest of the show you can go to our Members section@jason hartman.com Many of the other shows are still in their full length complete version. However, some of the shows like this one are in our Members section where you can hear the show in its entirety. And again, you just need to go to jasonhartman.com and you can get the full show there in the Members section. Plus a whole bunch of other great members benefits and resources, whether it be documents, forms, contracts, articles, other video and audio content. Just a great resource. So be sure to join as a member@jasonhartman.com and thanks again for listening to the Creating Wealth Show.

This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews. Please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.