Cold Company- Anyone? - Posted by Jeff

Real Estate Investing Real Estate Law
1

Posted by Mike STL on September 19, 2004 at 09:52:51:

I am looking for input in this area also.

anxiously awaiting thoughts from others …

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Cold Company- Anyone? - Posted by Jeff

Posted by Jeff on September 18, 2004 at 14:04:39:

Can the legal wiz’s please review this plan:

LLC A= Rental Company, $450,000 equity in rentals
C-Corp B= Dealer Company, large amounts of cash
LLC C= Proposed Cold company

I have heard the benefits of an asset protection strategy using a technique called equity stripping (not the practice ridiculously being considered as illegal in MN), in which a ‘Cold Company’ holds second mortgages on all company assets, reducing the company equity to zero, and making the company assets unattractive to attorneys going for gold in a frivolous lawsuit over and above the liability policy and umbrella. This is my plan with regards to this strategy, and I would appreciate any feedback as a check off on my current attorney’s claims:

We will form LLC C, wholly owned by C-Corp B. CCorp-B will contribute funds to LLC C as share buy-in. LLC C will then turn around and give second mortgages to LLC A for the equity property, setting up interest only notes payable when called. In the event of lawsuit against LLC A, the property will show no equity, and if pressed, could default on the notes called by LLC C, passing title to all property into LLC C.

Questions:

  1. Would the passage of property to LLC C from LLC A during a liability lawsuit via deed in lieu of foreclosure be deemed fraudulent conveyance?

  2. Has this structure/technique been defended in any case law?

  3. Is there any problem with LLC C being single member LLC with C-Corp B as member-manager?

  4. Any other pitfalls with this proposed approach?

ANY INPUT FROM ANY SOURCE WITH ANY EXPERIENCE IN THIS TYPE OF STRUCTUIRE WOULD BE GREATLY APPRECIATED.

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Re: Cold Company- Anyone? - Posted by FBN

Posted by FBN on September 20, 2004 at 15:23:23:

Troy Titus advocates this method which I assume he has advised you on this. Ask him to provide the info you desire. If he can’t then beware.