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Richard, Attorney
Category: Business Law
Satisfied Customers: 54986
Experience:  32 years of experience practicing law and a businessman.
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Hi my name is Joe, This question is a mixture of realestate

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Hi my name is Joe,
This question is a mixture of realestate law and small business (LLC) law. I am a managing member of a new transportation LLC in Florida (with my father). Switching gears, I also bought a home back in 2008 with 2 other partners. Earlier this years my partners decided we should short sale the property because we were underneath the value of the property and we had inconsistant renters. Its been taking for ever to get the short sale done and now citi mortgage gave us a 20 day summons for forclosure, although the short sale is still in the process with an offer. My one partner's dad has a pretty high powered lawyer that is going to lead us in the right direction with the summons, but my question is how do i protect my new business from citi mortgage? Can they and will they come after it in both a short sale or foreclosure situation? We show a loss since we are just getting started as a business, but i have too much to lose to not be ready for this situation. Ty Joe
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good morning. Florida, unfortunately, is a deficiency state...which means the lender can pursue the borrower for the deficiency...the amount owed over the amount of the foreclosure sale. Whether or not they will depends upon their assessment of the collectibility of a deficiency judgment. So, if you can convince them there is nothing for them to get, and that if they were to pursue a judgment, you would simply file for bankruptcy protection and get the judgment discharged—and even if you have no intention of doing so, it is still good leverage with the bank because they do not know whether or not you would… then it is unlikely the lender will spend the time and money necessary to get a judgment they believe is uncollectible in the end.

If they do pursue this to a judgment, they can go after your assets, which would include your interest in the LLC. But, if the LLC has no market value, it's not likely they would do so. If you wanted to make it more unlikely, you might want to consider putting your LLC interest into a family limited partnership. Carefully drafted, this converts assets that a creditor would find attractive to go after into a limited partnership interest with no control, no rights other than that of an assignment, no transferability, no marketability, and no right to distributions. The transfer is for fair market value…i.e., you are simply exchanging one asset for another of equal value to you. And, you maintain control through a general partnership interest that you control. Yet, when complete it essentially is an asset no one wants and thus the creditor is less likely to pursue the debtor. Family limited partnerships must be carefully drafted and one would need an attorney experience in this area to do so, but they can be a very effective method of asset protection.

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Customer: replied 4 years ago.

Thank you for your answer. Is it any different if we end up short selling? Can citi still come after me in the same way? Say the we bought the home for $325,000 and now we owe $240,000 and the short sale is for an offer of $170,000.

You're welcome and thank you for following up. If you short sale it, as part of the short sale, you would want the lender to agree to release you from any obligation for the deficiency. Otherwise, there is really no benefit to you to going through the brain damage of a short sale. But, you want to make sure they affirmatively agree to this because otherwise you would be liable for the shortfall in a short sale as well.
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