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LADYLAWYER
LADYLAWYER, Lawyer
Category: Legal
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In 2007 my husband and I bought a converted brick rambler,

Customer Question

In 2007 my husband and I bought a converted brick rambler, zoned commercial, with a partner. They are both physicians. The partnership lasted barely several months, and we bought out the partner's 50% in the building. Soon after, the market started to crash. We had trouble getting tenants, had to lower rents, and the botXXXXX XXXXXne is that our building is currently under water by perhaps $100,000-$200.000. Meanwhile, we have had to waste $3,000/month of our own money to keep it afloat, which now translates to nearly $200,000 we have "thrown out the window" which could have gone to retirement, and possibly allowed my husband to retire sooner (he is 61).

We have 2 loans on the property: SBA (40%) and Banner Bank (60%). The Banner bank had a 5-year balloon, which expires this month. We are trying to refinance. There is a problem with the debt service coverage (i.e. we aren’t bringing in enough rent to cover our mortgage, without using our own funds, which we have been doing. My mother recently passed away and left a condo for me and my siblings which has not sold yet. When it does sell, I expect to receive around $35,000-$40,000. Unfortunately, Banner Bank knows this money is coming to me in the next few months and wants to put together another year extension so I can use that money to lower the total principal and then refinance again. I really do not wish to use that money on the refinance, as right now we have no safety net if anything else happens, and we have a $13,000 tax bill to pay for 2012 which includes taxes from Annuities I received from my mother’s estate.

So the question is:

What would trying to do a short sell on the property do to us in terms of negative impact on our credit and everything else? The building is in an LLC, and we have a home, that we still owe mortgage on, and another rental property which has always had good tenants, and the rent covers the mortgage.

We are tired of throwing good money after bad. We have always honored our commitments, but we are in such a bad financial condition because of this office, that it is getting harder and harder to see any light at the end of the tunnel.

Any advice you could give would be very helpful.

Dianna Salmon
Submitted: 1 year ago.
Category: Legal
Expert:  LADYLAWYER replied 1 year ago.

LADYLAWYER :

Hello, Thanks for choosing Justanswer.com! I look forward to helping you with legal information today. You shouldn't be throwing good money after bad. A short sale would be the best option here. You need a real estate attorney or a Realtor WELL versed in short sales to try to work with the bank to get them to agree to the short sale (the bank has to sign off on any sale too since they have a vested interest in the property) and then also get the bank to agree NOT to seek a deficiency judgment for the difference between what the house sold for and the balance of the loan. If the bank won't agree to a short sale, or if it does agree to a short sale but does not agree not to pursue a deficieny judgment, then the LLC will probably be sued. If they bank decides to sue your LLC, they will at least try to get to you personally. After all, the legal fiction of corporate personhood exists specifically to create a cushion between you and the LLC's liabilities. The process of "getting to you" is called "piercing the corporate veil"-that is, getting a court to look beyond the fiction of corporate personhood to get to the person behind the curtain.


Piercing the corporate veil is a very difficult thing to do (as it should be), provided that you treat the LLC as a separate person. In practice, this means that you must conduct the affairs of the LLC separately from yours, establishing that, when you are acting on behalf of the LLC, you do so in the LLC's best interest as it is your fiduciary duty. This means taking care of a few formalities, like keeping your business license current, opening separate bank accounts and, especially, avoiding commingling your personal funds with the company's. It also means that you cannot use the company as a shield to commit fraud, and so on, and so forth.


 


As long as the corporate veil is not peirced, your personal credit ratings will not be affected and will remain in tact. If the LLC is also the owner of other assets and it is sued, there is a possibility that any other assets can be liened and foreclosed upon in order to satisfy the outstanding debts of the LLC.

Customer:

Thank you. Let me discuss this with my husband and can I get back to you, specifically, or how does this work?

LADYLAWYER :

No porblem--sorry for the delay, the system rebooted on me.

LADYLAWYER :

If you have any more questions, I am ALWAYS happy to assist you for no extra charge. This is true whether you ask the questions today or a year from now. Just sign back onto the site, go to the "My Questions" link at the top of the page, click on this question and then just leave me your replies.

LADYLAWYER :

I may not be online at the same time you are, but I will get back to you within 24 hours (the only day I am not online is Sunday).

Customer:

Thank you!

LADYLAWYER, Lawyer
Category: Legal
Satisfied Customers: 6531
Experience: Civil; Family; HOA; Landlord/Tenant; Real Estate; Probate; Insurance; Immigration; Wills & Trusts
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