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TexLaw, Attorney
Category: Business Law
Satisfied Customers: 4430
Experience:  Internationational Commercial Attorney
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I am wondering whether it is worth it for me to incorporate

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I am wondering whether it is worth it for me to incorporate or form an LLC. Here is the situation: a retail biz I owned (in the state of NM) for 7 years has failed & the commercial bldg is in foreclosure. I have 2 SBA loans on it; the bank filed a foreclosure lawsuit and I filed a response to it on 7/17/13.

Other assets I own include 50% of the house I live in (in New Mexico), with my son owning 25% and my lifemate of 12 years 25%, and there is no mortgage on it.

I also own a rental house with 2 mortgages which are probably at market value right now. It's bringing in an extra $300 per month over the taxes, insurance & interest-only mortgage payments.

I still am a license insurance agent in California & receive about $2K/mo in renewal commissions. I am also a Wedding Officiant (ordained ULC Minister of 12 years), bringing in from $500-1500/mo officiating marriages and other ceremonies.

My biggest concern is that the bank will have a deficiency balance after the sale of the foreclosed property and will come after any of my other assets. I have nothing against filing BK at that time if that is necessary but wondered if, with these disparate assets and sources of income, if an LLC could somehow protect me or if it's more than is possible without forming multiple LLCs for different assets. Thanks for the advice!

Thanks for your question.

You are personally liable for any remaining deficiency balance on the foreclosure. If you move your assets into an LLC, then only your membership interest in the LLC could be exposed to personal liability.

However, the problem here is that the foreclosure is already taking place, which prohibits you from transferring any assets out of your name in order to avoid liability, as this would likely be reversed if there was not an exchange for value as a fraudulent transfer.

Accordingly, in your position, because the foreclosure is already going forward, moving the assets out of your name and into the ownership of an LLC would only likely delay them from being attached.
Customer: replied 4 years ago.

I guess you misunderstood my question. I am not interested in putting the commercial bldg or its debt (the property being foreclosed on) into an LLC. I am concerned about the best way to protect my OTHER assets and income streams in the event the bank comes after me personally due to a deficiency balance on the SBA loans after the sell the foreclosed property. I am especially concerned about them being able to attach my Calif. insurance commissions, which is what I live on. I was wondering about forming a NM LLC and putting my insurance business in that, along with my other 2 residential properties (both in NM). Hope this clarifies the question I actually had. Thanks.

I don't think I misunderstood the question.

The issue is that you are already personally liable for the debt and foreclosure has already started. Therefore, if you transfer the unrelated assets out of your personal holding into an LLC, this will be seen as a fraudulent transfer and could be cancelled.

Am I correct in understanding that the foreclosure procedures have already begun, or are you in the stage where you are still current but foreclosure will begin shortly?
Customer: replied 4 years ago.

Yes foreclosure has begun. How would transferring a legitimate business (my insurance business, for instance) into an LLC be a fraudulent transaction?

Most states, including New Mexico, have what is called the Uniform Fraudulent Transfer Act. This law states that where a debtor transfers an asset out of his name in order to avoid the asset from being subject to liability which is currently due (i.e. a judgment) or is going to be due in the near future, and there is no exchange for value, then the transfer will be deemed as fraudulent and cancelled. It protects your creditors from situations just like this, where you are trying to keep your assets from being liable on a debt that you owe.

This is why it is so very important to incorporate your business and plan out ahead of time how to protect your assets. Once a situation of liability has arisen, such as a foreclosure, it is too late to conduct the transfer.

That being said, if you go ahead and set up an LLC and transfer the assets into it, this will definitely delay them from getting to these assets and may be successful in hiding them completely, but the protection is simply not assured.
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