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I’m doing a refinance loan on investment property that is in…

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I’m doing a refinance loan...
I’m doing a refinance loan on investment property that is in a Corporation. The bank asked what is the reason for the large cash-out? I stated to have large liquidity cash balance for the future. I have inserted this reason for all my refinance of investment proper in the Corporation. Historically, I have taken some cash distribution to pay for my children’s college education. The last Refinance I took out about 25% for personal. The next refinance loan I just took out distributions equal to the profit. This new refinance loan I’m planning on leaving all of it in the Corporation…of course I will still take out distribution equal to the profit of the Corporation and to pay Federal and State Taxes. Since this is my Corporation, and there is so much equity in the Corporation, the Corporation has never been at risk in my taking Cash Distribution.QUESTION:
1. In taking out this refinance loan this is inserted in the Loan Documents: This new loan stated: Borrower represents that the Loan Evidence by this Note and secured by the Security instrument is solely for business or commercial purposes, and is not for personal or family.
What happens if I need to take 10% out for personal emergency?
Submitted: 1 month ago.Category: CA Real Estate
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Answered in 13 hours by:
3/23/2018
Lawyer: Irwin Law, Attorney replied 30 days ago
Irwin Law
Irwin Law, Attorney
Category: CA Real Estate
Satisfied Customers: 7,545
Experience: Lawyer & Real Estate Broker, 30+ years, foreclosure, land contracts, inheritance, probate.
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It means that money withdrawn from the corporation for personal use or salary should be from other assets of the corporation not the loan proceeds. Please rate this answer. Thanks for using Just Answer.
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Customer reply replied 29 days ago
You did not answer this direct questions; What happens if I need to take 10% out for personal emergency?
1. Therefore, I would still be in compliance to the agreement if I did Cash Distributions equal to the profit of the Corporation.
2. I would also be in compliance if the S- paid me a Management Fee via K-1?
3. The Management Fee would be subjective so how is this viewed?
4. I would also be in compliance if the S- Corporation did a Cash Distribution to me to pay for the Profits of the S-Corporation?
Lawyer: Irwin Law, Attorney replied 28 days ago
ALL money that comes into the corporation is segregated on the books. Your methods 1-4 sound correct. Be sure that the loan proceeds are always directed to a business use.
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Customer reply replied 27 days ago
You did not answer the direct questions asked any nothing was in detail. I do not want to continue this session with you.
Lawyer: Damien Bosco, Attorney replied 26 days ago
Damien Bosco
Damien Bosco, Attorney
Category: CA Real Estate
Satisfied Customers: 4,195
Experience: Helping you with your legal questions.
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Hello: This is Damien. I am an attorney. Are you still looking for help on your question?

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Customer reply replied 26 days ago
Hello Damien, Yes still looking for help. If you could follow the question of this tread you will get an understanding of what I'm asking. If you need me to re-post the questions let me know. Really Appreciate your help.
Thank You,
Lawyer: Damien Bosco, Attorney replied 26 days ago

I understand that the bank concerns is that you are not going to borrow or use the money for personal reasons but are using the loan for a business reason.

Consequently, an employee/owner can still get paid a reasonable salary as an employee as per the market rate, and also take a distribution of the profits as long as the payments are being made on the loan. Once the employee/owner receives the pay or profit, the employee/owner can use the money for any other purpose.

We can discuss this more if you want to do so.

If you have further questions or you need further assistance, just let me know.

If not, please remember to rate my answer between 3 to 5 stars without any additional costs to you. That is how I get credit for answering your question. Best regards.

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Customer reply replied 26 days ago
1. My Question is in regards ***** ***** is the red line where a bank could call the note and also charge a prepayment penalty of $50,000. Historically, the wording of being told by a lender what I could do with the Cash of my being 100% stock owner of the Corporation was never in my agreements. They said it is a function of Dodd Frank. The Amount borrowed is only 30% of equity of the property in the Corporation and they have my signature as a personal guarantor of the Note (Bank is 100% protected). Does the Cash just sit in the Corporation for the next 100 years; since there is no need to use cash because the profits are so large it offset and extraordinary expenses?
2. You are saying there should be no risk in taking out profits of the Corporation through Cash Distributions as long as the monthly note payments are made?
3. Let say the profits of the Corporation for the year is $100,000 and I do Cash Distributions of $105,000 for the year and all payment for the Note has been paid; will the Lender foreclose on the note because of the $5,000 over the profits and make me pay $50,000 prepayment penalty? A court/Judge will allow this overreach of a Bank cause a major problem for me personally and for a Corporation that is financially strong to me harmed for a De-minimis $5,000? Note; I have always taken for the past 20 years distributions equal to profits and sometime a little over the profits.
4. I receive a Management fee of $15,000 a year. What if I raise the amount to $20,000 a year? As a result of my experience/Knowledge as years go by my self-worth has increased and will continue to increase; this is normal for everyone in the work force as years of Experience/Knowledge continues to increase…no one works for the same pay for 30 years. My direct question is my Salary is subjective and anyone could argue what is reasonable….will the Bank, even though I make my payments and have always made payments to many lending institutions for the past 30 years; foreclose on the note because the bank wants to make $50,000 in prepayment penalty income? Look what the Banking Industry unethical Business Practices did in year 2008…
5. Do you have any Experience and/or knowledge of my direct question in what Banks are doing with these types of conditions on a note that has not been there historically?I hope you understand that owning my own Company for the past 25 years has given me peace of mind in how to operate my business and as long as my note payments were paid there was no External Risks; now I have this unknown factor.
Thank You
Lawyer: Damien Bosco, Attorney replied 26 days ago

If there is a red line, it would be in the agreement. If the agreement allows the bank to call the loan at its own discretion, then there is no red line and the agreement could be considered ambiguous or the court would have to determine whether there was a breach by you.

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Customer reply replied 26 days ago
I never stated that I signed a Note that a Bank can Call a Note at their own discretion. As disclosed the agreement states personal distribution as related to the Loan. There are no other conditions in the note to discuss.
The questions asked above is to understand what is allowed and not allowed based upon Legal Accounting Practices when there is the inserted clause. I’m trying to determine based upon each penetrating question asked in my previous posting to you. Please answer each question posted above in detail.
Thank You.
Lawyer: Damien Bosco, Attorney replied 26 days ago

I will open your question for other experts to see if they can assist you. No need to respond now because that will delay the process. Another expert who believes they can assist you will reply.

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