Most states provide some free asset protection by state law in the form of Homestead Exemption. This state sanctioned creditor protection provides a fixed amount of equity protection for your primary residence. Only five states offer complete protection for the full value of your home. If you are fortunate to live in one of those states you can rest easy that your home is protected (unless you are facing a challenge in a federal court). For those of you who live in the other 45 states, it's in your best interest to do some simple math to determine how much of your home equity is exposed. To calculate this, take your home equity and subtract out your state's homestead exemption. (If you are unsure of the amount of your state's homestead exemption send an email to info@apcg.net with 'Exemption' in the subject line and the state of your residence, you will receive a response back via email with that information). If you have over $25,000 in equity exposed then it is time for you to consider taking action to protect your home. Why is it so important to protect your home equity? Equity in real estate is one of your greatest liabilities because if you own real estate and someone is looking to sue you they know if they get a judgment they will absolutely collect. Why? Well, you can't very easily stuff your home equity under a mattress in the event of a lawsuit. The good news is protecting the equity in your home or other real estate is not difficult. One remarkably simple way to protect the equity in your home is to strip the equity from your home through the use of 2nd or 3rd mortgages. For example, if your first mortgage is presently held by Chase and you are sued, Chase will never be affected by any judgment brought against you. Their investment in your home mortgage will always be intact, no matter what happens to you or your finances. The same holds true for second mortgage holders and subsequent liens. So should you run down to the bank and get a second mortgage and withdraw all your exposed equity? Not at all. Although this would encumber the equity in your home you would now have another asset exposed, cash. A better solution is to place what is called a "friendly lien" or "friendly mortgage" on your home to protect the exposed equity. It is a simple process that can be completed in a couple days and will act as a powerful deterrent to lawsuits. The first step is to choose your "friendly lien" holder. For the lien to be considered valid it has to be held by a third-party. Although this third party can be a friend or relative, it is not recommended because your relationship to this person would be easily discovered if they were ever called into court to defend the lien. Ideally you want to engage a totally unrelated third party and preferably one that you can control. For this reason a private corporation, that you own and control while the ownership cannot be traced back to you, is the perfect vehicle to act in this capacity. The second step is to create a debt between you and the corporation, the lien-holder, for an amount that meets or exceeds the exposed equity in your home. This is documented by a Promissory Note between you and your corporation. Your final step is to record that debt as a Mortgage or a Deed of Trust on the property. The Mortgage or a Deed of Trust document is filed with your County Recorders office, perfecting the lien and making it a matter of public record that there is no equity in your property. Voila! You have now made the equity of your home vanish. This private mortgage or "friendly lien" as we like to call it, is just as valid as a mortgage by Chase with the exception that you don't have to make payments and you can have it completely removed at the time of your choosing. Don't you wish you had that kind of control over your bank mortgage? At some point, you may want to sell the property or refinance. At that time it will be simply a matter of drafting another document to have the friendly lien released. |
