Last night we attended the Inland Empire Investor Forum at Eagle Glen Country Club in Corona, CA. It was raining last night (again!) and we really didn't want to go. We are glad we did.

The key speaker that night was Ward Hannigan. Some of you may know Ward, he is a well known real estate foreclosure expert from San Diego. He has been in the foreclosure investment game for over four decades!

Last night, Ward covered a plethora of great topics. The most important topic was the vesting strategy! A few years back the great state of California decided that since they are broke they are going to take money from people who engage in the investment and sale of real estate.

If you received a property at foreclosure and later sell it...

At settlement (closing of escrow) the State will require escrow to withhold either 3.3% of the sales price or 9.99% of the gain on the sale. California has a couple of reasons why they do this but basically they want to borrow your money INTEREST FREE!

 Now, you can call us crazy but that just doesn't sound fair to us. What about you?

Well the good news is you can create ways for yourself to be exempt from this law. It all comes down to how you hold title to the property. The State will force escrow to apply the withholding if the seller does not meet the standards of a "multi-member entity".

So what qualifies as a multi-member entity? Most people think that a Trust would qualify, well sadly it does not! But a parternship does!

That doesn't mean you can't and shouldn't use a Trust to buy property it just means you shouldn't take title in the name of a trust.  A partnership can be made up of either similar or dissimilar entities, such as two trusts or a trust and an individual.

So for instance, you can form a partnership with yourself and a trust for which you are the trustee, and now not only are you exempt from the CA With-holdings but you don't have to worry about your partner screwing you. Unless of course you like screwing yourself.

Forming a General Partnership in California is not that hard and does have to cost a whole lot of money. It only cost $70 to file the papers with the State and you can get the forms here.

Here are some links with regards to California  Tax Withholding Laws for real estate transactions:

• Form 593, Real Estate Withholding Tax Statement
• Form 593-C and 593-E booklet, Real Estate Withholding Certificate and Computation of Estimated Gain or Loss
• Form 593-I, Real Estate Withholding Installment Sale Agreement
• Form 593-V, Payment Voucher for Real Estate Withholding
• Publication 1016, Real Estate Withholding Guidelines
• FTB 7429, Do I Need To Withhold On This Trust?
• Publication 7429LLC, Real Estate Withholding for Sales by Limited Liability Companies (LLCs)

   

  Thanks for reading and keep coming back for more tips and tricks for your investor clients and more helpful information to help you succeed as an agent.

  PS

  Remember us next time you are writing a contract!