Real Estate Asset Protection

There was a time when owning a home was already a good measure of success. However in this age of economic uncertainties, it is no longer enough to just own a property. In fact, owning real estate even sets you up as a target for claims from aggressive creditors, not the least of which is the government�s tax bureau.
Real estate asset protection is a valid legal remedy that provides some measure of resistance against those going after your hard-earned wealth. Keeping real estate assets protected from possible claims and lawsuits should not be overlooked, otherwise, property owners may suddenly find the fruits of their labour pulled out from under them.
There are riches-to-rags stories that tell of once successful people turning homeless literally overnight due to unfavourable judgments against their unprotected estates. Proper real estate asset protection planning will help in avoiding turning your dream home into a financial nightmare.
The Goals of Real Estate Asset Protection
Since the 1990�s various asset protection structures have been developed to help private property owners and large real estate investors alike. The goals that these real estate asset protection strategies should achieve are generally focused on the following:
1. Maintain real estate ownership anonymous. The logic here is simple and straightforward � if creditors do not know who owns the property, they cannot go after it. Various corporations and foundations mostly in jurisdictions outside of the owners� place of residence are used for this purpose.
2. Stripping the property. There are certain circumstances wherein it is not possible to keep ownership of real estate anonymous. For such cases, equity stripping is a secondary approach. This simply means make the real estate less attractive or appear less valuable that is usually achieved by taking out a loan against the property.
3. Have legal representation in place. Law firms and professional lawyer experts on asset protection are the best allies in a courtroom battle. By employing professional legal services, you have attorney-client privilege at your side, not to mention proper legal representation. Do not delay getting a lawyer for your real estate asset protection plan but do not rush into choosing just any legal service either. Find a good firm or lawyer with a proven track record and whom you will trust in the long term.
4. Encumbering the asset. In general, you just don�t want to hand over your real estate to creditors on a silver platter. There are various ways to force claimants to rethink pursuing your property and instead agree on a simpler settlement. Transfer of ownership to generic trusts or irrevocable trusts are just an example of keeping creditors at bay whilst allowing negotiated terms to become more appealing to them. In a way, real estate asset protection should be perceived as a win-win situation for all parties concerned.
The Unique Case of Real Estate
Asset protection as a concept is nothing new. However, real estate holds a unique position in that it is considered a �difficult asset� as far as asset protection is concerned. This is mainly due to its real nature; it is a tangible asset that cannot be easily hidden or transferred. You can put cash and jewellery in a bank safe, bury them underground, or transport them to another place but the same does not hold true with real estate.
It is also because of this real nature that properties are usually the first things held as security or collateral for various borrowings. Also, owning real estate usually leaves a paper trail that is open to the public, exposing the owners and making them easy targets for litigation. Beside these, real estate appreciates in value over time. Thus, it is quite understandable how real estate is the primary target of zealous collectors in cases of claims.
Basic Asset Protection Strategies
There are numerous strategies for real estate asset protection that adheres to the goals earlier enumerated. These strategies may or may not apply in your particular case. The following are just some of the basic strategies that are commonly employed.
Mortgage Firms � Borrowing against the real estate is a popular choice in many cases. Mortgages of up to 80% of the home�s value are not uncommon. Apart from discouraging collectors due to the reduced equity value, keeping the loan in an offshore jurisdiction will put off creditors since procedures for claims can be costly and difficult. The problem here is that you would have to go through paying off the mortgage with the applicable interest rates. The method does the job but also puts your asset at risk.
Similar approaches will involve setting up your own mortgage firm and getting a line of credit mortgage. Getting a mortgage through your own anonymous offshore company has the same effect without the risk of losing your property if you default on payments. For added protection, you can even increase the mortgage up to more than 90% of the property�s value.
Similarly, a line of credit mortgage will protect your real estate asset. By opting not to withdraw from your credit line, you avoid repayments and interests. You can cancel the line of credit within 30 days and regain your property. For all these mortgage scenarios, the help of a local lawyer is indispensable.
Annuity Strategies � This strategy will employ offshore corporations or foundation in Panama or similar jurisdictions. Your real estate is received by the anonymous offshore entity which in turn makes you eligible to receive annuity or pension. The sum is awarded to you on a schedule either monthly or quarterly or even yearly. You may choose to have the money deposited on your offshore bank account which you can withdraw via ATM.
Final Notes
Be warned that not all asset protection techniques are applicable for everyone. As in all financial management strategies, real estate asset protection also poses certain risks. Getting good legal backing is very important. Setting up all the paperwork required to transact offshore requires one that is well-experienced in asset protection. Lastly, be sure to plan your real estate asset protection as early as possible because there is little recourse to safeguard your properties once the creditors have a head start and are already knocking at your door.
ABOUT THE AUTHOR: Carlo Scevola, MBA, CTA
As president and CEO of Carlo Scevola & Partners, Carlo Scevola is ultimately responsible for the success and satisfaction of each of the firm's clients. Mr. Scevola contributes strategic direction to each client engagement and may be deeply involved in the day-to-day planning and execution as well.
Mr. Scevola's background makes him well suited for international consulting work. An expert in both civil and common law, as well as quantitative finance, he is also a member of the UK Securities & Investment Institute, and he holds a MBA.
Known for his innovative thinking and broad-based expertise in operations, finance and business development, Mr. Scevola has run CS&P since the early 90's.
He is an active sportsman and former alpine ski racer in international circuits. He now enjoys free ride skiing and golf. In his spare time, he relaxes by playing the cello.