How to Discourage Lawsuits
Big Mortgages Discourage Lawsuits
If you have exposed wealth, you are an easy lawsuit target. Any lawyer
can do an instant electronic asset search and financially profile you.
This online asset search, in seconds, will reveal whatever real estate,
business, auto, boat, etc. you now own — or have ever owned. Asset
searches also disclose mortgages or liens against your property. You want
it to appear that everything you own is mortgaged to the hilt. In our
debt-ridden society, it is not unusual for people to owe as much or more
than they own.
Nothing discourages prospective litigants faster than finding that a would-be
defendant is mortgaged to the eyeballs. You can own millions in assets,
but when they are fully mortgaged, you are a poor lawsuit candidate. Litigants
want assets with equity. When your assets can be claimed first by other
creditors, you are paper poor. Poverty becomes negotiating power.
Get a Line of Credit
When should you mortgage yourself to the hilt? Always keep your real estate
fully encumbered. Keep mortgages against your property for as long as
you own it; even if you must periodically refinance your mortgages to
cover the equity that you build as your property increases in value. You
may say, "But I don't want a big mortgage. Why pay interest on
a loan that I don't need to protect myself against a lawsuit that
may never happen?"
Refinancing your real estate to strip the equity may not seemingly make
financial sense, even when it makes legal sense. But a home equity loan
or line of credit always makes sense. If your home is worth $200,000 and
has no mortgage, you might arrange for a $150,000 home equity loan or
line of credit against your home. You owe your lender nothing until you
actually draw down your credit line. You would do this only when you are
sued. Still, a prospective litigant searching for your assets would see
only $50,000 equity in your home because the $150,000 mortgage would be
public record. You are then a considerably less attractive lawsuit candidate
because you have reduced your visible net worth. You lower your exposure
to future lawsuits, and gain leverage to negotiate a lower settlement
if you do get sued.
If you own any real estate, get an equity loan to cover as much of your
property equity as possible. Then arrange for standby second or third
mortgages to encumber whatever remaining equity is still exposed. You'll
pay a few dollars for loan fees, but this is sound lawsuit protection.
Encumber Everything You Own
Encumber your real estate
immediately because you want a poverty profile to discourage lawsuits. However, once
you are sued (or threatened with a lawsuit), you can still encumber every
asset. Remember, any asset can be security for a loan.
Lien your second homes, investment properties, stocks, bonds, art, jewelry,
collectibles, business ownership, vehicles, retirement accounts, and so
forth. You can lien your assets separately or give a blanket lien to one
creditor. Similarly equity strip your business or professional practice.
Your goal is to leave no asset unencumbered and exposed.
Find Friendly Lenders
How do you find a lender to equity strip your assets? Countless asset-based
lender(s) lend money and lien assets as collateral. For example, banks
give home equity loans and refinance homes. Other lenders refinance businesses,
autos, or boats. You can borrow and pledge as collateral any asset to
virtually any lender.
With good credit, you can borrow about 80% of the value of your assets
from conventional lenders (banks, finance companies, etc.). With poor
credit, you can still find hard money lenders who will charge you more
interest, but paying steeper finance charges is preferable to losing your
assets in the lawsuit.
You understand the concept of equity stripping for protection. Your problem
is in its implementation. You — or your advisors — may not
know how, or where, to find the right lenders. Or you may not know about
the many possible strategies to defensively position your assets.
The Presser Law Firm, P.A. engineered a number of creative ways to structure
secured loans to maximize our client's protection. We have arranged
loans and debt-shields for even the poorest credit risks. Our financing
arrangements have involved third party guarantees or we have used loan
proceeds as collateral for a back-to-back loan, or we obtain loans from
international lenders. We have encumbered assets and estates worth many
millions through complex insurance/financing arrangements − financial
deals which fully encumbered all our clients' assets.
Debt-shielding is usually simpler. Banks, finance companies, and other
conventional asset-based lenders can usually handle it. A family member
or affiliated company may become your lender if you have modest assets
A debtor's family may encumber the debtor's property. A close relative
is nevertheless a legally distinct party. Liens or security interests
between related parties are enforceable if fair consideration was given
for the loan. But, a loan from family members or an affiliated party will
make a fraudulent transfer claim more likely because insider loans are
more closely scrutinized. If a court determines that your loan is a sham
or not adequately supported by fair consideration, the court will cancel
the mortgage and expose your assets.
Your spouse can encumber your separately owned property in states that
follow common law property rules. Community property states allow property
owned and held separately to be granted as security to a spouse. Although
one spouse may legally encumber the other's assets, state fraudulent
transfer laws frequently void such loans granted after the claim arose.
Or an affiliated business can lien your personal property; but, this lien
will also less likely be upheld by the courts if you own or control that business.
Nevertheless, no rule prevents you from forming a corporation, limited
partnership, or limited liability company and granting that entity a mortgage
or security interest against your other assets. This mortgage may be challenged
in court, but an asset search would nevertheless not reveal your relationship
to that entity. A friendly lien held by your entity (or one that you directly
or indirectly control) may give you some level of protection to the extent
it deters a plaintiff seeking unencumbered assets to target.
An aggressive Asset Protection specialist may use other creative planning
techniques to reduce the visibility of their clients' ownership in
a lender entity. Or you may own a minority share in the business that
holds the mortgage. Own only a minority interest, and you wouldn't
control the corporation or LLC. The lien is then more likely to survive
You'll need the right professional for guidance here. More complex
cases can utilize several levels of customized foreign trusts, corporations,
LLCs, charitable organizations, private foundations, or other entities.
Each, in its own way, provides one more layer of privacy, anonymity, and
protection. Frequently, foreign entities are mere shells, or IBCs or LLCs
with neither shareholders nor capital. Only through intense investigation
can a creditor distinguish a shell entity from an actual operating foreign
entity. A foreign shell entity may give you reasonably good protection
when used to encumber your property. However, for more sound protection,
your foreign entity must be prepared to document and defend your mortgage
before a U.S. judge who must determine priorities among competing lien
holders or judgment creditors.
The success behind this type of arrangement lies in the absolute privacy
only available from certain international financial centers that would
deny a plaintiff's attorney access to records. The complexities of
multiple layer foreign entities can completely sever the relationships
between the U.S. property owner and the foreign IBC or LLC that holds
a lien against this property.
On the other hand, you can sometimes create your friendly lien simply by
giving a mortgage to a relative, friend, or favored creditor to whom you
owe money. What is important is that if your lien is later challenged
you can show that you do owe the money and that you indeed owe an enforceable debt.
Not every mortgage or lien filed against your property need be consensual.
For example, a relative, friend or some other amicable adversary may have
a claim against you. If they should sue you and win a judgment before
a hostile creditor wins their judgment; then your friendly creditor would
have priority claim to your assets. Friendly lawsuits can range from defamation
to breach of contract. But, it can nevertheless result in a massive judgment
against you, which would effectively blockade your assets against a subsequent
judgment creditor who may be less friendly. This strategy, however, requires
a claim with substance. Do not use the courts to perpetrate a fraud on
your other creditors.
YES, YOU CAN LOSE EVERYTHING!
You may think that your wealth is safe and that you don't need protection.
But don't delude yourself and accept reality — for every 60
minutes you spend making money, spend 60 seconds thinking about how to