Hi All,
Yet another question from my "wraps" series. I asked my MB first this time and he does not now the answer.
What happens if I get sued (while I act as a wrapper to one or more properties on my name (and not in a trust/company))?
Would I be obliged to terminate the contracts & sell the properties? I suppose that is not possible, right?
Or, because the wrapee is the owner, the wrapped property is an asset that is "protected" and cannot be taken away (from me)?
How do you experienced wrappers do it? Do you hold your wraps in some structure?
Thanks,
Emil
All properties we hold are held in a Pty Ltd Company ATF Trust structure.
The properties are normally mortgaged so in the event of litigation the party taking action would need to determine whether it was worth persuing given that the Bank would hold first mortgage. Secondly the wrappee has a caveatable interest in the property and that is registered.
In saying this it is like anything dont hold assets in your name where you can help it or where for a financing perspective you are forced to.
Richard Taylor | Australia's leading private lender
Thanks Richard
I was just thinking about the first one or two (which would be on my wife's name because she does not earn that much).For the further props I'd set up a trust but now that I'm starting with not much, every dollar counts.Cheers,EmilIf she doesnt earn much how is she going to qualify for the loan ?
Richard Taylor | Australia's leading private lender
Hm, I hadn't though of that. I thought there would be a way with me being her husband and earning he higher salary. Is there no way? If not then we _have_ to create a trust to be able to distribute the income.
What are your thoughts?Cheers,EmilIf you are wrapping, then you are just selling a property with the payments coming in installments.
If you owned the property and were personally sued, then what would happen is the person would get a judgment against you for $X. Once they have a judgment doesn't necessarily mean you will lose everything, or even anything. Depending on how much the judgment is, they can get further court orders to garnish wages, garnish bank accounts, seize property (like cars etc) and force the sale of land owned. But in doing this they would first see what sort of mortgage you have to estimate the potential equity.
With a wrap you have entered a legal contract and have sold the property, but not yet settled. So, I am not entirely sure, but would supsect that your wrapped property may be safe from creditors.
But if your judgment is above $2500 (approx) the person obtaining the judgment could then issue a bankruptcy notice – pay up in 28 days or go bankrupt.
Once you are bankrupt, the bankruptcy trustee steps into your shoes and starts to sell assets in order to pay the debts. I think the wrap contract would still be binding. The only time, perhaps, it wouldn't be is if the lender holding the first mortgage over the property foreclosed upon it. First mortgagees would have priority.
But I am not a lawyer, and am only guessing really.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hey Terry,
Thanks for the comprehensive answer. I was suspecting it would be something like that.Cheers,Emil
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