James Burns

As we all heard this week UBS entered into a settlement with the U.S. Internal Revenue Service (IRS) was an upsetting blow for banking confidentiality. The issue on everyone’s mind was would UBS be in breach of Swiss banking confidentiality legislation if it were to meet the United States’ demands to hand over the names of 52,000 account holders. The Swiss Bankers Association said it expects the final agreement will be consistent with Swiss law but will it?

A day or two after the settlement it set off a worldwide fire storm to wit, a Swiss banking executive and a lawyer were charged with conspiring to defraud the U.S. and echoed a warning that the IRS is now looking beyond UBS in its international tax enforcement efforts. The banker, is Hansruedi Schumacher, and was a former regional market manager for UBS’s North America international business who later headed UBS’s cross-border business. At some point in 2002, Mr. Schumacher left UBS to conduct private banking with Zurich-based Neue Zuercher Bank, or NZB. Also, Swiss lawyer Matthias Rickenbach of the firm Rickenbach and Partners traveled regularly to the U.S. to conduct banking and investment activities (seminars) with U.S. clients.

Schumacher and Rickenbach supposedly helped their clients obtain offshore credit cards and created sham loan documents and used other nominee tactics. In addition, they purportedly falsified bank documents to generate the appearance that the assets of their U.S. clients belonged to Swiss citizens, and they falsified documents to disguise their U.S. clients’ repatriation of offshore funds as inheritances from foreign citizens; a huge no-no. One of the clients named is Jeffrey Chernick, who pleaded guilty last month to charges of evading taxes on $8 million in assets. See article here: Jeffrey Chernick

It appears there is a worldwide currency hunt as this set off an inferno as other countries revenue authorities started their hunt for unreported monies. For instance, in the UK the Tax Chamber of the First-tier Tribunal has ordered over 300 banks to give details to the UK tax authority, HM Revenue and Customs (HMRC), about their customers who hold offshore accounts.

HMRC’s launched an amnesty theme recently which is along the lines of the IRS and reportedly netted some 60,000 individuals who were said to have come forward. About GBP400m in additional tax was raised, but a more ambitious revenue target of GBP2bn has been set.

In Ireland all is not shamrocks and pots of gold as the Revenue Commission set its sights on any undisclosed assets and. The Revenue Commission stated in a brief that taxpayers have until September 1, 2009, to deliver a Notice of Disclosure to the Revenue regarding trusts and offshore structures. Any follow-up disclosure and payment of tax due must then be made by October 31, 2009.

Then in Italy, in a television interview, the General Manager of Italy’s Revenue Agency, Attilio Befera, disclosed that there were 170,000 cases singled out within the Agency’s investigation of undeclared funds held abroad by Italians. In particular, he mentioned that the Agency has obtained 500 foreign bank account holder names from a Swiss lawyer recently arrested in Milan.

What is going on and can we invest outside of the United States without feeling like we are up to something illegal? Will they make investing abroad illegal or create so much difficulty it is not worth it, only time will tell but it feels like the land of the free is not free unless you flee.

Under IRC Section 7623 or the proverbial “Whistleblower Rewards” code, we are wondering if UBS qualifies not, despite involuntary disclosure of accounts. This code rewards 30% of the delinquent tax and if the 4,450 accounts are estimated to be worth $15 billion, then UBS could get $450 million approximately which would offset the settlement payment they have to make. What if someone made a career as a whistleblower? Wow, a couple $100 million for being the wealthiest rat on the planet.

Let us know how you feel about this assault on foreign accounts and if you have one and need assistance on making it compliant please contact my offices.

James Burns, Esq.

www.jamesgburns.com

Real estate investing is exciting because we get the opportunity to use wealth pillars like leverage which allows ordinary people the ability to considerable wealth in a short time; I know because I’ve seen it happen. Another exciting aspect is there are always opportunities to make strong returns, regardless of how the market is doing and right now that is especially true as we bear witness to hundreds of thousands of foreclosure nationally per month. But like other forms of investments, real estate investing takes discipline, education and smart decision making to become successful. I’ve met with clients who made impulse purchases and the result is usually disaster.

There are fundamentally at least eleven reasons why real estate deals are always available no matter what the real estate market is doing. There is no magic here, just human circumstances that create opportunity if you know how to look for them.

1. Divorce
2. Job loss
3. Job relocation
4. Bankruptcy
5. Health problems
6. Incarceration
7. Reduced income – market conditions
8. Death
9. Failed business
10. Military duty or activation
11. Adjustable rate mortgages – on stated income that was unreal

Right now all eleven of these personal circumstances are widespread since American is in two military conflicts, unemployment expands monthly, record business failures and layoffs and numerous professional incomes reduced due to market conditions. In my own practice of modifying loans I see that there was a serious abuse of the stated income loan that has now come to boil and are popping left and right leaving folks unable to make the payments. The inability to make adjusted payments should be no surprise as there was no way for them to ever afford the home with their current income.

Enter the REO. An REO (real-estate-owned) is a form of distressed property and is similar to buying a short sale (sale of a home for less than the owner owed), except the property is already back in the possession of the lender or bank through the foreclosure process. In an REO situation the banks end up owning the property when no one bids to cover the amount owed against the property at a public auction. REO homes are often considered the best way to buy a distressed property because the seller is already out of the picture. It's just the investor or their agent, the bank or the bank's agent negotiating the transaction. Some REOs can be purchased directly from the lender for pennies on the dollar especially for those who can buy them in bulk. However, if you combine the purchase of an REO with a system for investing where you don’t have to do anything but collect your checks then you can leverage your time and resources to make and find more opportunities.

Normally REOs are purchased on what is referred to as tapes and the more money you have to spend the better the tape but on these large tapes there are the good, the bad and the ugly which are properties that you wouldn’t want because the fix up costs eat into the profits. Also, to get really good deals or the actual pennies on the dollar you have to come in with millions if not billions the way the hedge funds do who typically have purchased most of the good deals by the time the individual investors or small investor pools can get a hold of the REOs. Nevertheless, there is an old fashion way of acquiring these properties if you have the time to fly all over to numerous states and get into the underground or you can rely on a systematized approach to investing in this distressed market where you’re able to not only get all good properties (bedroom communities), the system operators actually cherry pick and buy properties that are livable, fix them up bring you not only positive monthly cash flow from your systematized property but also has built-in exit strategies that put a cash windfall on top of your positive cash flow.

All the most successful business in America follows a system. Once you have real estate you are in business in a sense, you’ve become a real estate entrepreneur and why wouldn’t you want a system to take care of your investing? To make sure we understand what a system is specifically here is a great definition: System (from Latin systēma, in turn from Greek σύστημα systēma) is a set of interacting or interdependent relationships, real or abstract, forming an integrated whole. The concept of an 'integrated whole' can also be stated in terms of a system embodying a set of relationships which are differentiated from relationships of the set to other elements, and from relationships between an element of the set and elements not a part of the relational regime.[i] Now this is just a very technical way of saying things that work together or “special sauce” if we were to look at Kentucky Fried Chicken (KFC™).

The system works like this, you buy the property, management places a new buyer in the home that will pay you the going rate for rent is in the area as their new mortgage payment to you, and you’ve just become the bank. For example, say rents at the local apartment are $500 and you only make $1,000 to $1,500 net after taxes. If I came up to you and said hey, “how would you like to own a home for $500 down and $500 per month,” the same you’re paying right now in rent, what would the reasonable person do? They are going to want to own and you have them on a land contract, no landlord/tenant relationship here so you don’t fix sinks, toilets or anything else…it is their home. You just hold this contract like the bank and are akin to the note which is reverse engineered at $500 at 10% time 10 years amortized. Did you get a deal? Of course you did and until this person repairs their credit so did they because we made it affordable just like a car dealer would…it’s all about the payment.

Management collects your $500 per month minus a 10% servicing fee for collecting and disbursing your money and making a website available to you on line where you can manage your property and check on it and see pictures both interior and exterior.

The lynchpin in this type of investing is the land contract. A land contract (sometimes known as a “contract for deed” or an “installment sale agreement”) is an agreement between the owner of a property and a person who wants to buy the property for an agreed-upon purchase price.

What are the Benefits of using the land contract you might ask? Well, there are plenty but they include, not having to fix anything, you don’t pay taxes or insurance, payments are predetermined and there are minimal liabilities (asset protection).

Finally, for the first time you have multiple exit-strategies inherent in your real property investment. I usually ask real estate investors that come in to my office two questions - #1 what is the exit strategy? And #2 did you buy retail, wholesale or discount? In both cases they give me a look like I spoke a foreign language at them. In this system these two threshold concerns are integrated because you have the exit strategies and you are definitely buying discount.

You or your new buyer could choose to refinance as it behooves them to get conventional financing which may be lower than structured in your land contract. For example, if you had an investment entry point of $23,900 and a $37,900 sales price fixed in your land contract. After a year of timely and seasoned payments the land contract Buyer’s credit is restored. Buyer can refinance property to lower interest rate and cashes out your $37,900 note which creates a high return on investment (ROI).

Alternatively, since you own this note you might choose to sell it to a note buyer. For example if you have an investment of $23,900 which you sold for $37,900 ($500 down@ $500 per month @ 10% interest) and after the loan seasons for 12 to 18 months you have the option of selling your note in a marketplace that is a trillion dollar industry. So you sell your note for $28,425 (25% discount). But you’ve also received the $5,400 in monthly income for the past year. The combined profit is in Excess of $14,000 or more with the monthly payments and the note sale even though it is discounted. That’s another hard to find ROI particularly if you’re accustomed to market returns from mutual funds and the like.

You can always just hold because you have an investment of $23,900 with a documented sales price of $60,000 via the land contract.

This system has been a huge success with waiting lists of approved applicants nationwide just waiting for properties to come available as the secondary buyers. We are watching this program transform families, neighborhoods and communities. In addition to the socially redeeming value of this program, it provides investors with massive advantages. Some of those include:

1. Triple Net - Your buyer is responsible for taxes, insurance and maintenance

2. Pride of ownership - Your buyer typically improves home and maintains well

3. Lower Default - Owners paying the same amount as they would for rent rarely default 4. Socially redeeming - You can help a hard working family become home owners

5. Cash flow between $450 - $650 - for properties purchased all under $25,000.

The next five to ten years will be defining and you have the power to change your financial future if you only get off the sidelines and in the game. I played football in college and whether you were at a real game or a practice scrimmage, while you were on the bench at the sidelines you were helpless to change the outcome of the game. It was only when you got in the game and you knew you placed your entire being into the game that you hand control to change an outcome and in effect, you can only take control of your own personal destiny by getting in the game.

To prove the point that you can be more victorious in a down market you’ll want to take a lesson from the playbook of Floyd Bostwick Odlum. He has been described as "possibly the only man in the United States who made a great fortune out of the Depression."

After struggling as a corporate attorney in Salt Lake City, Odlum received an offer to a law clerk at a New York firm, and in 1921 became Vice-President of his primary client, Electric Bond and Share Corporation.

About 1923, Floyd Odlum and friends along with their wives pooled together a total of $39,600 and formed the United States Company to speculate in purchases of utilities and general securities. Within two years, the company's net assets had increased 17 fold to nearly $700,000. If Mr. Odlum got started with $39,600 during the Great Depression, can’t you get a few friends or family together and pool funds to get in on this once in a lifetime historical opportunity to purchase discounted REOs at a modern price-point of $23,900? We only see great declines once or twice in our lifetimes and who can predict the next one as this one came without warning; will you have done something by then?

“Opportunity is missed by most people because it is dressed in overalls and looks like work." -- Thomas Edison, Inventor

Success Driver,

James Burns, Esq.

www.jamesgburns.com

(949) 440-3243



[i] http://en.wikipedia.org/wiki/System

If you have an IRA and you’re concerned about how to pass it on to your loved ones, an approach of naming a trust as the designated beneficiary has several benefits over directly naming the beneficiaries. The issues that can affect the named beneficiary to name a few are they could be a minor, they might not be careful with money, or they may have marital or creditor issues, and could be disabled to the extent the inheritance would affect their governmental benefits. Next, if the beneficiary dies before distribution, the alternate beneficiaries may not be accurate. Another condition we often see is the beneficiary may purposely or accidentally withdraw monies from the IRA causing adverse tax consequences. Additionally naming the client's revocable living trust as the beneficiary, even with the appropriate language that extends payout called “conduit provisions” may create issues with the age of beneficiaries in order to "stretch-out" the required minimum distributions.

However, in 2005, the IRS issued Private Letter Ruling 200537044 (the "PLR") that approved a new type of revocable trust created solely to be the beneficiary of an IRA account. As a result of this PLR, it is now possible for you to create an individual trust known as an IRA Beneficiary Trust® which provides maximum protection and flexibility for your retirement investments.

This IRA Beneficiary Trust® insures that your beneficiaries will extend (“stretch-out”) their taxable Minimum Required Distributions (MRDs) on the IRA over a much longer period of time. By using this trust, the age of each beneficiary becomes the effective age for that beneficiary's required minimum distribution. As an effect, the IRAs can continue to compound for many years free of income-tax and may literally grow to be worth millions of dollars! This type of trust goes by many names and has also been called an IRA trust, an IRA Inheritance Trust, a standalone IRA trust, an IRA stretch trust or an IRA protection trust.

When your loved one/s inherit your IRA fund and they keep the funds in the IRA over their lives and only take the minimum required distributions each year (the "stretch-out"), the amount of money that can accumulate and be paid to them should be massive in comparison to taking the monies directly and facing the immediate tax on them. For example, assume you have a $150,000 IRA account; we will also further assume you have two different ages (10 and 25) for your beneficiaries and presume that the account averages an annualized 7% return. First, for the beneficiary who is age 35 and inherits IRA proceeds upon your departure, the total benefit is $1,212,165 of after-tax benefit as opposed to $663,496 for taking the proceeds directly without the stretch-out. For the 10 year old beneficiary, they will receive approximately $4,589,236 after-tax benefit as opposed to $2,641,198 which is what they would receive lacking the stretch-out because of the immediate taxes due when they receive your funds directly.

Therefore, you can see that this wealth amassing strategy only works if the beneficiaries hold the inherited funds inside the IRA account. If a beneficiary takes all of the funds out of the IRA account (referred to as a "blow-out" because it blows the stretch-out), this wealth accumulation technique is lost. One great reason to create an IRA Beneficiary Trust® is to preserve the stretch-out and prevent a blow-out. Unfortunately, we see this blow-out too often and it jeopardizes wealth that must be saved. Many times your beneficiaries will not be aware of the tax rules and their distribution choices, so they’ll withdraw from the IRA funds at the first opportunity or do a forbidden rollover. Even if you hope that your children or beneficiaries will do the right thing by keeping the funds in the IRA account for their lives to “stretch-out” payments, they may expose it to numerous threats and hope is not a planning strategy as I’ve indicated in my book “The 3 Secret Pillars of Wealth.”

Some of the threats come in the form of a divorce where your beneficiary’s spouse could seek half of the inherited IRA if they live in a community property state. The divorce rate is out of control and a huge numbers of inherited money has become a target for the ex-spouse. Even though inherited property is considered separate property it may become the only thing available and because divorces can be very costly and last for years, your beneficiary may succumb to the pressures of long and nasty divorce litigation and be willing to surrender a large portion of the IRA account just to settle the divorce.

If you have a reasonable IRA you want to pass down or don’t think you’ll need to live on your IRA you absolutely should be thinking about this strategy.

Untaxingly,

James Burns, Esq.

These days just about every mortgage is flipped by a lender to another one or sliced up into pools of securitized packages that are sold on Wall Street. The financial engineering helped oil the housing boom by making credit more available. But stalled housing prices and rising defaults have revealed a mess: In the rush to flip paper, lots of the new lenders or pools don’t have the proper paperwork to show they even hold the mortgage.

A Florida attorney noticed two years ago that nearly all lenders seeking to foreclose against clients were filing “affidavits of lost notes”–essentially requests that a judge assume they own the loan since no proof is at hand.

What was found by some average snooping was that the company that filed to foreclose didn’t own the loans. The owner was actually a securitized pool of loans overseen by Deutsche Bank (nyse: DB - news - people ). In one particular case documents showing the pool bought a loan after the homeowner defaulted which is an illegal purchase for most pools, including this one.

In Kansas there was a foreclosure filing with no documents to show the bank owned the loan. In another case, ownership of a loan was recorded on a single date in the name of two different lenders. In March last year Deutsche Bank filed to foreclose on a seven-bedroom home in Worcester, Mass. but it came out that Deutsche was assigned the loan in May or June–that is, after the foreclosure filing. A U.S. bankruptcy court judge in April slammed Deutsche for its “jumble of documents” and ruled the bank could not evict the homeowner.

For the lenders, a possibly bigger threat on the horizon is that homeowners’ lawyers will bust up the “holder in due course” doctrine that makes it easier for subsequent owners of an IOU to collect. This doctrine says that certain defenses the evictee can use against the original lender (such as predatory lending) cannot be used against an innocent purchaser of the mortgage. The rule is provided for in many federal and state statutes, but a judge could nonetheless find a way to side with the homeowner, particularly if a loan is purchased after it goes into default.

There may be cases where it makes sense to challenge the lender to show they own your loan. A law firm can assist with this and keep the transaction under the attorney/client privilege so that what you submit cannot be used against you absent a direct court order which is also arguable.

We always collect the original loan documents and do a forensic audit or request that the bank show they still have them and if they don’t…guess what? We ask them who is the responsible party for a modification and that the client cannot pay someone who is not eligible to receive the payment. Many times the mortgages are even being sold during a default.

There is a lot of confusion out there about loan modification and who is going to do the best job…it isn’t a shop but a law firm where you enter into a specific attorney client relationship not a shop that claims to have attorneys they work with. Some prosecutors are now pursuing borrowers as you can read in this article.

For one, a broker shop can do no distressed borrower any good with the current situation. As you’ll read in the attached article, some prosecutors will be going after borrowers for participating in fraud by overstating their true income. What this does is make your submission to the lender vulnerable unless you have the attorney/client privilege over your submission…hence the modification process should be a legal maneuver not Joe the Modifier who may be a Pirate that has not right to take an advance fee.

If you must send your clients to a friend who is a broker – make sure they are one of the 18 firms listed on the Department of Real Estate’s website as approved to take an advance fee as many are doing it illegally and offer no real value since they can’t prevent the documents from being used against the borrower because there is no such thing as broker/client privilege.

http://www.dre.ca.gov/mlb_adv_fees_list.html

Not everyone will be a loan modification as we are seeing the abuse of the stated income loan in a gross proportion which makes there no way to modify certain loans unless principal was to be drastically reduced which is not happening although it was announced yesterday there is a plan for some principal reduction by the government to find the market bottom; only time will tell.

LIBOR, COSI, CODI, MTA – these were the indexes of the option arm and then there is the bank’s margin spread which was immense along with the prepayment penalty so the person had to stay locked in for 3 years otherwise they suffer a severe penalty that wipes out most of the equity they would be trying to tap in a refinance or the money they would be trying to save.

If you have a friend, family member or client you care about who is having trouble making their home payments due to a temporary hardship, please have them go to this site and download the questionnaire and fax it in for a FREE evaluation www.foreclosurelegalsolutions.com.

In your service,

James Burns, Esq.