Investing and Your IRA

 The government allows us to put money aside for old age in Investment Retirement Accounts. Did you know you can do more than keep it in a mutual fund, bank account, or in individual stocks? Most people think that those are the only investment vehicles allowed. Not so. The IRS says that you can place you IRA in any investment except collectables or life insurance.

I am not talking about closing your IRA and taking an early withdrawal penalty. The key is changing to a Self Directed IRA where you control where the money goes.

Here are some things you can do with your self directed retirement account:

• Invest in Real Estate by paying cash from the account.
• Your IRA can take a loan out as a mortgage
• Your IRA can become a partner with another IRA or another person
• You can make a secured or unsecured loan to someone or a company
• You can invest in a company or partnership
• You can invest in a retirement property now and rent it out. Convert it to your retirement home in the future.
• Buy stocks or bonds like with any other IRA account
• Buy a commercial building or business anywhere
• Buy a rental property in a college town

 Here are some things you are not allowed to do under IRA rules:

• Make loans to close family members
• Own IRA property and rent to family members
• Buy a collection of antique cars or art work
• Buy a second home for your own current use (may be converted to personal use at retirement)
• Buy life insurance 

  Buy for Retirement

   

 Why am I writing this? Because your stock broker is not going to tell you about it. He makes money every time you make a trade. Since you can still buy and sell stock in a Self-Directed IRA with a phone call to the trustee.

What is the real advantage to holding your retirement funds in a Self Directed IRA? You can invest in things that are more tangible than stocks. You can tough and feel land. You can walk into your rental property. You can control a business you are directly invested in.

 A Self-Directed IRA trustee will have guidelines to lessen the risk and make sure you have the funds to do what you want to do. They have CPA’s ready to answer your questions and assist you.

 Jerry Germansen, Associate Broker, eXp Realty Arizona

www.AllofPrescott.com  928 632 3906

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Buyer Default of a Purchase Contract’s Seller Carryback Financing  

           When a buyer has purchased property using financing, the lender has the buyer sign a Deed of Trust and Promissory Note to secure the property and guarantee the note payments. This is true of most financing arrangements including seller carryback financing.

          With the decline of the market and the inability of most buyers to obtain financing from banks for land today it may be tempting for the buyer to “let the property go” back to the lender rather than continue to make payments or pay off a balloon payment. The buyer may feel it is better to cut their losses. There is a great risk in not fulfilling the obligation of the purchase contract and financing.

           The lender has the right to expect full payment of the note and provided the financing in good faith at the time of purchase. The lender receives interest for providing that financing and is guaranteed payback by the Promissory Note. The buyer/borrower intends to make an unknown profit based on the market at the time of purchase and assumes the risk of loss if the market conditions change. The Deed of Trust secures the land with a lien recorded in the county. The Promissory Note is recorded and guarantees the payback.

           In the event of a buyer’s default on the regular payments or a balloon payment, the lender has the right to demand payment plus all associated costs of collection. Most loans even have an interest acceleration if payments are more than 30 to 60 days late.

 If the buyer refuses or is unable to make the payments the best remedy is to contact the lender to make arrangements to either extend any balloon that may be due or work out a time for the missed payments to be made up.

 If the lender does not agree to negotiate a reset of the terms, they may foreclose on the property. The buyer will be out all monies paid on the property. Most importantly, the lender may require the borrower to pay for any losses incurred. Specifically, if the lender sells the property after foreclosure and does not net enough to pay off the promissory note, the lender will likely take legal action and obtain a Deficiency Judgment against the borrower based on the guarantee of the Promissory Note.

 The borrower must pay the judgment plus interest and court costs. This further increases the total payoff mount. Failing to pay the judgment may force a bankruptcy of the borrower.

           Any late payment, foreclosure, or deficiency and judgment may be reported to the credit bureaus damaging the borrower further.

  Don’t Flush Your Money Away

           Given these terms and conditions and the potential ramifications it is best to make the payments as originally agreed. It will be much cheaper in the long run and protect the borrower’s credit. The borrower will remain the owner and will reap the potential benefit of a profit when the market returns. The owner also has the right to sell at a loss and maintain their credit and take any loss for tax purposes.

           Arizona has an anti-deficiency law that protects the borrower from a Deficiency Judgment. This only protects the borrower if the loan was for a primary residence on less the 2.5 acres and the loan is the original purchase money loan. It does not protect the borrower if the property was refinanced or if it is an investment property.

           It is imperative to seek legal advice before getting into such a difficult financial decision.

           Keep in mind that the public does not need a stock certificate to live. They do need a place to live. Real estate will return to a reasonable value in the short or long term.

Jerry Germansen, Associate Broker, eXp Realty Arizona 928 632 3906

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