Asset protection planning can be an excellent tool for owners of businesses and real estate to retain control of hard-earned property. One of the most common strategies used is equity stripping, in which the equity value of one’s real estate asset is reduced. It entails the burdening of debt to a property, to the extent of there being little to no equity available to be acquired by creditors. This process is conducted to protect the ownership of that real estate asset in the event of an unjust lawsuit. There are specific requirements that need to be met for equity stripping to be effective, and our Miami foreclosure law firm has outlined each of them below.
When Equity Stripping Can Get You Into Legal Trouble
The only drawback to equity stripping is that it must be done before the actual need for protection arises. This is because the process can be considered by the courts a fraudulent transfer to hide your assets. An example of what a court of law would consider improper would be moving your assets to an account under another name.
The most common form of equity stripping is the use of HELOCs (home equity line of credit). It involves borrowing against the actual asset and giving another person a lien for such debt. In other words, the lien will serve as collateral in the chance that the lender doesn’t get its money back.
When a second mortgage is funded, the lender is given a priority lean. As a result, the equity on the home is reduced by the amount borrowed. That equity cannot be recovered through a legal action, which means the creditor is less likely to sue.
A homestead exemption is where a limit is placed on the amount of equity that can be seized by a creditor to relieve any financial debt the homeowner owns. The only downfall to this alternative is that it only protects a very small portion of your home.
If you’re a business or home owner looking to protect your assets, contact our team of attorneys at Graham Legal can help. Our seasoned real estate law professionals know the requirements and the right approaches to procure you the best protection.