By Bill J. Gatten
8/17/2007
In answer to a recent question by a Network Member regarding percentages of splits with potential seller-prospect in Foreclosure, I though others might benefit from my answer. It went like this:
Dear Bob (Not his real name for anonymity’s sake…his real name is Earl Halderson),
When working foreclosure bailouts as an investor in any state, when you plan to leave the borrower in the property you must be extremely careful to deal only at Fair Market Value, avoid creating a debtor’s lien on the property, and make your deal fit well within the increasingly more stringent laws concerning foreclosure consultants and specialists. Be especially careful with regard to regulation concerning Usury, Fraudulent Conveyances, illicit conversion and Bankruptcy Fraud. The Civil Code Regs in California are the tightest of any state and they provide a good guideline to follow in order to stay out of trouble (in any state) when dealing in foreclosures (See Ca. CC Sec. 1695 and 2945 http://www.leginfo.ca.gov/calaw.html).
Most importantly though, be aware that the biggest problem with “foreclosure bailouts” across the board is in-fact a weird medical condition known as “Pernicious Post Recovery Amnesia.” It affects most of the population and can wipe investors out like flies. The symptoms of PPRA tend to set-in when Mr. and Mrs. Eternally Grateful get back on their feet financially and try to sell, or borrow against the property and find you in the way. It’s then that their memory fades and they determine that even though you were once their veritable “Angel Ascended from Heaven,” you are now a warty, spittle-dripping, greedy old troll, bent solely on capitalizing on that momentary lapse of consciousness in the foggy distant past. And, even worse…when the situation is brought before a judge, it’s amazing how contracts--no matter how carefully drafted—suddenly are found to mean nothing anymore. “After all” Judge Jones determines, “these poor folks were down and out and not in their right mind: you were rich and greedy…you lose! Next case! What? You saved their home for them only ten minutes before they lost it at the auction? Oh that’s nice. You still lose…and shut up or you’ll go to jail! Next case! Wait! You owe these innocent victims quadruple damages! Pay up…AND go to jail! And I hate you! Next case…”
So how does a NEHTrust™ (PACTrust™) help in these situations?
Well, the idea is for the owner in default to get out of default first (with your help), and then make sure the property is not sold or transferred beyond the owner’s own inter vivos (living) trust. The owner merely vests its ownership (legal and equitable) with a trustee for a land trust, and then leases the property back from the trust…with you, his new best buddy, as a silent co-beneficiary. You now have a vested interest in the trust and a silent agreement to share in the proceeds of the--now “income”--property when it is ultimately sold or refinanced at a specified time in the future.
With this system, you offer the owner in distress full Fair Market Value with the right to challenge your assessment of value at any time (with an appraisal at his expense). You also make a provision in your contract that: should a subsequent default occur, you would buy out the defaulting party’s equity at Fair Market Value...again determined by you, but wholly challengeable by the defaulting party by means of a an MAI (Member American Appraisal Institute) appraisal…following payment of a $2,000 Default Fee, and the cost of the appraisal. Should the defaulting beneficiary prove that more money is owed than was offered by the investor, he is paid the full amount (less late payments, late fees, charges, penalties, interest and unpaid insurance and taxes) via an UN-secured promissory note. Therefore one would offer the loan amount plus, say, a dollar. Even though the recourse is there, once the defaulting party is out of the property its interest in causing problems fades fast…unless he or she really IS being cheated out of what’s rightfully theirs: then, in such case, the recourse process serves him quite well.
Be certain as well, before you get involved with a bailout, that the loan/s is/are no longer in default, and that no recorded notices or clouds on title relative to the default are extant (i.e., open a silent Escrow to hold all executed documents, check title and disburse a cashier’s check to the lender following receipt of its Reinstatement Quote). Though not mandatory, we think it wise that, at least in the beginning, the borrower’s continuing payments are not more than what he has been paying historically: the NEHTrust payments (triple net lease obligation) might, however, be scheduled for an increase in six months or so, and perhaps for periodic increases after that.
So, how about the structure relative to being fair to all concerned, and to not being seen as taking advantage of anyone.
Here let me suggest going in 50:50 with the defaulting borrower. In other words, the borrower is left with 100% of its existing equity (that which still exists after we've reduced the MAV to an amount equivalent to the low-side of FMV, less anticipated costs of closing, and remarketing. The investment that was made to cure the default is then added into the Investor Beneficiary Refundable Contribution. That is to say that the amount to be refunded to the investor at termination prior to any other distributions of proceeds, can be that amount actually expended, plus maybe ten or twelve percent per-year of the agreement (I.e., $5,000 spent up front on a 5 year NEHTrust(tm)…the Refundable Contribution would be stated as $7,500 to $8,000 and returned to the investor prior to participation in all the other profit centers and division of net proceeds).
Once the trust is established, the formerly defaulted borrower of record leases the property from the trustee and becomes the Resident (lessee) Co-beneficiary, thereupon being under penalty of a simple eviction in the event of further missed payments or other default. The eviction is by the trustee, as directed by the co-beneficiaries…one of whom is the defaulting party himself…kind of hard to argue out of that one (“Judge, I’m kicking myself out, and it’s just not fair!”).
The profit centers for the investor in the above scenario are:
1) Positive cash flow (but be sure you don't impose a positive CF for, say, six months; and even then don't increase the aggregate monthly rental by more than perhaps 10% (not a “rule,” just a safety measure);
2) Half of the equity extant at start above your adjusted MAV
3) Half of the mortgage principal reduction;
4) Half of any future appreciation that is over and above the MAV at inception;
5) That amount that was added to the initial investment to create the Investor Beneficiary Contribution (the part that says “Thanks for saving us from foreclosure”)
What if a borrower in default wishes only to get out from under the burden and just walk away?
Then you are free to acquire the property via the co-beneficiary land trust transfer system (or any other system) for whatever you can. If you need to offer an incentive to someone who may have considerable equity, perhaps you could offer to leave at least half of his or her equity intact to be repaid when the trust terminates and the property is disposed of at termination. In this regard, however, even if you had to leave the owner with, say, 75%, or even ALLl the equity, it would likely still be a good deal…IF most or some of the above profit centers are still there and you can get a seven to ten year (or so) term.
Is this a cool way to make a living, or what?
Bill
*If you don’t have our Quick Start Success Pack or don’t belong to the NARS National Network already…it might be a real wise decision to become a part of what we do. This is only a tiny peek at the whole picture.
Give us a call at 1 800 207 4273 or go to our website at www.landtrust.net.
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Thursday, November 29, 2007
Thursday, November 22, 2007
BAD CREDIT, NO CASH -- END OF THE WORLD? NO WAY!
By Bill J. Gatten
Can you buy real estate and get wealthy despite having ‘No,’ ‘Marginal’ or even ‘Bad,’ Credit? How about compounding the problem by having no cash either?
The answer is a resounding “Yes”: but only if you have lots of other stuff: drive, determination, sincerity, maturity some modicum of sales ability and a burning desire to achieve. If you are missing any of these qualities, you chances of success are minimized proportionately with each missing element.
Without disrespect to those who have sacrificed, scrimped, and saved to maintain perfect credit, I'd like to say that I couldn’t express the degree of respect I have for them and their achievement (and no small degree of jealousy). However, I have never been blessed with a lot of money and perfect credit at the same time. Throughout the many phases of my financial development, I have had both…just not simultaneously. Nevertheless, even without an abundance of cash and/or credit, I have managed to acquire a few million dollars worth real estate, and absolutely none of it has been acquired with, or because of, credit (or cash). And now that both attributes are greatly improved, I still prefer to acquire property without a cent out of pocket and without a mortgage loan and with any monthly payments (they’re FREE that way).
For anyone who has damaged his or her credit, reestablishing it is necessary, to be sure. However, don't forget that one's not "using" their credit (the American Stoic approach) is far worse than one's not having any…and many of tend to do alright without it.
In my own case, I filed a business BK in 1989, and gave away and spent everything I had ever owned in my life (everything) in order to pay off my creditors. It took a while, but I did it, and I didn't suffer much in the process. However, within a month of having gone through the BK ordeal, I acquired a beautiful $520,000 home without a penny out of pocket and without the tiniest need for credit. I even gave the seller, a Mr. Gil Burrell of Granada Hills, California; now of S.D. Ca. (for the benefit of J.T. Reed if he’s checking) a full credit report (it was 4 feet long and horrible). I also gave Mr. Burrell all the data re. my bankruptcy. He didn’t care…I got the property solely based upon my sales ability, my demeanor, a plausible explanation for the BK and bad credit; and because of the sincerity that I portrayed and my offer to provide my plan for correcting the problems. Credit was NOT an issue.
Since that time we have continued to do reasonably well in acquiring a modest amount of other real estate by the same means...and wholly without credit, and with very little if any cash (usually none).
Without ANY apparent “credit worthiness,” I have managed to acquire credit cards (secured and unsecured), and to financed several automobiles. Over the years, I have felt little pain because of the absence of credit; and as a matter of fact, I'm sure my credit restrictions following the BK allowed me to avoid some temptations and maybe some mistakes I might have had to endure otherwise..
The point? One should do everything in his or her power to get their credit back in order: but in the meantime, never let its absence negatively interfere with, or affect, your investment pursuits. You don't need cash OR credit to be a successful real estate investor…assuming you know how, and assuming you have a good source for information, education and encouragement.
Following--in the order of their overall importance--are the 12 tools you need in the No Down, No New Loan, real estate investing business.
1. Dissatisfaction with the status quo
2. An honest need for increased abundance
3. A burning desire to achieve
4. Tenacity: the ability to stick-to-it, no matter what
5. Resiliency: the ability to shrug off a failure and move on with undiminished zeal
6. Selling skills: Acquired and/or natural sales ability (the ability to listen and think at the same time, while not talking until its necessary)
7. A professional and business-like demeanor
8. A good business background or sense (…or a partner with same)
9. A solid understanding of Real Estate and Real Estate Finance
10. Good Credit (or not)
11. Plenty of available cash (or not)
Without at least the first five in the above list, you are destined for failure in the business.
With #1 through #5, along with any one of #6 through #12, your chances of success are almost assured.
With all of #1 through #9, you’re success is unavoidable.
With all of #1 through #10, abundant wealth is already yours and you need only reach out for it. You are truly on top of the world.
With all twelve…you OWN the world and everything in it.
Bill Gatten
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Can you buy real estate and get wealthy despite having ‘No,’ ‘Marginal’ or even ‘Bad,’ Credit? How about compounding the problem by having no cash either?
The answer is a resounding “Yes”: but only if you have lots of other stuff: drive, determination, sincerity, maturity some modicum of sales ability and a burning desire to achieve. If you are missing any of these qualities, you chances of success are minimized proportionately with each missing element.
Without disrespect to those who have sacrificed, scrimped, and saved to maintain perfect credit, I'd like to say that I couldn’t express the degree of respect I have for them and their achievement (and no small degree of jealousy). However, I have never been blessed with a lot of money and perfect credit at the same time. Throughout the many phases of my financial development, I have had both…just not simultaneously. Nevertheless, even without an abundance of cash and/or credit, I have managed to acquire a few million dollars worth real estate, and absolutely none of it has been acquired with, or because of, credit (or cash). And now that both attributes are greatly improved, I still prefer to acquire property without a cent out of pocket and without a mortgage loan and with any monthly payments (they’re FREE that way).
For anyone who has damaged his or her credit, reestablishing it is necessary, to be sure. However, don't forget that one's not "using" their credit (the American Stoic approach) is far worse than one's not having any…and many of tend to do alright without it.
In my own case, I filed a business BK in 1989, and gave away and spent everything I had ever owned in my life (everything) in order to pay off my creditors. It took a while, but I did it, and I didn't suffer much in the process. However, within a month of having gone through the BK ordeal, I acquired a beautiful $520,000 home without a penny out of pocket and without the tiniest need for credit. I even gave the seller, a Mr. Gil Burrell of Granada Hills, California; now of S.D. Ca. (for the benefit of J.T. Reed if he’s checking) a full credit report (it was 4 feet long and horrible). I also gave Mr. Burrell all the data re. my bankruptcy. He didn’t care…I got the property solely based upon my sales ability, my demeanor, a plausible explanation for the BK and bad credit; and because of the sincerity that I portrayed and my offer to provide my plan for correcting the problems. Credit was NOT an issue.
Since that time we have continued to do reasonably well in acquiring a modest amount of other real estate by the same means...and wholly without credit, and with very little if any cash (usually none).
Without ANY apparent “credit worthiness,” I have managed to acquire credit cards (secured and unsecured), and to financed several automobiles. Over the years, I have felt little pain because of the absence of credit; and as a matter of fact, I'm sure my credit restrictions following the BK allowed me to avoid some temptations and maybe some mistakes I might have had to endure otherwise..
The point? One should do everything in his or her power to get their credit back in order: but in the meantime, never let its absence negatively interfere with, or affect, your investment pursuits. You don't need cash OR credit to be a successful real estate investor…assuming you know how, and assuming you have a good source for information, education and encouragement.
Following--in the order of their overall importance--are the 12 tools you need in the No Down, No New Loan, real estate investing business.
1. Dissatisfaction with the status quo
2. An honest need for increased abundance
3. A burning desire to achieve
4. Tenacity: the ability to stick-to-it, no matter what
5. Resiliency: the ability to shrug off a failure and move on with undiminished zeal
6. Selling skills: Acquired and/or natural sales ability (the ability to listen and think at the same time, while not talking until its necessary)
7. A professional and business-like demeanor
8. A good business background or sense (…or a partner with same)
9. A solid understanding of Real Estate and Real Estate Finance
10. Good Credit (or not)
11. Plenty of available cash (or not)
Without at least the first five in the above list, you are destined for failure in the business.
With #1 through #5, along with any one of #6 through #12, your chances of success are almost assured.
With all of #1 through #9, you’re success is unavoidable.
With all of #1 through #10, abundant wealth is already yours and you need only reach out for it. You are truly on top of the world.
With all twelve…you OWN the world and everything in it.
Bill Gatten
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Thursday, November 15, 2007
AVOIDING THE DUE ON SALE CLAUSE
By Bill J. Gatten
DUE-ON-SALE CLAUSE: The clause (Para. #17) in virtually all mortgage loans, which permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance Due and Payable immediately should the property securing the loan be sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent (and without giving them the opportunity to charge more money or say “No” to the transfer).
Despite the due-on-sale clause and its implications in the creative real estate financing business, it is quite possible for one to take over the payments on a non-assumable mortgage loan without needing to fear, or even to be concerned with, a DOS Violation…without violating it.
In order to effect such a take-over without an unauthorized transfer, one simply assures that the property is, in-fact, NOT being sold, traded, hypothecated or transferred in any ‘unauthorized’ manner. In other words, since placement of real estate into the borrower’s revocable living trust for asset protection purposes is fully allowable under the law (12USC 1701-j-3; and since appointment of a co-beneficiary is a prudent thing to do anyway: a would-be seller need only place its property into such a trust, and then deal with the interest in the trust, rather than dealing with the property itself. At this point, the buyer (of beneficiary interest: not real estate) gains virtually 100% of the same incidents and benefits of Fee Simple Real Estate ownership that he or she might have under a traditional transfer of the property’s title.
The only caveat here is that the living trust that is utilized for this purpose must be an Illinois-type, title-holding Land Trust. Such a trust is fully revocable and it is an inter-vivos trust; however, land trusts by nature are directed by their beneficiaries, not the trustee: and all “legal” title, as well as all “equitable” title, is vested with the trustee. Beneficiaries of land trusts own no real estate, only personal property…and even though they retain all the benefits of an owner, the property has not been sold, transferred or hypothecated.
The trust term of the agreement is decided upon by beneficiaries and stipulated in the contract. Such terms generally run for from 1 to 20 years, with the understanding that, at the end of that time, the trust will be terminated and the seller's interest (as little as 10%) will be forfeited to the co-beneficiary (buyer). Such forfeiture merely needs to be in consideration of some future act by the buyer (e.g., prompt payments; strict adherence to contract terms; a share in appreciation or overall profit; etc.). Often times, however, beneficiaries might mutually agree to share profits at termination in proportion to their respective beneficiary interests (50:50, 90:10; 75:25, etc.).
It is most important to understand here that the verbiage of a lender’s Due-on-Sale clause doesn't always convey exactly what we or our attorneys THINK it does, or what the lender expects us to believe it does (a little trickery here)…irrespective of whether a lender's exercising its rights under a DOS clause are "real," "false" or indifferent. What the DOS does infer is: “UNLESS PROHIBITED BY APPLICABLE LAW…” the lender has a right to foreclose, if the title to its security is transferred into a trust, and if a beneficiary interest in that trust is sold or transferred." Well...make no mistakes about it! Such action ‘IS’ indeed prohibited by “applicable law.” The Law (The Federal Depository Institutions Act of 1982) strictly prohibits ANY lender from taking exception to a borrower's placing its property into its own inter-vivos (living) trust (such as a Title-Holding Land Trust) and appointing a 2nd party to function as a co-beneficiary or remainder agent. Further, there is nothing to prevent those same co-beneficiaries from leasing the property out to any one they may choose…say, to the 2nd co-beneficiary, for example.
Overall, the process described here creates what is tantamount to a legally constructed, and very safe and well-shielded ‘Wrap-Around Seller-Carry’ device. Since the original owner of the property has named the second party as a beneficiary in the trust and leased to the property to him or her under a triple-net lease (i.e., net, net, net lease, wherein the tenant pays mortgage interest, property tax and handles all maintenance), the resident beneficiary (or investor co-beneficiary) has obtained all the benefits of a sale… without there actually having been one.
When proposing that a seller remain on the existing loan for you: if you really want to be assured of 'getting the deal,' its important that you make it sound so good for the seller that he can't refuse. To do that, you’d suggest that for his own safety and peace of mind, you'll pay to put the property into a neutral trust (if he prefers), and that he needn't ever transfer the property’s title to you at all…until you've proven yourself, by eventually refinancing or selling the property and paying off his loan. Explain that you'll consent to merely becoming a co-beneficiary in HIS trust until his loan is retired in, say, 6 months (or 3, 4, 5 or 20 years…or more).
Note that this arrangement (i.e., a "NARS PAC Trust™") gives you, as the buyer, 100% of the tax write-off (See IRC § 163(h)4(D)); 100% of the use, occupancy, possession; 100% of the equity build-up (from principal reduction); full rights to all rents; and other profits upon the sale or other disposition of the property. As well, you also have any and all of the other rights ordinarily only available under the so-called "Bundle of Rights" in any form of Fee-Simple Real Estate ownership.
In a NARS PACTrust™, the seller needn’t ever take any chances with you; and you don't have to take any chances with the seller either. By virtue of the structure of the NARS PACTrust™, the trust property is protected from liens, suits judgments, divorce actions or claims, bankruptcies or anything else you can think of…on both sides…including state and/or IRS tax liens. Moreover, the due-on-sale clause becomes pretty much a non-issue in that the property has not been sold; the title has not been transferred (other than to the borrower’s authorized trust); and there is no consideration for a ‘purchase of real estate’ per se. Furthermore, the commodity being transferred (beneficiary interest in a trust) is characterized as Personalty (personal property), and not Realty (real estate), and is therefore not subject to the same creditor rights as would be real estate. And…the transaction has not infringed upon the lender’s foreclosure rights, or compromised its security interest).
In closing, do note that for maximum safety, it recommended that at least 10% of the trust's Beneficiary Interest and 50% of the beneficiary’s Power of Direction should be retained by the seller, with an agreement to forfeit that interest to you upon disposition of the property at the trust's termination. However, also note that the Settlor Beneficiary’s fifty percent Power of Direction can be given to you by means of either an Assignment of Power of Direction, or by a Revocable, Limited, Power of Attorney. The reason for the seller’s retaining a percentage of beneficiary interest is to satisfy the requirement that if the seller places his property into a revocable trust, he must be and remain a beneficiary of that trust. The reason for keeping the 50% Power of Direction intact, is that most county jurisdictions will not re-assess the property for property taxes, or require transfer fees, when transferring the property to a living trust, so long as no more than 50% of the “voting rights” are conveyed.
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
DUE-ON-SALE CLAUSE: The clause (Para. #17) in virtually all mortgage loans, which permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance Due and Payable immediately should the property securing the loan be sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent (and without giving them the opportunity to charge more money or say “No” to the transfer).
Despite the due-on-sale clause and its implications in the creative real estate financing business, it is quite possible for one to take over the payments on a non-assumable mortgage loan without needing to fear, or even to be concerned with, a DOS Violation…without violating it.
In order to effect such a take-over without an unauthorized transfer, one simply assures that the property is, in-fact, NOT being sold, traded, hypothecated or transferred in any ‘unauthorized’ manner. In other words, since placement of real estate into the borrower’s revocable living trust for asset protection purposes is fully allowable under the law (12USC 1701-j-3; and since appointment of a co-beneficiary is a prudent thing to do anyway: a would-be seller need only place its property into such a trust, and then deal with the interest in the trust, rather than dealing with the property itself. At this point, the buyer (of beneficiary interest: not real estate) gains virtually 100% of the same incidents and benefits of Fee Simple Real Estate ownership that he or she might have under a traditional transfer of the property’s title.
The only caveat here is that the living trust that is utilized for this purpose must be an Illinois-type, title-holding Land Trust. Such a trust is fully revocable and it is an inter-vivos trust; however, land trusts by nature are directed by their beneficiaries, not the trustee: and all “legal” title, as well as all “equitable” title, is vested with the trustee. Beneficiaries of land trusts own no real estate, only personal property…and even though they retain all the benefits of an owner, the property has not been sold, transferred or hypothecated.
The trust term of the agreement is decided upon by beneficiaries and stipulated in the contract. Such terms generally run for from 1 to 20 years, with the understanding that, at the end of that time, the trust will be terminated and the seller's interest (as little as 10%) will be forfeited to the co-beneficiary (buyer). Such forfeiture merely needs to be in consideration of some future act by the buyer (e.g., prompt payments; strict adherence to contract terms; a share in appreciation or overall profit; etc.). Often times, however, beneficiaries might mutually agree to share profits at termination in proportion to their respective beneficiary interests (50:50, 90:10; 75:25, etc.).
It is most important to understand here that the verbiage of a lender’s Due-on-Sale clause doesn't always convey exactly what we or our attorneys THINK it does, or what the lender expects us to believe it does (a little trickery here)…irrespective of whether a lender's exercising its rights under a DOS clause are "real," "false" or indifferent. What the DOS does infer is: “UNLESS PROHIBITED BY APPLICABLE LAW…” the lender has a right to foreclose, if the title to its security is transferred into a trust, and if a beneficiary interest in that trust is sold or transferred." Well...make no mistakes about it! Such action ‘IS’ indeed prohibited by “applicable law.” The Law (The Federal Depository Institutions Act of 1982) strictly prohibits ANY lender from taking exception to a borrower's placing its property into its own inter-vivos (living) trust (such as a Title-Holding Land Trust) and appointing a 2nd party to function as a co-beneficiary or remainder agent. Further, there is nothing to prevent those same co-beneficiaries from leasing the property out to any one they may choose…say, to the 2nd co-beneficiary, for example.
Overall, the process described here creates what is tantamount to a legally constructed, and very safe and well-shielded ‘Wrap-Around Seller-Carry’ device. Since the original owner of the property has named the second party as a beneficiary in the trust and leased to the property to him or her under a triple-net lease (i.e., net, net, net lease, wherein the tenant pays mortgage interest, property tax and handles all maintenance), the resident beneficiary (or investor co-beneficiary) has obtained all the benefits of a sale… without there actually having been one.
When proposing that a seller remain on the existing loan for you: if you really want to be assured of 'getting the deal,' its important that you make it sound so good for the seller that he can't refuse. To do that, you’d suggest that for his own safety and peace of mind, you'll pay to put the property into a neutral trust (if he prefers), and that he needn't ever transfer the property’s title to you at all…until you've proven yourself, by eventually refinancing or selling the property and paying off his loan. Explain that you'll consent to merely becoming a co-beneficiary in HIS trust until his loan is retired in, say, 6 months (or 3, 4, 5 or 20 years…or more).
Note that this arrangement (i.e., a "NARS PAC Trust™") gives you, as the buyer, 100% of the tax write-off (See IRC § 163(h)4(D)); 100% of the use, occupancy, possession; 100% of the equity build-up (from principal reduction); full rights to all rents; and other profits upon the sale or other disposition of the property. As well, you also have any and all of the other rights ordinarily only available under the so-called "Bundle of Rights" in any form of Fee-Simple Real Estate ownership.
In a NARS PACTrust™, the seller needn’t ever take any chances with you; and you don't have to take any chances with the seller either. By virtue of the structure of the NARS PACTrust™, the trust property is protected from liens, suits judgments, divorce actions or claims, bankruptcies or anything else you can think of…on both sides…including state and/or IRS tax liens. Moreover, the due-on-sale clause becomes pretty much a non-issue in that the property has not been sold; the title has not been transferred (other than to the borrower’s authorized trust); and there is no consideration for a ‘purchase of real estate’ per se. Furthermore, the commodity being transferred (beneficiary interest in a trust) is characterized as Personalty (personal property), and not Realty (real estate), and is therefore not subject to the same creditor rights as would be real estate. And…the transaction has not infringed upon the lender’s foreclosure rights, or compromised its security interest).
In closing, do note that for maximum safety, it recommended that at least 10% of the trust's Beneficiary Interest and 50% of the beneficiary’s Power of Direction should be retained by the seller, with an agreement to forfeit that interest to you upon disposition of the property at the trust's termination. However, also note that the Settlor Beneficiary’s fifty percent Power of Direction can be given to you by means of either an Assignment of Power of Direction, or by a Revocable, Limited, Power of Attorney. The reason for the seller’s retaining a percentage of beneficiary interest is to satisfy the requirement that if the seller places his property into a revocable trust, he must be and remain a beneficiary of that trust. The reason for keeping the 50% Power of Direction intact, is that most county jurisdictions will not re-assess the property for property taxes, or require transfer fees, when transferring the property to a living trust, so long as no more than 50% of the “voting rights” are conveyed.
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Thursday, November 8, 2007
THE DUE-ON-SALE CLAUSE -- HOW TO AVOID IT
Bill J. Gatten
North American Realty Service, Inc., Author: No Down! No New Loan!
The Common Assumption: To get around a lender’s due-on-sale clause, one must just go ahead and violate it, and then try to make sure the lender doesn’t find out.
The Facts: The due-on-sale clause is not violated when a transfer of real estate ownership is by assignment of beneficiary interest in an inter-vivos trust, versus a conveyance by a title transfer.
The Common Assumption (“Denial”): Lenders’ don’t mind if a loan is taken over by another party without their permission. They obviously would never want to foreclose on a perfectly good, properly performing, well secured Account Receivable…especially in “this” market.
The Fact: Lender’s are conglomerations of investors (humans) who do care in a big way, but whom will usually turn away and pretend they don’t see anything wrong during times when mortgage rates are low. However, when rates start to climb and they see an opportunity to replace old, poorly performing loans with significantly higher yields for their stockholders, they suddenly begin spending considerable effort in seeking out those opportunities (like foreclosing on unauthorized transfers and fraudulently applied-for loans).
Interesting, however, one can indeed take over an entirely non-assumable loan without needing to fear, or even be concerned with, a DOS Violation. To do so, one need merely place the property into a co-beneficiary land trust in the mortgagor's (seller's) own name and take a partial Beneficiary Interest in it. The trust would then be set up to run for some specified period of time, with the understanding that, at the end of that period the seller's interest will be forfeited to the "buyer" without further claim. Such forfeiture merely needing to be in consideration of some promise of a future act by the buyer (e.g., prompt payments; strict adherence to contract terms; a share in appreciation or overall profit; etc.).
The problem confronting most of us is that the foreboding due-on-sale clause in Para. 17 of the loan agreement doesn't always say what we (or our attorneys) “think” it does, irrespective of whether a lender's rights under a DOS clause are "real," "false" or indifferent. What the clause actually says is: UNLESS PROHIBITED BY LAW, the lender has a right to foreclose if...". Well, good news! Such right is not available under the law (12 USC 1701(j)). Make no mistakes about it, a lender’s foreclosing due to a borrower’s placing its property into a living trust (assuming the trust is revocable and that the borrow remains a beneficiary), IS in fact against the law. That law is the “Federal Depository Institutions Regulations Act,” known as the FDIRA, having originated with the “Garn-St. Germain Act” of 1982.
Under Garn-St. Germain, a mortgagor’s (borrower’s) rights as established by the federal government, allows any borrower to grant its own mortgaged property to its own living trust, and subsequently name (a second party) as a Co-Beneficiary in that trust. When this is done, if your are that second party, the property has effectively been transferred to you, along with 100% of all the benefits and incidents of real property ownership. And the transfer does not need a new loan or any more cash than the seller might require. As well, the due-on-sale clause has not been tampered with. Title hasn’t been transferred beyond the authorized trust. No control over the property has been relinquished by the borrower of record. The lender’s security interest remains fully intact. There need be no public notice (recording) of the transfer to you; and the property is now shielded from either party’s judgment creditors, tax liens, lawsuits, divorce actions, bankruptcy, probate and estate tax issues.
PRACTICAL USE: When calling on a prospect that you’d want to remain on the loan, if you want to be assured of 'getting the deal,' make it sound so good for the seller that he can't refuse. Suggest to him that for his own safety and peace of mind, you'll pay to put the property into a neutral title-holding trust in his own name. Explain, as well, that he needn't ever transfer the property’s title to you at all…until you've had a chance to prove yourself by selling the property and paying off his loan, or refinancing it in your own name. Explain that you'll consent to being merely named a co-beneficiary in the trust, until such time as you retire his loan in, say, a year or two (or 3, 4 or 5 years…or more).
Note that this arrangement (called a "NARS PAC Trust") affords you the buyer 100% of the mortgage interest and property tax write-off; 100% of the Use, Occupancy, Possession; 100% of the Equity Build-Up (from principal reduction); full rights to all rents; and other profits upon the sale or other disposition of the property. In addition, you own and control every single right ordinarily available under the so-called "Bundle of Rights" in Fee-Simple Real Estate ownership.
In the NARS PAC Trust, the seller never has to take any chances with you; and you don't have to take any chances with the seller. While the property is protected from liens and lawsuits…on both sides, the Due-on-Sale Clause becomes pretty much a non-issue. That’s because the real estate interest in the property has not being sold; the title has not being transferred (beyond the borrower’s own living trust); there is no consideration or option for a purchase…yet); and that which is being transferred (beneficiary interest) is personal property only and not real estate, and therefore not the security for the mortgage loan.
As far as an attorney's suggestion that a Lease Option would be better, with reference to the Due-on-Sale Clause, that's ridiculous (and they do it all the time)! When an attorney makes such a suggestion, he/she knows nothing about Land Trusts or the Garn-St. Germain Law (12USC 1701(j)) per se. they merely are looking to make a profit on doing a deal for you that they understands better: but wholly at the expense of your maximum safety, tax write-off and income potential.
Despite what you may have heard or will hear to the contrary from time-to-time, all Lease Options, Lease Purchases, Wraps, Land Contracts or Equity Shares without the shield provided by the NARS PACTrust can, and do, more than just occasionally, constitute some or all of the following:
1) Lender’s Due-on-Sale violation (all)
2) Public notice of the transfer, or deception and legal risk by avoiding public notice (all)
3) Excessive risk of title involvement with the other party’s marital disputes, BK's, creditor judgments, tax liens, lawsuits, illegal activities and probate issues (all)
4) Loss of tax write-off for the resident party (contracts and options),
5) Possible property Tax reassessment (contracts, wraps and equity shares)
6) Difficulty in procuring title insurance
7) Difficulties with hazard insurance replacement and coverage (contracts and options)
8) Much lower income potential for the investor (contracts and options)
9) Much higher potential for difficulty in eviction and dispossession of an errant or defaulting tenant buyers who would claim “Equity” to force judicial processes versus eviction (all)
10) Need for subterfuge in dealing with lenders, insurance carriers, co-buyers, etc. (all)
11) Confusion and lack of control in timely payment and determining how payments are to be received and disbursed to creditors (all).
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
North American Realty Service, Inc., Author: No Down! No New Loan!
The Common Assumption: To get around a lender’s due-on-sale clause, one must just go ahead and violate it, and then try to make sure the lender doesn’t find out.
The Facts: The due-on-sale clause is not violated when a transfer of real estate ownership is by assignment of beneficiary interest in an inter-vivos trust, versus a conveyance by a title transfer.
The Common Assumption (“Denial”): Lenders’ don’t mind if a loan is taken over by another party without their permission. They obviously would never want to foreclose on a perfectly good, properly performing, well secured Account Receivable…especially in “this” market.
The Fact: Lender’s are conglomerations of investors (humans) who do care in a big way, but whom will usually turn away and pretend they don’t see anything wrong during times when mortgage rates are low. However, when rates start to climb and they see an opportunity to replace old, poorly performing loans with significantly higher yields for their stockholders, they suddenly begin spending considerable effort in seeking out those opportunities (like foreclosing on unauthorized transfers and fraudulently applied-for loans).
Interesting, however, one can indeed take over an entirely non-assumable loan without needing to fear, or even be concerned with, a DOS Violation. To do so, one need merely place the property into a co-beneficiary land trust in the mortgagor's (seller's) own name and take a partial Beneficiary Interest in it. The trust would then be set up to run for some specified period of time, with the understanding that, at the end of that period the seller's interest will be forfeited to the "buyer" without further claim. Such forfeiture merely needing to be in consideration of some promise of a future act by the buyer (e.g., prompt payments; strict adherence to contract terms; a share in appreciation or overall profit; etc.).
The problem confronting most of us is that the foreboding due-on-sale clause in Para. 17 of the loan agreement doesn't always say what we (or our attorneys) “think” it does, irrespective of whether a lender's rights under a DOS clause are "real," "false" or indifferent. What the clause actually says is: UNLESS PROHIBITED BY LAW, the lender has a right to foreclose if...". Well, good news! Such right is not available under the law (12 USC 1701(j)). Make no mistakes about it, a lender’s foreclosing due to a borrower’s placing its property into a living trust (assuming the trust is revocable and that the borrow remains a beneficiary), IS in fact against the law. That law is the “Federal Depository Institutions Regulations Act,” known as the FDIRA, having originated with the “Garn-St. Germain Act” of 1982.
Under Garn-St. Germain, a mortgagor’s (borrower’s) rights as established by the federal government, allows any borrower to grant its own mortgaged property to its own living trust, and subsequently name (a second party) as a Co-Beneficiary in that trust. When this is done, if your are that second party, the property has effectively been transferred to you, along with 100% of all the benefits and incidents of real property ownership. And the transfer does not need a new loan or any more cash than the seller might require. As well, the due-on-sale clause has not been tampered with. Title hasn’t been transferred beyond the authorized trust. No control over the property has been relinquished by the borrower of record. The lender’s security interest remains fully intact. There need be no public notice (recording) of the transfer to you; and the property is now shielded from either party’s judgment creditors, tax liens, lawsuits, divorce actions, bankruptcy, probate and estate tax issues.
PRACTICAL USE: When calling on a prospect that you’d want to remain on the loan, if you want to be assured of 'getting the deal,' make it sound so good for the seller that he can't refuse. Suggest to him that for his own safety and peace of mind, you'll pay to put the property into a neutral title-holding trust in his own name. Explain, as well, that he needn't ever transfer the property’s title to you at all…until you've had a chance to prove yourself by selling the property and paying off his loan, or refinancing it in your own name. Explain that you'll consent to being merely named a co-beneficiary in the trust, until such time as you retire his loan in, say, a year or two (or 3, 4 or 5 years…or more).
Note that this arrangement (called a "NARS PAC Trust") affords you the buyer 100% of the mortgage interest and property tax write-off; 100% of the Use, Occupancy, Possession; 100% of the Equity Build-Up (from principal reduction); full rights to all rents; and other profits upon the sale or other disposition of the property. In addition, you own and control every single right ordinarily available under the so-called "Bundle of Rights" in Fee-Simple Real Estate ownership.
In the NARS PAC Trust, the seller never has to take any chances with you; and you don't have to take any chances with the seller. While the property is protected from liens and lawsuits…on both sides, the Due-on-Sale Clause becomes pretty much a non-issue. That’s because the real estate interest in the property has not being sold; the title has not being transferred (beyond the borrower’s own living trust); there is no consideration or option for a purchase…yet); and that which is being transferred (beneficiary interest) is personal property only and not real estate, and therefore not the security for the mortgage loan.
As far as an attorney's suggestion that a Lease Option would be better, with reference to the Due-on-Sale Clause, that's ridiculous (and they do it all the time)! When an attorney makes such a suggestion, he/she knows nothing about Land Trusts or the Garn-St. Germain Law (12USC 1701(j)) per se. they merely are looking to make a profit on doing a deal for you that they understands better: but wholly at the expense of your maximum safety, tax write-off and income potential.
Despite what you may have heard or will hear to the contrary from time-to-time, all Lease Options, Lease Purchases, Wraps, Land Contracts or Equity Shares without the shield provided by the NARS PACTrust can, and do, more than just occasionally, constitute some or all of the following:
1) Lender’s Due-on-Sale violation (all)
2) Public notice of the transfer, or deception and legal risk by avoiding public notice (all)
3) Excessive risk of title involvement with the other party’s marital disputes, BK's, creditor judgments, tax liens, lawsuits, illegal activities and probate issues (all)
4) Loss of tax write-off for the resident party (contracts and options),
5) Possible property Tax reassessment (contracts, wraps and equity shares)
6) Difficulty in procuring title insurance
7) Difficulties with hazard insurance replacement and coverage (contracts and options)
8) Much lower income potential for the investor (contracts and options)
9) Much higher potential for difficulty in eviction and dispossession of an errant or defaulting tenant buyers who would claim “Equity” to force judicial processes versus eviction (all)
10) Need for subterfuge in dealing with lenders, insurance carriers, co-buyers, etc. (all)
11) Confusion and lack of control in timely payment and determining how payments are to be received and disbursed to creditors (all).
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Thursday, November 1, 2007
A DAY IN THE LIFE OF A JOGGER/ENTREPRENEUR
By Bill J. Gatten
A few days ago I was asked to give folks an idea of how my days came together. So we decided that a “Day in the Life of…” might be appropriate. So here it is for your perusal.
6:30 AM: Awaken prematurely to the noise of a garbage truck coming down the street, but continue lying perfectly still, eyes closed, pretending not to notice wife getting up to take out the trash
7:00 AM: Awaken again to a demanding, blaring alarm. Punch the snooze-alarm
7:15 AM: Second snooze-alarm punch
7:30 AM: Third attempt to hit snooze-alarm. Accidentally shut off the alarm instead and am forced to roll (more oozing than rolling) out of bed
7:31 AM: Half stumble and half crawl to shower and turn on water, wait for water to heat while glancing at face in mirror and wondering why eyes appear to need draining. Prop eyelids open with Q-tips and step into shower
7:41 AM: Gradually emerge from a 15-minute, early-morning standing stupor in the shower, becoming suddenly aware and concerned that hot water tank is running low, and that no scrubbing of delicate areas has taken place yet
7:50 AM: Step from freezing shower, now quite awake. Dress for the day (color coordinated Mohair sports ensemble). Put off jogging again, until afternoon
8:00 AM: Check phone messages and listen to first message: "Hi, this is Earl Splork, I'm returning your call about my house for sale. Yes, I might consider keeping the current financing in place, as you suggest, and leaving my equity in tact for a while…if you can take over payments, upkeep and all other costs"
8:01 AM: Return call: "Hi Earl, I'm returning your call. Thanks for calling...can you tell me a bit about the house?" (Yada yada yada) "Great! Let me run by it a little later and check some comps. If it looks like something we can do, I'll give you a call this afternoon or tomorrow. If it checks out, are you ready to put a deal together right away? Super! I'll call you this afternoon. Oh, by the way, how did you come up with that asking price? I see, and...and how much work or repairs would you say need to be done on it? OK, that’s not too bad. And about how many payments are in arrears at the moment? And, roughly, what's your current loan balance, not counting the arrearages? Ouch! Oh, and by the way, why do you think it hasn’t sold? Have you by any chance asked the bank for any kind of forbearance? Well, I'll give it my best shot and call you when I have all the data together. Fair enough?"
8:03 AM: Return second call: "Hi this is Bill Gatten returning your call. You had called about the property I have available over there on Fir Street. What can I tell you about it? (Yada, yada, yada). Great! Well, basically, if you like the house, there are three ways to get in: You can come in with 10% and closing costs and I'll carry the entire financing for you for, say 3 to 4 years. Or, if you’d prefer, you could come in with just half of that amount plus closing costs, and we’ll just agree to share in any future profits if there are any, over the next 5 or 10 years. Or...you might want to come in with maybe just 3 or 4 payments up front, on what we call a 'Tax Lease.' What that means is that you would lease the property from my land trust with full access to all of my income tax deductions: mortgage interest and property tax. The payments will, of course, be a bit higher than rent, but your after-tax monthly cost should be much lower, depending on your tax bracket, and you might save thousands of dollars per-year over renting.
9:30 AM: Pull comps on properties that I intend to try to get under contract today.
10:00 AM: Return as many phone calls and Emails as possible.
12:00 Noon: Drive by one of the properties that is just a few miles away, and call the owner to make an appointment to sign the deal up. (Put off jogging until evening)
2:30 PM: Call for appointment to meet with owner of first property: “Are you pretty much the decision maker for this transaction? No? Ok, then, will you need to confer with anyone else on this? Oh, I see…and will she be there for signing? Great!” (If the other decision maker/s won’t be there, I’d say, “then call me after you talked to her/them). And by the way, assuming that everything we’ve talked about turns out to be as expected and to your advantage, are there any other considerations we need to address before putting it all together?” “No? Good! So we can get everything signed up this evening if everything checks out…great!”
Laughingly: “I hate to have to be so specific on these points, but you’d be surprised at how many people give me the old “I have to think it over” stall after I’ve done all of everything I said I would. You won’t do that to me. Right (light chuckle)? How does 5:30 sound? Or would 6:00 be better? Great! See you then."
(At the meeting I’ll have my briefcase with plenty of Purchase Offer forms, Non-Exclusive Option forms; authorization forms (e.g., so I can speak to the creditors); a copy of the comps (to discuss with the seller, should there be any difference of opinion about value). All forms will be a completely filled-out as possible in order to save time and get to the point quickly during the meeting.
AS PART OF THE MEETING: "Yes, the 'fixed-up' value does appear, as you said it would, to be about $195 to $200K; and it appears that it'll take between $8-10,000 to bring it to 'Full Market' for resale.
Then considering my remarketing expenses...about 7.5% ($15,000); and even a minimum four or five percent profit (e.g., $10,000): unless you'd want to cover some of those costs, I'll come in at about $165,000.00, including, of course, taking over all of your payments, principal, interest, property tax, insurance, upkeep, management, maintenance, repairs, insurance, etc."
2:45: After making bank deposit and picking up mail, stop for a Veggie Burger, a Diet Coke, a small green salad, a Weight Watcher's 2-Point bar and a Double Bacon Cheese Burger with Chili Fries (…decide to delay jogging until after this evening’s meeting…it’ll be cooler then anyway).
2:50 to 5:00: Deal with matters of the properties I have on the market.
4:30 PM: Call a couple FSBOs and For Rent ads (“Hi I’m looking for folks who are selling on their own, who—for a full price offer—would consider leaving their exiting loan in place for a while and who can afford to leave their equity in tact for a couple years. In the meantime I’ll cover 100% of all payments, maintenance, repairs, property tax and insurance…then retire your loan and pay you off and, say 3-4 years”).
5:30 PM (At the meeting): I show Earl the unsigned Purchase-Offer and the signed Non-Exclusive Option Agreement, explaining that I’ll need about 30-45 days to get all my ducks in line: i.e., to run a title search; check on utility liens; check on the status of the hazard insurance and property tax; check on building code or ordinance violations; have the property appraised; have the property inspected; etc. I explain to him that I fully realize that the time all this could take could be a problem if he had to take the property off the market and wait for me: so, instead, we do the NEO so that he can leave the property on the market and accept a better offer than mine, if one were to be receiverd. I explain that if that happens, I’ll require only a five-day notice: i.e., five days within which to either exercise my option or relinquish it.
(After the NEO and the Memorandum of Option are executed, the next morning I record the Memorandum of Option at the County Recorder's office and call the local newspaper and Penny Saver to place my ad (No Bank Qual, No Down, No Credit Req'd, 3 pmts & cl. costs moves you in. $160K, 3-2 beauty w/pool, 1,450 sq ft, 2cg. Owner fin. Call Bill. 1-800-207-4273)
7:00 PM: Back to the office to answer Email, phone calls, website discussion groups until 10:30 PM. (Put off jogging until tomorrow morning)
11:00 PM: Ponder why I’m actually watching Jerry Springer while waiting for David Letterman to come on.
11:30: Fall asleep with TV blaring four minutes before David Letterman starts.
2:00: AM: Treat myself to a midnight snack, tale my final pee of the day, and amble bleary-eyed off to bed, and prepare to repeat as needed the following day (knowing that I can use my jogging time to make up for the late hour and lack of sleep).
Bill Gatten
www.landtrust.net
-----Original Message-----
From: JOHN WHITWORTH [mailto:johnlw@thegrid.net]
Sent: Wednesday, May 21, 2003 7:30 PM
To: Bill J. Gatten
Subject: Re: The Transaction Process, etc.
Bill,
Thanks! A diary of you, as the "investor" would help clear up exactly what paperwork I should be using, the detailed steps I should take, etc.
John :-)
----- Original Message -----
From: Bill J. Gatten
To: JOHN WHITWORTH
Sent: Monday, May 19, 2003 2:44 PM
Subject: RE: The Transaction Process, etc.
Hi John,
Give me a while to get situated here (just finished a week on the road), and I'll get back to with that diary of a day you're looking for.
Bill
-----Original Message-----
From: JOHN WHITWORTH [mailto:johnlw@thegrid.net]
Sent: Saturday, May 17, 2003 7:24 PM
To: Bill Gatten
Subject: Re: The Transaction Process, etc.
Bill and/or Staff,
I wish I could spend a few days following you around as you go about dealing with a Seller and Tenant-buyer. I wish I was privy to a "Diary" of Bill Gatten, where each day, a part of the "process" was documented. Specifically, including what forms you bring and fill out with each meeting with the Seller and then again with the buyer. I probably wouldn't have so many questions, then (sorry). Maybe I should have purchased the S.S.S.P. (Slow Start Success Pack) (ha, ha).
I have been reviewing the TRANSACTION PROCESS and I have some questions:
Since I've never done anything like this before, To build confidence, it is necessary for me to be able to visualize the details of the ENTIRE PROCESS (which includes the transaction process), as if I'm dressed in my suit, briefcase in hand, and going to see the Seller, or Tenant-buyer. What forms (all of them!) do I take with me? What is notarized and/or recorded when (prior to NARS involvement), etc? (Keep in mind, that I'll be working out of my home and don't have an office).
1. Is it correct to assume that when you go see the Seller (Step #1), you then proceed with Step #2 and Step #3 all in that first meeting?
2. Step #2: I am still confused what the investor does different from a Realtor. Does the INVESTOR use the "Purchase Offer" AND "Agreement For Option to Acquire and Interest in a Land Trust" (with the Seller)? Or, do I only use an Agreement For Option to Acquire and Interest in a Land Trust (with the Seller)?
3. I know I need to record the Memorandum of Offer to Purchase (Step #4). Does the Seller follow me down to a bank (or somewhere) to have us both sign in front of a notary, or do I just go by myself and have my signature notarized? Then, I take the notarized Memorandum of Offer to Purchase and record it at the Court House, right?
4. When the tenant-buyer fills out an Agreement For Option to Acquire and Beneficial Interest in a Land Trust and then the Memorandum For Offer to Purchase, he and I (investor) sign it (Memorandum...), notarize it, and then I record it at the Court House, just like I did with the Seller, right?
5. Step #3: Does not mention APPENDIX #1. What's happened to it? Does the Seller get a copy of it?
6. Step #3: Speaking of copies, once you present the Seller with everything, who keeps the originals? Do I mail copies later? (Wish I could read your "diary"!)
7. APPENDIX #4: Line 18-C: It say's "B & C above". Don't you mean "A & B above", since it is "C"?
8. APPENDIX 2: Term confusion: Is the "Transaction Fee" the same as the "NARS Facilitator Fee"? (I don't see "Transaction Fee" under the Fee Schedule or anywhere else than in APPENDIX #2).
I'm trying to personalize and integrate the information from the course. I've created some documents to help me define the process. I am making progress, but still need your help.
Thank you for your mentoring.
John Whitworth
(510) 525-7460
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
A few days ago I was asked to give folks an idea of how my days came together. So we decided that a “Day in the Life of…” might be appropriate. So here it is for your perusal.
6:30 AM: Awaken prematurely to the noise of a garbage truck coming down the street, but continue lying perfectly still, eyes closed, pretending not to notice wife getting up to take out the trash
7:00 AM: Awaken again to a demanding, blaring alarm. Punch the snooze-alarm
7:15 AM: Second snooze-alarm punch
7:30 AM: Third attempt to hit snooze-alarm. Accidentally shut off the alarm instead and am forced to roll (more oozing than rolling) out of bed
7:31 AM: Half stumble and half crawl to shower and turn on water, wait for water to heat while glancing at face in mirror and wondering why eyes appear to need draining. Prop eyelids open with Q-tips and step into shower
7:41 AM: Gradually emerge from a 15-minute, early-morning standing stupor in the shower, becoming suddenly aware and concerned that hot water tank is running low, and that no scrubbing of delicate areas has taken place yet
7:50 AM: Step from freezing shower, now quite awake. Dress for the day (color coordinated Mohair sports ensemble). Put off jogging again, until afternoon
8:00 AM: Check phone messages and listen to first message: "Hi, this is Earl Splork, I'm returning your call about my house for sale. Yes, I might consider keeping the current financing in place, as you suggest, and leaving my equity in tact for a while…if you can take over payments, upkeep and all other costs"
8:01 AM: Return call: "Hi Earl, I'm returning your call. Thanks for calling...can you tell me a bit about the house?" (Yada yada yada) "Great! Let me run by it a little later and check some comps. If it looks like something we can do, I'll give you a call this afternoon or tomorrow. If it checks out, are you ready to put a deal together right away? Super! I'll call you this afternoon. Oh, by the way, how did you come up with that asking price? I see, and...and how much work or repairs would you say need to be done on it? OK, that’s not too bad. And about how many payments are in arrears at the moment? And, roughly, what's your current loan balance, not counting the arrearages? Ouch! Oh, and by the way, why do you think it hasn’t sold? Have you by any chance asked the bank for any kind of forbearance? Well, I'll give it my best shot and call you when I have all the data together. Fair enough?"
8:03 AM: Return second call: "Hi this is Bill Gatten returning your call. You had called about the property I have available over there on Fir Street. What can I tell you about it? (Yada, yada, yada). Great! Well, basically, if you like the house, there are three ways to get in: You can come in with 10% and closing costs and I'll carry the entire financing for you for, say 3 to 4 years. Or, if you’d prefer, you could come in with just half of that amount plus closing costs, and we’ll just agree to share in any future profits if there are any, over the next 5 or 10 years. Or...you might want to come in with maybe just 3 or 4 payments up front, on what we call a 'Tax Lease.' What that means is that you would lease the property from my land trust with full access to all of my income tax deductions: mortgage interest and property tax. The payments will, of course, be a bit higher than rent, but your after-tax monthly cost should be much lower, depending on your tax bracket, and you might save thousands of dollars per-year over renting.
9:30 AM: Pull comps on properties that I intend to try to get under contract today.
10:00 AM: Return as many phone calls and Emails as possible.
12:00 Noon: Drive by one of the properties that is just a few miles away, and call the owner to make an appointment to sign the deal up. (Put off jogging until evening)
2:30 PM: Call for appointment to meet with owner of first property: “Are you pretty much the decision maker for this transaction? No? Ok, then, will you need to confer with anyone else on this? Oh, I see…and will she be there for signing? Great!” (If the other decision maker/s won’t be there, I’d say, “then call me after you talked to her/them). And by the way, assuming that everything we’ve talked about turns out to be as expected and to your advantage, are there any other considerations we need to address before putting it all together?” “No? Good! So we can get everything signed up this evening if everything checks out…great!”
Laughingly: “I hate to have to be so specific on these points, but you’d be surprised at how many people give me the old “I have to think it over” stall after I’ve done all of everything I said I would. You won’t do that to me. Right (light chuckle)? How does 5:30 sound? Or would 6:00 be better? Great! See you then."
(At the meeting I’ll have my briefcase with plenty of Purchase Offer forms, Non-Exclusive Option forms; authorization forms (e.g., so I can speak to the creditors); a copy of the comps (to discuss with the seller, should there be any difference of opinion about value). All forms will be a completely filled-out as possible in order to save time and get to the point quickly during the meeting.
AS PART OF THE MEETING: "Yes, the 'fixed-up' value does appear, as you said it would, to be about $195 to $200K; and it appears that it'll take between $8-10,000 to bring it to 'Full Market' for resale.
Then considering my remarketing expenses...about 7.5% ($15,000); and even a minimum four or five percent profit (e.g., $10,000): unless you'd want to cover some of those costs, I'll come in at about $165,000.00, including, of course, taking over all of your payments, principal, interest, property tax, insurance, upkeep, management, maintenance, repairs, insurance, etc."
2:45: After making bank deposit and picking up mail, stop for a Veggie Burger, a Diet Coke, a small green salad, a Weight Watcher's 2-Point bar and a Double Bacon Cheese Burger with Chili Fries (…decide to delay jogging until after this evening’s meeting…it’ll be cooler then anyway).
2:50 to 5:00: Deal with matters of the properties I have on the market.
4:30 PM: Call a couple FSBOs and For Rent ads (“Hi I’m looking for folks who are selling on their own, who—for a full price offer—would consider leaving their exiting loan in place for a while and who can afford to leave their equity in tact for a couple years. In the meantime I’ll cover 100% of all payments, maintenance, repairs, property tax and insurance…then retire your loan and pay you off and, say 3-4 years”).
5:30 PM (At the meeting): I show Earl the unsigned Purchase-Offer and the signed Non-Exclusive Option Agreement, explaining that I’ll need about 30-45 days to get all my ducks in line: i.e., to run a title search; check on utility liens; check on the status of the hazard insurance and property tax; check on building code or ordinance violations; have the property appraised; have the property inspected; etc. I explain to him that I fully realize that the time all this could take could be a problem if he had to take the property off the market and wait for me: so, instead, we do the NEO so that he can leave the property on the market and accept a better offer than mine, if one were to be receiverd. I explain that if that happens, I’ll require only a five-day notice: i.e., five days within which to either exercise my option or relinquish it.
(After the NEO and the Memorandum of Option are executed, the next morning I record the Memorandum of Option at the County Recorder's office and call the local newspaper and Penny Saver to place my ad (No Bank Qual, No Down, No Credit Req'd, 3 pmts & cl. costs moves you in. $160K, 3-2 beauty w/pool, 1,450 sq ft, 2cg. Owner fin. Call Bill. 1-800-207-4273)
7:00 PM: Back to the office to answer Email, phone calls, website discussion groups until 10:30 PM. (Put off jogging until tomorrow morning)
11:00 PM: Ponder why I’m actually watching Jerry Springer while waiting for David Letterman to come on.
11:30: Fall asleep with TV blaring four minutes before David Letterman starts.
2:00: AM: Treat myself to a midnight snack, tale my final pee of the day, and amble bleary-eyed off to bed, and prepare to repeat as needed the following day (knowing that I can use my jogging time to make up for the late hour and lack of sleep).
Bill Gatten
www.landtrust.net
-----Original Message-----
From: JOHN WHITWORTH [mailto:johnlw@thegrid.net]
Sent: Wednesday, May 21, 2003 7:30 PM
To: Bill J. Gatten
Subject: Re: The Transaction Process, etc.
Bill,
Thanks! A diary of you, as the "investor" would help clear up exactly what paperwork I should be using, the detailed steps I should take, etc.
John :-)
----- Original Message -----
From: Bill J. Gatten
To: JOHN WHITWORTH
Sent: Monday, May 19, 2003 2:44 PM
Subject: RE: The Transaction Process, etc.
Hi John,
Give me a while to get situated here (just finished a week on the road), and I'll get back to with that diary of a day you're looking for.
Bill
-----Original Message-----
From: JOHN WHITWORTH [mailto:johnlw@thegrid.net]
Sent: Saturday, May 17, 2003 7:24 PM
To: Bill Gatten
Subject: Re: The Transaction Process, etc.
Bill and/or Staff,
I wish I could spend a few days following you around as you go about dealing with a Seller and Tenant-buyer. I wish I was privy to a "Diary" of Bill Gatten, where each day, a part of the "process" was documented. Specifically, including what forms you bring and fill out with each meeting with the Seller and then again with the buyer. I probably wouldn't have so many questions, then (sorry). Maybe I should have purchased the S.S.S.P. (Slow Start Success Pack) (ha, ha).
I have been reviewing the TRANSACTION PROCESS and I have some questions:
Since I've never done anything like this before, To build confidence, it is necessary for me to be able to visualize the details of the ENTIRE PROCESS (which includes the transaction process), as if I'm dressed in my suit, briefcase in hand, and going to see the Seller, or Tenant-buyer. What forms (all of them!) do I take with me? What is notarized and/or recorded when (prior to NARS involvement), etc? (Keep in mind, that I'll be working out of my home and don't have an office).
1. Is it correct to assume that when you go see the Seller (Step #1), you then proceed with Step #2 and Step #3 all in that first meeting?
2. Step #2: I am still confused what the investor does different from a Realtor. Does the INVESTOR use the "Purchase Offer" AND "Agreement For Option to Acquire and Interest in a Land Trust" (with the Seller)? Or, do I only use an Agreement For Option to Acquire and Interest in a Land Trust (with the Seller)?
3. I know I need to record the Memorandum of Offer to Purchase (Step #4). Does the Seller follow me down to a bank (or somewhere) to have us both sign in front of a notary, or do I just go by myself and have my signature notarized? Then, I take the notarized Memorandum of Offer to Purchase and record it at the Court House, right?
4. When the tenant-buyer fills out an Agreement For Option to Acquire and Beneficial Interest in a Land Trust and then the Memorandum For Offer to Purchase, he and I (investor) sign it (Memorandum...), notarize it, and then I record it at the Court House, just like I did with the Seller, right?
5. Step #3: Does not mention APPENDIX #1. What's happened to it? Does the Seller get a copy of it?
6. Step #3: Speaking of copies, once you present the Seller with everything, who keeps the originals? Do I mail copies later? (Wish I could read your "diary"!)
7. APPENDIX #4: Line 18-C: It say's "B & C above". Don't you mean "A & B above", since it is "C"?
8. APPENDIX 2: Term confusion: Is the "Transaction Fee" the same as the "NARS Facilitator Fee"? (I don't see "Transaction Fee" under the Fee Schedule or anywhere else than in APPENDIX #2).
I'm trying to personalize and integrate the information from the course. I've created some documents to help me define the process. I am making progress, but still need your help.
Thank you for your mentoring.
John Whitworth
(510) 525-7460
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