Bill j. Gatten
Contrary to what you might hear from those who are uninitiated in these kinds of areas, buying real estate with nothing out of pocket, nothing per month, no payments, no management, no maintenance, no repairs or upkeep and no credit risk is a pretty damned good gamble. This is true even in those areas where appreciation "might" be perceived potentially less than in others.
When someone supposes there isn't as much appreciation in the inner cities, then I suppose that would mean one could buy a virtual mansion there for $50,000. Obviously you and I know this isn't true. The values in the so-called inner cities rise and fall proportionately with the rest of the world. This is because houses there are made from the same lumber, concrete, cement, glass and Union labor that Valley and Seaside houses are. And, as well, they are responsive to, and subject to, the same economic influences. Obviously if one is referring the Ghettos or slums, then that doesn't relate to your question about investing in the "city (Watts, Compton, Inglewood, etc.)"
With all that aside, let me answer your questions: We've facilitated well over 1,000 PACTrusts™ since 1993. So far we have a 25% slow pay rate; a 15% default rate; a 5% eviction rate; three favorable Unlawful Detainer Actions to our credit. Further, we have never experienced a single lawsuit, lis pendens or legal action of any type against the company; a participating broker, agent, investor or any other principal).
The PACTrust(tm) works this way:
A. A property is placed in a land trust for myriad reasons (here are just a few of them):
o
1. For privacy, estate planning, probate avoidance and assets protection
o 2. To enable one to convey all tax benefits to any party in the transaction that he/she would choose...without title transfer...in order to command 150% higher rents and eliminate all costs of vacancies, management, maintenance, etc.
o 3. To avoid Due on sale compromise in the underlying financing relative to owner financed subject-to's
o 4. To shield the property from virtually all legal threats and potentialities: from marital disputes and creditor judgements to BK's and tax liens
o 5. To make your purchase by payment-assumption simpler and easier, since the seller can be so well protected while staying on the loan, and never have to worry about you or the collection and disbursement of payments. And neither does he ever have to put your name on title… until you're ready to sell or Re-Fi
o 6. To make your selling (or other disposition) easier, since the buyer can be so well protected while assuming payments on existing financing... without a Down (if you so choose) and without bank financing and stringent credit requirements
o 7. To make "sandwiching" easier, since the investor in a two-tier PACTrust(tm) needn't ever be concerned about the potential for untoward or illegal actions by, or personal problems of, the person remaining on the loan: or of the person living in the property and making the payments
o 8. To make eviction faster and easier, since no defaulting party can not claim "equity" to thwart or forestall Foreclosure, eviction or Unlawful Detainer
o 9. To shield the buyer against illegal or illicit Foreclosure or Unlawful Detainer by the Settlor or Non-Resident Beneficiary without just and appropriate cause
o 10. To allow for the collection of as high a security deposit as you want without being restricted by legislation to just a "first and last"...a PACTrust(tm) Contingency Fund can hold one payment or twenty payments, if you want
o 11. To shield the investor from unfair and highly biased and restrictive Landlord/Tenant laws and regulations
B. NEXT, a Beneficiary Interest in the trust is assigned (sold by the owner... the Settlor Beneficiary) to an Investor (the Non-Resident Co-Beneficiary).
C. THEN the Non-Resident Co-Beneficiary Leases the property from the trust on "Triple Net" lease basis (i.e., contracts to pay all costs of ownership and possession).
D. FINALLY the Non-Resident Beneficiary advertises for a Resident Beneficiary who will live in the property, take care of it and make all payments and handle all costs for 100% of all benefits of homeownership (including income tax deductions). Depending upon the amount of payment relative to FMV, the appreciation and principal reduction can be shared between Resident and Non-Resident Beneficiaries.
In this scenario, the Investor can relax and buy more property, while expecting to receive profit by means of: 1) a share in equity build-up 2) by principal reduction, 3) appreciation, 4) a return of all equity held at start, 5) a positive cash flow throughout the term, and 6) the passive tax write-off (Depreciation) throughout the term.
Resident Beneficiary will either sell or refinance the property, and pay the investor off out of the proceeds of such disposition at that time. The sale price for the property termination is agreed upon in advance, and is whatever the FMV may be determined to be at the time by a mutually acceptable appraisal...LESS any monies owed by the trust to the acquiring party (from profits, credits and refunds due).
That's about as concise as I can make it.
Call if you need us. We provide all client consultation (we'll even sell the deal for you by teleconferencing with your clients and prospects); we guide you through every phase; we do all documentation, provide the trustee, the collection and disbursement service, client consultation, Escrow, legal review and endorsement, and post Escrow follow-up.
Bill Gatten
www.landtrust.net
bill@cal-equity.com
1 800 207 4273
1. Fast
2. Cheap
3. Good
Pick any two from the list above
FREQUENTLY ASKED QUESTIONS
A diamond is just a lump of coal that stuck with it; no matter how long it took, and no matter how great became the darkness or the pressure.
Malcolm Forbes
Q: Can a NARS PACTrust™ resident co-beneficiary (the Buyer) legitimately move from the trust property before the end of the agreement?
A: Yes. Though all agreements that comprise the NARS PACTrust™ must be honored, a co-beneficiary may lease or rent the property out, sell their interest, or even leave the property vacant, so long as the other beneficiaries concur, and their interests are not compromised or imperiled by such actions.
Q: CAN THE NARS PACTRUST™ BE UTILIZED IN BUYING OR SELLING COMMERCIAL PROPERTY?
A: Yes. A Title-Holding Land Trust can hold commercial property. As a matter-of-fact, multiple beneficiaries can hold varying percentages of beneficiary interest…as little as 10% each in such a trust. Do note, however, that specific protection under the “Garn-St. Germain Act” extends only to residential property of fewer than five units. This means that transfer of a commercial property may need to be approved by the lender to void triggering a Due-on-Sale Clause remedy.
Q: WHAT HAPPENS IF A BENEFICIARY WERE TO DIE DURING THE TERM OF A NARS PACTRUST™?
A: Beneficiary interest in the NARS PACTrust™ passes to the heirs of a deceased beneficiary; which heirs then inherit precisely the same obligations, responsibilities, rights, and privileges as were held by the original beneficiary. Nothing changes.
Q: HOW WOULD A SELLER’S PLACING A HOME INTO A TITLE-HOLDING TRUST, AND THEN CREATING A NARS PACTRUST™ (WITH RESPECT TO THE SELLER’S APPLYING FOR ANOTHER HOME LOAN), BE VIEWED BY A NEW LENDER?
A: By holding a property in a NARS PACTrust™, which property is leased to the co-beneficiary, the settlor beneficiary will be seen by any lender as an “income property” owner (as if he/she were one of two partners in a rental property). However, the absence of the standard expenses of maintenance, management and vacancies, coupled with higher than normal rent, oftentimes provides an excellent incentive for a much higher-than-normal "Income-to-Rental-Expense” consideration by the new lender.
Q: WHAT HAPPENS WHEN A CO-BENEFICIARY FAILS TO MAKE PAYMENTS WHEN DUE?
A: In the event of default, the party or entity acting as “landlord” would issue a 3-Day Notice to Pay or Quit, which notice would, if necessary, be followed by an Unlawful Detainer Action.
By the defaulting party’s own agreement, the default itself (within itself) becomes constructive notice (to the non-defaulting beneficiary/ies) of the defaulting party’s intent to sell his/her beneficiary interest in the Trust to the non-defaulting parties at Fair Market Value as would have to be determined by an MAI Appraisal, following a substantial default fee and payment of all past-due payment. Should any sum more than is offered by the non-defaulting parties be proven, then that amount would be paid to the defaulting party in the form of an unsecured promissory note to be paid when the property eventually is sold t the natural termination of the trust.
Q: WHAT IF A NARS PACTRUST™ PROPERTY WAS TO LOSE VALUE DURING THE TERM OF THE AGREEMENT?
A: If, at the end of the NARS PACTrust™ the property couldn't be sold (or purchased by the co-beneficiary) for enough to return the settlor beneficiary’s initial contribution (e.g., his/her equity at start); and should the non-resident choose not to reduce its refundable contribution amount... then the co-beneficiary could choose to simply vacate the property with no further obligation. Alternatively…by mutual agreement…the parties could extend the contract. Note that, as is the case with any real estate purchase, down payment moneys, or costs of improvements can, in fact, be lost due to ordinary downward trends in real estate demand.
Q: HOW IS THE PROPERTY'S “MUTUALLY AGREED VALUE” DETERMINED AT THE INCEPTION OF THE NARS PACTRUST™, SINCE THERE IS NO SALE PRICE PER SÉ?
A: The “MAV” is set purely for the purpose of determining the settlor beneficiary’s initial contribution at start (e.g., his or her “equity,” along with any non-recurring closing costs paid). The MAV is generally the greater of – A) the fair-market-value inferred by a professional Comparative Market Analysis, or B) the value of the property reflected by a mutually acceptable value determination; or C) the aggregate amount of the existing loan/s against the property (i.e., whichever is greater).
Q: WHY MIGHT A BUYER CHOOSE A NARS PACTRUST™ PURCHASE, EVEN IF LOAN ON THE PROPERTY WERE TO BE GREATER THAN THE PROPERTY’S VALUE?
A: The “over-encumbrance” on a NARS PACTrust™ property is often perceived as simply a trade-off for a party’s inability to qualify for a mortgage loan, or lack of a standard down payment or preferred credit. In that the NARS PACTrust™ purchase may avoid the handicap of self-employment, newness on the job, limited job history, or marginal credit history – one might choose to disregard the over-encumbrance. The fact is, that if by the end of the agreement, the resale value of the property had not increased sufficiently to cover the loan against it, then the resident may – 1) petition to extend the agreement, or 2) just move out and return the property to the original owner. If the aggregate monthly (after-tax) payment is in keeping with normal rent, and if the loan need not be paid-off at any particular time, a NARS PACTrust™ buyer might find an over-encumbrance inconsequential. Here’s an example:
Property A (over-encumbered):
Value: $200,000.00.
Loan Amount: $210,000.00
Payment: $1,500 per-month
No down payment
Remaining loan term: 22 Years
Total amount remaining to payoff over loan term: $396,000.00
PROPERTY B (CONFORMING, NOT OVER-ENCUMBERED):
VALUE: $200,000.00
LOAN AMOUNT: $180,000.
PAYMENTS: $1,300 PER MONTH.
DOWN PAYMENT: $20,000.00
NEW LOAN WITH A TERM OF 30 YEARS.
TOTAL AMOUNT REMAINING TO PAYOFF OVER LOAN TERM: $462,000.00.
THE BEST BUY…A OR B? YOU DECIDE.
Q: COULD A MORTGAGE LENDER CLAIM THAT THE NARS PACTRUST™ VIOLATED ITS DUE-ON-SALE CLAUSE?
A: YES... although doing so would be contrary to the provisions of Federal Law (The Garn-St. Germain Act). No one can predict what a mortgage lender could [or might] “claim”; but, insomuch as none of the NARS PACTrust™ documents are recorded (and needn't be), and since the NARS PACTrust™ does not adversely affect the lender's security interest, such an assertion by a lender would be unlikely. The Garn-St. Germain Act (FDIRA 1982) provides that any homeowner may place its mortgaged property into a qualified revocable living trust, and lease the trust property to anyone he/she might choose… irrespective of what a lender's “druthers” might be. None-the-less, it is conceivable that a lender could declare the “intent” of the NARS PACTrust™ to be contrary to their best interest, and assert that it was somehow a ruse to circumvent their ability to capitalize on the prevailing real estate market.
In such a claim by a lender (institutional or private), the court would need to determine if any laws had been broken; as well as “how” and “if” the lender had been injured. Therefore, in actuality, the true (real) effect of the NARS PACTrust™ is protection of the lender’s interests by its avoidance of: A) alienation; B) prohibited ownership transfer or title involvement; and C) an unwise transfer of real property ownership under duress or threat of financial loss. The co-beneficiary (acquiring party) in a NARS PACTrust™ does not receive real estate ownership; a bargain purchase option; or any loan of moneys. If, and/or when, the co-beneficiary would choose to acquire ownership of the property owned by the nominated trustee, such purchase would only be by ordinary means. Such purchase would be by a mortgage loan… or a petition for a bona fide Assignment and Assumption of the existing mortgage financing.
Q: IN ITS 100+ YEARS OF USE IN THE US, HAVE TITLE-HOLDING LAND TRUSTS EVER BEEN CHALLENGED BY LENDERS CLAIMING THEY WERE DAMAGED BY THE UNRECORDED AND PRIVATE ASSIGNMENT OF A TITLE-HOLDING LAND TRUST'S CO-BENEFICIARY INTEREST?
A: Yes, and all such challenges were adjudicated in favor of the beneficiaries. However, one must note that the Title-Holding Land Trust in most states (e.g., California) is not a “statutory” instrument: essentially meaning that there is no statute (law) or judicial history relative to it, and that no specific “Land Trust Act” per sé exists (yet). The title holding land trust in most states is, nonetheless, wholly operative and legal by virtue of its exclusion from specific prohibitions under the various states’ “Statute of [Land] Uses.”
Although we know of none in recent years, a few such actions have been brought in the past — and in each case, the decision of the court was in favor of the defendant (i.e., the lender lost). 45
Q: SINCE NARS HAS ITS OWN ATTORNEYS AND ACCOUNTANTS, SHOULD I CONSULT WITH MY OWN LEGAL AND ACCOUNTING ADVISORS REGARDING THE FEASIBILITY OF THE NARS PACTRUST™ IN MY SITUATION?
A: Yes. One should always seek out and heed the advice of his/her own legal and tax advisors, as well as seeking one’s own independent real estate agency advice. However, do note that chances of locating an attorney familiar with the various nuances of land trusts (not to mention the NARS PACTrust) are remote at best. What will invariably happen is that an attorney not familiar with the NARS PACTrust™ will strongly advise (if not insist upon) forgoing the myriad safety features and protections of the PACTrust in favor of something he or she better understands and can charge more for (Lease Option, Wraps, Contracts for Deed, etc.): precisely the very creative financing schemes, the dangers and risks of which, the NARS PACTrust was designed to avoid
Though North American Realty Services, Inc. does certainly welcome inquiries from any legal, accounting or real estate professionals, its accounting and legal staff may represent only its own best interests in a court of law due to standard Conflict of Interest regulations (note that, at this writing, in its 18 history, no such challenge of NARS, or any beneficiary party, has arisen).
Q: ARE MOST ATTORNEYS AND ACCOUNTANTS FAMILIAR WITH THE NARS PACTRUST™ OR THE WORKINGS OF THE “TITLE-HOLDING LAND TRUST” IN GENERAL?
A: No (not by any means). As a matter-of-fact, in most states where the title holding land trust is not statutory, were one to interview 100 attorneys, perhaps twenty-five or thirty might be familiar with, and closely accustomed to working with trusts in general; then of those, maybe only one might be reasonably well versed in the specifics and subtleties of “title-holding" land trusts: then out of a hundred of those, you might find one who has ever heard of the PACTrust™.
As mentioned in a preceding question, that which invariably happens is that an uninformed attorney will strongly advise (if not insist upon) forgoing the myriad safety features and protections of the PACTrust in favor of doing something he or she better understands, and for which they can charge more (Lease Option, Wraps, Contracts for Deed, etc.): precisely the very creative financing schemes from which the NARS PACTrust was designed to protect you
Q: WHAT WOULD HAPPEN IN THE EVENT OF AN IRRECONCILABLE DISPUTE BETWEEN THE CO-BENEFICIARIES IN A NARS PACTRUST™?
A: Such occurrences are rare due to the third-party neutral trustee aspect of the NARS PACTrust™ arrangement, and due to the meticulous and comprehensive nature of NARS’ documentation. However, NARS PACTrust™ beneficiaries do contractually agree in advance that such a disputes, should one ever occur, will be settled by the rules of binding arbitration, and that each party will abide by and rely upon the decision of an arbitrator associated with, and designated by, the American Arbitration Association.
Q: WHAT WOULD STOP A GRANTOR, IN HIS OWN REVOCABLE TRUST (A TRUST WHICH IS SET UP IN HIS OWN NAME OR WITH HIM AS THE ONLY BENEFICIARY), FROM REVOKING IT, OR CHANGING HIS MIND ABOUT TERMS, WITHOUT THE KNOWLEDGE OR CONSENT OF THE OTHER BENEFICIARY/IES?
A: Of prime importance is the fact that a Title-Holding Land Trust is directed by ALL of its beneficiaries unanimously (i.e., Power of Direction is mutual among beneficiaries). In other words, unless special provision are made in advance to the contrary, no single beneficiary or group of beneficiaries can direct the legal owner – the trustee – to do anything, sign anything, or approve anything involving the property’s title without the absolute concurrence and unanimous direction of [all] the others. As a result, a beneficiary cannot alter the trust agreement, borrow money on the trust property, or bring about a lien against it, without the full agreement and direction (or complicity) of the other beneficiary/ies. Likewise, a single co-beneficiary cannot add a room, install a swimming pool, or encumber the property or cold the title in any manner without the full knowledge, consent, and direction of the other co-beneficiary/ies.
Q: AS A PROSPECTIVE SELLER, OR BUYER, INTERESTED IN THE NARS PACTRUST™, HOW AND WHERE DO I BEGIN?
A: First, contact North American Realty Services, Inc. (1 800 207 4273 or home@cal-equity.com; website: www.landtrust.net). NARS will then answer your concerns and work closely with you throughout the transaction, from the initial meeting with all parties, to the close of Escrow. NARS can facilitate all phases of the transaction for you: consultation, document preparation; legal review, provision of the corporate trustee; provision of the Escrow/Title company and provision of the third-party payment collection and disbursement service.
Q: WHAT MIGHT BE THE STANDARD COSTS FOR ESTABLISHING A NARS PACTRUST™?
A: From 0.5% to 1.0% (half a percent to one-percent) of a property’s Mutually Agreed Value (MAV) at inception. Apart from any Realtor’s commission, typical aggregate closing costs for a NARS PACTrust™ transaction, combining both the buyer’s and seller’s costs, can run upwards of two percent (2%) to three percent (3%) of the property’s MAV at inception. The fee for setting up the Trust itself, and NARS’ consultation fee (including facilitation and documentation) generally comprises only 1/4th. 1/3rd to ½, of the total closing costs. The remainder (beyond the consulting and set-up fee) includes, but may not be limited to the following: the escrow company fee (optional); title insurance or title search (optional); prorated and advance property taxes; hazard insurance premium; credit report (optional), home warranty insurance (optional), and termite inspection (optional). Though not a part of the Closing Costs per sé: one should take care to budget for the first payment due on the contract, and for perhaps at least one monthly payment to be held in a Contingency Fund (as a buffer for delayed payments).
Q: IS THERE A MINIMUM OR MAXIMUM ALLOWABLE TERM FOR A NARS PACTRUST™?
A: Yes. It is reported in the literature that any land trust whose term is deemed a contrivance to avoid payment of income tax would (could) be challenged by the IRS and declared a "dry" or “failed" trust. For example, if the trust's term clearly conflicted with time requirements of certain tax deferment or exemption provisions (e.g., tax-deferred exchange), the trust could be characterized as a non-standard corporate entity or a security agreement. A failed trust could [might] conceivably —
1) Deprive the co-beneficiary of mortgage interest and property tax deductions; and/or
2) Create an untimely capital-gains tax event for the settlor beneficiary.
For these reasons only, it is recommended (though not mandatory) that two years be considered the minimum term for a NARS PACTrust™. Regulations relative to Perpetuities would also compel a “land trust” term to be limited to no more than 20 years, or the length of the underlying financing on the trust property, whichever would be greater.
Q: WHILE A NARS PACTRUST™ CO-BENEFICIARY WHO IS A RESIDENT IN THE TRUST PROPERTY CLAIMS THE “ACTIVE” TAX DEDUCTION FOR INTEREST AND PROPERTY TAXES, CAN A SETTLOR OR INVESTOR BENEFICIARY TAKE THE “PASSIVE” WRITE-OFF FOR DEPRECATION?
A: The tax regulations are not absolutely clear on this issue; however, there is nothing in the tax code that would preclude a non-resident beneficiary who was holding its interest for income-production purposes, from claiming the full Depreciation allowance. As a matter of fact, if not taken, the IRS would more than likely impose it at termination in order to adjust the property’s tax “basis” downward to create a wider taxable gain.
PACTRUST™ BENEFITS FOR THE “BUYER (investor or resident co-beneficiary)”:
1. No Due-on-Sale violation
2. No down payment required (necessarily)
3. No bank approval required
4. No credit application (necessarily)
5. No credit checks (Information Sheet only)
6. No likelihood of liens, suits or judgments attaching to the property
7. No chance of marital disputes affecting title
8. No chance of IRS liens hitting the property
9. No chance of one party’s bankruptcy hitting the property
10. No chance of the property being tied-up in Probate
11. No chance of one party’s doing anything to the property that would negatively affect the other party
12. No further encumbering the property by one party without knowledge and consent of the other party
13. No way for either party to change their minds about terms or costs or “buy-out” provisions later on
14. No, or only nominal ($15.00 - $25.00), conveyance tax
15. No absence of (100%) tax benefits: i.e., interest and property tax deductions for the tenant
16. No necessity for public disclosure re. ownership
17. No more renting!
18. No more scrimping and saving for a down payment
19. No more waiting until one’s FICO score heals
20. No more wishing and waiting for one’s piece of the American Pie
PACTRUST™ BENEFITS FOR THE “SELLER”
1. No Due-on-Sale violation
2. No new loan required
3. No credit application or credit checks needed (Info Sheet only)
4. No chance of liens, suits or judgments attaching to the property
5. No chance of marital disputes affecting title
6. No chance of IRS liens hitting the property
7. No chance of a beneficiary’s bankruptcy hitting the property
8. No chance of the property being tied-up in Probate
9. No, or nominal, conveyance tax
10. No capitals gains tax due upon transfer to the co-beneficiaries
11. No difficulty in evicting an errant resident beneficiary
12. No chance for a defaulting tenants claiming “equity” to forestall eviction and force foreclosure, to buy time and free rent (and usually cash to move when the other party settles out of court to curb rising legal expenses)
13. No chance of a beneficiary’s doing anything to the property that would negatively affect the other
14. No chance on one party’s further encumbering the property with the full knowledge and consent of the other
15. No Management
16. No vacancies
17. No monthly payments
18. No tenants, toilets, trash, torn screen doors or dog-pee’d dead trees, shrubs and grass
19. No public disclosure of ownership interest
20. No reversionary penalties (tax due when the trust terminates)
21. No ancillary administration (die anywhere and administer the estate from where the property is)
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Thursday, March 27, 2008
Thursday, March 20, 2008
WHERE’S YOUR ELEVATOR SPEECH?
By Bill J. Gatten
OK, you’re on an elevator headed from the parking garage to the fifth floor and you have a man standing next to you looking up at the lighted digits above the door, who casually sizes you up and asks: “So what do you do for a living?” What do you say?
“Oh, I’m in sales.” (Meaning: “None of your business, and your not going to be standing next to me long enough to get into any details anyway, so let it go at that.”)
“I’m an investor.” (Meaning: “Envy me for 45 seconds …and think of me as someone you wish you could be…whether I am or not. And always wonder what “kind” of investor I might be…as if you really gave a hoot”).
“For a living? Oh, not a whole lot these days…how about you? What do YOU do?” (Meaning: “None of your business. If you insist on talking, fire away it’s your nickel…Me? I’ll just pretend to listen as you babble…oops, why here’s your floor.”)
“I’m a teletype operator having a bit of a struggle finding a job, what with all them photo facsimile machines out there these days. If it weren’t for my taste for Spaghetti-O’s, my wife taking in laundry and clipping coupons, I’d be SOL. How about you? What do you do?” (Meaning: “Are you a loser too? Gawd, I sure hope so because it’s awfully lonely here on the corner of Out-of-Touch-with-Realty Street and Co-Dependency Boulevard.”) “ Alrighty then…(as the door opens and closes) you go and have yourself a nice day now (you say to the back of the elevator door). Hear?” As you whisper to yourself, “Dang I wish I could afford a suit like that.”
Or maybe you’d answer the question this way: “Well actually, I work here in the building during the day; but I also dabble in real estate.” (Meaning: I’m unhappy with my plight in life and am trying to better myself without turning loose of my life ring. So don’t judge me by what my answer would have been, had I not added the ‘but I dabble in real estate’ part.”
Or, how about this one: “Who me? Oh, I’m a big time real estate investor.” (Meaning: “If you’re really interested in what I do, you’ll ask more questions and get me started, and, once on a roll, I’ll explain how you can benefit greatly from my services.‘ Otherwise…I believe this must be your floor.”)
Now, think about it…that person who was standing beside you for the ride is now gone forever, but may well have been someone you could have helped, and received value from in the process…if you’d only had exactly the right response handy. That fellow passenger may in fact have had a house to sell at a bargain price; he may have been an owner in foreclosure; he might have been a flip investor. He easily could have been a prospective buyer for that house you just rehabbed. The fact is: that particular person was an ‘all-ears, one-man captive audience’ for that 45 seconds of your life. Why on Earth didn’t you sell him something? Well, the reason you didn’t even try, was because you presumed he was just nosey; or maybe just looking for a 45 second buddy; or simply too unconcerned about you to really have asked a sincere question.
All of these assumptions may in fact have been absolutely on the mark. But the big question is: Why didn’t you use that time to your maximum advantage. Consider what just “might” have happened if you’d said the following instead:
“I help folks buy and sell homes and investment real estate in all price ranges without cash or credit.” There you go…7 seconds on the button.
Then if they say “Oh really?” you continue: “Yup, if I’m buying, I pay full price, all cash or terms: if I’m selling I don’t require loan qualifying, a credit reports or big chunks of cash up front. Here’s my card. Call me.” There’s another 10 seconds, and we’re not even to the third floor yet…if the prospect is not interested, you just stare blankly at each other until the door opens.
Now…if that fellow passenger just happened to have been a prospect (buyer or seller) and by chance you had titillated his fancy (as it were) with your pre-planned elevator speech: did you give him every chance to know who you were and what you can do for him, were he to fit one of the criterion for your business? Sure you did! But with those other lame answers that others use…could any of them have made the slightest difference in your financial life? “Oh I’m an insurance agent: I make widows wealthy.” Nope! You merely wasted your precious moments with that person.
So what’s the point of all this? Well let me see. How about the point being: 1) We should all find a tall building and ride up and down in elevators all day giving one-minute elevator speeches? No! Um…2) Elevators are a great place to find motivated buyers and sellers? No! OK then, 3) It’s all right to talk to strangers on an elevator? No! 4) If I ever caught between floor in an elev…No! No! No…
This point is simply this:
You must stop what you are doing right now and take an hour to work out your “perfect,” sure-fire concise elevator speech. Once memorized and refined, have it ever at the Ready when you get the opportunity for those 45-second presentations. You will be finding and qualifying prospects everywhere you go with the minimum effort and maximum effect. Your audience will let you know instantly whether they are prospects or not. The ones who don’t need you and have nothing to offer you will say: “Oh that’s nice and begin talking about what THEY do for a living (at which point you remember having forgotten to turn off your coffee pot at home). The E.S. (elevator speech) is an absolute necessity for those of un in this business (especially in THIS business), and it works everywhere: at Church, at a Chamber of Commerce Mixer, at the grocery store, your AAA meeting, when meeting your fiancée’s parents for the first time; when meeting your daughter’s fiancée for the first time (…the latter being far worse, believe me…whoever invented nose rings and tongue piercings is an idiot); standing in the Unemployment or Welfare Line (…Ok, scratch those last two…with a good elevator speech, you’ll never need to do that).
THE MESSAGE: Develop at once a brief and concise Elevator Speech: memorize it and be ready to recite it every time someone steps up and says: “What do you do for a living?”
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
OK, you’re on an elevator headed from the parking garage to the fifth floor and you have a man standing next to you looking up at the lighted digits above the door, who casually sizes you up and asks: “So what do you do for a living?” What do you say?
“Oh, I’m in sales.” (Meaning: “None of your business, and your not going to be standing next to me long enough to get into any details anyway, so let it go at that.”)
“I’m an investor.” (Meaning: “Envy me for 45 seconds …and think of me as someone you wish you could be…whether I am or not. And always wonder what “kind” of investor I might be…as if you really gave a hoot”).
“For a living? Oh, not a whole lot these days…how about you? What do YOU do?” (Meaning: “None of your business. If you insist on talking, fire away it’s your nickel…Me? I’ll just pretend to listen as you babble…oops, why here’s your floor.”)
“I’m a teletype operator having a bit of a struggle finding a job, what with all them photo facsimile machines out there these days. If it weren’t for my taste for Spaghetti-O’s, my wife taking in laundry and clipping coupons, I’d be SOL. How about you? What do you do?” (Meaning: “Are you a loser too? Gawd, I sure hope so because it’s awfully lonely here on the corner of Out-of-Touch-with-Realty Street and Co-Dependency Boulevard.”) “ Alrighty then…(as the door opens and closes) you go and have yourself a nice day now (you say to the back of the elevator door). Hear?” As you whisper to yourself, “Dang I wish I could afford a suit like that.”
Or maybe you’d answer the question this way: “Well actually, I work here in the building during the day; but I also dabble in real estate.” (Meaning: I’m unhappy with my plight in life and am trying to better myself without turning loose of my life ring. So don’t judge me by what my answer would have been, had I not added the ‘but I dabble in real estate’ part.”
Or, how about this one: “Who me? Oh, I’m a big time real estate investor.” (Meaning: “If you’re really interested in what I do, you’ll ask more questions and get me started, and, once on a roll, I’ll explain how you can benefit greatly from my services.‘ Otherwise…I believe this must be your floor.”)
Now, think about it…that person who was standing beside you for the ride is now gone forever, but may well have been someone you could have helped, and received value from in the process…if you’d only had exactly the right response handy. That fellow passenger may in fact have had a house to sell at a bargain price; he may have been an owner in foreclosure; he might have been a flip investor. He easily could have been a prospective buyer for that house you just rehabbed. The fact is: that particular person was an ‘all-ears, one-man captive audience’ for that 45 seconds of your life. Why on Earth didn’t you sell him something? Well, the reason you didn’t even try, was because you presumed he was just nosey; or maybe just looking for a 45 second buddy; or simply too unconcerned about you to really have asked a sincere question.
All of these assumptions may in fact have been absolutely on the mark. But the big question is: Why didn’t you use that time to your maximum advantage. Consider what just “might” have happened if you’d said the following instead:
“I help folks buy and sell homes and investment real estate in all price ranges without cash or credit.” There you go…7 seconds on the button.
Then if they say “Oh really?” you continue: “Yup, if I’m buying, I pay full price, all cash or terms: if I’m selling I don’t require loan qualifying, a credit reports or big chunks of cash up front. Here’s my card. Call me.” There’s another 10 seconds, and we’re not even to the third floor yet…if the prospect is not interested, you just stare blankly at each other until the door opens.
Now…if that fellow passenger just happened to have been a prospect (buyer or seller) and by chance you had titillated his fancy (as it were) with your pre-planned elevator speech: did you give him every chance to know who you were and what you can do for him, were he to fit one of the criterion for your business? Sure you did! But with those other lame answers that others use…could any of them have made the slightest difference in your financial life? “Oh I’m an insurance agent: I make widows wealthy.” Nope! You merely wasted your precious moments with that person.
So what’s the point of all this? Well let me see. How about the point being: 1) We should all find a tall building and ride up and down in elevators all day giving one-minute elevator speeches? No! Um…2) Elevators are a great place to find motivated buyers and sellers? No! OK then, 3) It’s all right to talk to strangers on an elevator? No! 4) If I ever caught between floor in an elev…No! No! No…
This point is simply this:
You must stop what you are doing right now and take an hour to work out your “perfect,” sure-fire concise elevator speech. Once memorized and refined, have it ever at the Ready when you get the opportunity for those 45-second presentations. You will be finding and qualifying prospects everywhere you go with the minimum effort and maximum effect. Your audience will let you know instantly whether they are prospects or not. The ones who don’t need you and have nothing to offer you will say: “Oh that’s nice and begin talking about what THEY do for a living (at which point you remember having forgotten to turn off your coffee pot at home). The E.S. (elevator speech) is an absolute necessity for those of un in this business (especially in THIS business), and it works everywhere: at Church, at a Chamber of Commerce Mixer, at the grocery store, your AAA meeting, when meeting your fiancée’s parents for the first time; when meeting your daughter’s fiancée for the first time (…the latter being far worse, believe me…whoever invented nose rings and tongue piercings is an idiot); standing in the Unemployment or Welfare Line (…Ok, scratch those last two…with a good elevator speech, you’ll never need to do that).
THE MESSAGE: Develop at once a brief and concise Elevator Speech: memorize it and be ready to recite it every time someone steps up and says: “What do you do for a living?”
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Monday, March 17, 2008
THE EQUITY HOLDING TRUST TRANSFER™ (PACTRUST™ AND NEHTRUST™)A WHOLE ‘NOTHER ANGLE ON THINGS
By Bill J. Gatten
North American Realty Service, Inc.
Granada Hills, CA. 91344
1 800 207 4273
The NARS Equity Holding Trust Transfer™ works like this:
A. In order to create the safest disposition of a property for sale, wherein seller-carry financing is the mode of choice (e.g., due to greater profit potential, a faster sale and ease of transfer), an owner of record places its property into a simple single-beneficiary title-holding land trust (the owner thereby becoming the trust’s beneficiary and director in all matters relative to the property, the trustee and the trust…for the following advantageous and beneficial reasons:
1. For privacy, estate planning, probate avoidance and assets protection
2. To shield the property from legal threat such as: marital dissolution litigation, creditor claims, Probate, bankruptcy…even IRS tax liens.
3. To be able, by a subsequent Assignment of Beneficiary Interest, to convey all ownership and income tax benefits to any third party who would become a co-beneficiary in possession (*done without a title transfer)…in order to command, say, 150% higher rents, and/or to eliminate all costs of income property management (vacancies, maintenance, repairs, etc.).
4. To be able, upon such an assignment and payment take-over, to avoid compromising or triggering a lender’s due-on-sale clause relative to keeping the underlying financing in place.
5. To make loan payment-assumption simple, in that the relinquishing party (“seller”) is so thoroughly protected, and needn’t worry about collections and disbursement of payments (handled by a third-party collection service appointed by the nominated trustee), and never need have his own, or the acquiring party’s (“buyer’s”) name on title… until the trust’s termination, at which time the property sold, or refinanced in the acquiring party’s own name.
6. To make selling (or disposition in general) easier, in that the acquiring party can be thoroughly protected while assuming the responsibility for the existing financing... without a down payment (necessarily) and without a new loan or standard credit requirements
7. To make "sandwiching easier (i.e., where the investor is a principal in the transaction between relinquishing and acquiring parties), in-so-far as the investor beneficiary needn't be concerned about the potential for untoward or illegal actions by, or personal problems on behalf of, the person remaining on the loan (the borrower of record): or of the beneficiary who occupies the property and handles all payments and other costs of ownership. This is so because no beneficiary party can act unilaterally during the trust term with respect to any decision concerning the property or its use.
8. To make dispossession of a defaulting tenant-beneficiary faster and easier, in so much as a defaulting resident beneficiary cannot claim having "equity" in the property in order to avoid simple eviction (i.e., claiming “equitable interest” in order thwart or forestall eviction or unlawful detainer action…a common practice by “professional tenants”).
9. To shield the acquiring party against illegal or illicit foreclosure or Unlawful Detainer by the relinquishing party (aka: settlor or first non-resident beneficiary) without just and appropriate cause
10. To allow for the collection of much higher “security deposit (the trust’s contingency fund)” without being restricted by landlord-tenant legislation...i.e., a land trust’s contingency fund can hold a sum from as much as a single payment or twenty or more payments (acquisition of interest in the trust, being wholly separate from the related triple-net leasehold of the trust property…allowing the parties to post as much in the fund as they choose)
11. To shield the non-resident beneficiaries (settlor or investor) from unfair and highly biased and restrictive landlord-tenant regulations
B. NEXT, following “A” above, a beneficiary interest in the executed trust can be silently assigned to a co-beneficiary (e.g., to a resident beneficiary or to you, the investor)
C. THEN when you are the assignee of beneficiary interest, you locate a third beneficiary (who would wish to “buy a home”) to lease the property from the trust on a "triple-net" lease basis (i.e., contracting to pay all costs of mortgage, maintenance, insurance and taxes in exchange for income tax benefits and the fee-simple benefits of homeownership). Such third-party lives in the property, takes care of it, makes all payments and handles all other costs of homeownership: all in exchange for all the advantages and benefits (100%) of homeownership (including full income-tax deductions for mortgage interest and property tax).
Note that at the investor’s (investor beneficiary’s) discretion, by manipulating percentages of ownership and what might be kept or relinquished at term, the EHT takes the form of, and protects, virtually ANY seller-assisted financing objective with full income tax benefits to the tenant/buyer (e.g., straight option, lease option, wrap-around, contract-for-deed, equity-share, subject-to, tax lease, etc.). And all of this is accomplished without the necessity of a title transfer to the acquiring party; without an open due-on-sale violation; and without the risk of jeopardy to the property’s title by any party’s lawsuits, creditor judgments, IRS tax liens, divorce litigation or bankruptcy actions.
The Equity Holding Trust™ Beneficiary Agreement clearly stipulates that upon termination of the trust (and the related lease agreement), the beneficiary who is residing in the property will either sell the property, or refinance tit in his/her own name, and thereupon pay the investor (you) any monies he/she may have expended in the beginning or have been carrying throughout the term of the agreement (out of the proceeds of such disposition).
In order to avoid characterization of the transaction as a security agreement or equitable mortgage the acquisition price for the property upon termination is never agreed to in advance: it is shown to be “the Fair Market Value of the property at the time of termination and disposition…though MINUS any monies owed to the acquiring party by the trust (e.g., from profits, allowable credits, earlier contributions, refunds due, etc.).
By use of the Equity Holding Trust Transfer™ arrangement, the investor can finally relax and receive profit through some or all of the following profit centers:
1) Up-front cash from the relinquishing party (“seller”), e.g., when upside-down or over-the-barrel re. Equity or monthly payments
2) Up-front cash from the acquiring party (“buyer”) to get in the property
3) “Sale” or use of the available income tax write-off (see IRC 163h(4)D),
4) A share in equity build-up from mortgage principal reduction,
5) A share in appreciation potential,
6) A return of any equity held since inception, or any expenditures during the transaction,
7) Receipt of a positive cash flow throughout the term,
8) Use of the passive tax write-off (depreciation) throughout the term of the agreement,
9) A subsequent sale of his/her interest in an established Equity Holding Trust to another investor (the ad says” “Look! Cash-flowing income property with no management, maintenance or payments…”).
At North American Realty Service, Inc. in striving for perfection and maximum simplicity we provide all documentation, legal review, trustee appointment, escrow appointment (seldom needed) and client consultation. We'll even help make the deal by teleconferencing with you and your clients and prospects. We guide you through every phase of the transaction process; we prepare all documentation; we appoint the trustee and the collection and disbursement service; we provide full client consultation, escrow settlement and legal endorsement. We also remain available and as involved as you need us to be in all post-settlement follow-up.
Bill Gatten
www.landtrust.net
bill@landtrust.net
1 800 207 4273
1. Fast
2. Cheap
3. Good
Pick any two from the list above
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
North American Realty Service, Inc.
Granada Hills, CA. 91344
1 800 207 4273
The NARS Equity Holding Trust Transfer™ works like this:
A. In order to create the safest disposition of a property for sale, wherein seller-carry financing is the mode of choice (e.g., due to greater profit potential, a faster sale and ease of transfer), an owner of record places its property into a simple single-beneficiary title-holding land trust (the owner thereby becoming the trust’s beneficiary and director in all matters relative to the property, the trustee and the trust…for the following advantageous and beneficial reasons:
1. For privacy, estate planning, probate avoidance and assets protection
2. To shield the property from legal threat such as: marital dissolution litigation, creditor claims, Probate, bankruptcy…even IRS tax liens.
3. To be able, by a subsequent Assignment of Beneficiary Interest, to convey all ownership and income tax benefits to any third party who would become a co-beneficiary in possession (*done without a title transfer)…in order to command, say, 150% higher rents, and/or to eliminate all costs of income property management (vacancies, maintenance, repairs, etc.).
4. To be able, upon such an assignment and payment take-over, to avoid compromising or triggering a lender’s due-on-sale clause relative to keeping the underlying financing in place.
5. To make loan payment-assumption simple, in that the relinquishing party (“seller”) is so thoroughly protected, and needn’t worry about collections and disbursement of payments (handled by a third-party collection service appointed by the nominated trustee), and never need have his own, or the acquiring party’s (“buyer’s”) name on title… until the trust’s termination, at which time the property sold, or refinanced in the acquiring party’s own name.
6. To make selling (or disposition in general) easier, in that the acquiring party can be thoroughly protected while assuming the responsibility for the existing financing... without a down payment (necessarily) and without a new loan or standard credit requirements
7. To make "sandwiching easier (i.e., where the investor is a principal in the transaction between relinquishing and acquiring parties), in-so-far as the investor beneficiary needn't be concerned about the potential for untoward or illegal actions by, or personal problems on behalf of, the person remaining on the loan (the borrower of record): or of the beneficiary who occupies the property and handles all payments and other costs of ownership. This is so because no beneficiary party can act unilaterally during the trust term with respect to any decision concerning the property or its use.
8. To make dispossession of a defaulting tenant-beneficiary faster and easier, in so much as a defaulting resident beneficiary cannot claim having "equity" in the property in order to avoid simple eviction (i.e., claiming “equitable interest” in order thwart or forestall eviction or unlawful detainer action…a common practice by “professional tenants”).
9. To shield the acquiring party against illegal or illicit foreclosure or Unlawful Detainer by the relinquishing party (aka: settlor or first non-resident beneficiary) without just and appropriate cause
10. To allow for the collection of much higher “security deposit (the trust’s contingency fund)” without being restricted by landlord-tenant legislation...i.e., a land trust’s contingency fund can hold a sum from as much as a single payment or twenty or more payments (acquisition of interest in the trust, being wholly separate from the related triple-net leasehold of the trust property…allowing the parties to post as much in the fund as they choose)
11. To shield the non-resident beneficiaries (settlor or investor) from unfair and highly biased and restrictive landlord-tenant regulations
B. NEXT, following “A” above, a beneficiary interest in the executed trust can be silently assigned to a co-beneficiary (e.g., to a resident beneficiary or to you, the investor)
C. THEN when you are the assignee of beneficiary interest, you locate a third beneficiary (who would wish to “buy a home”) to lease the property from the trust on a "triple-net" lease basis (i.e., contracting to pay all costs of mortgage, maintenance, insurance and taxes in exchange for income tax benefits and the fee-simple benefits of homeownership). Such third-party lives in the property, takes care of it, makes all payments and handles all other costs of homeownership: all in exchange for all the advantages and benefits (100%) of homeownership (including full income-tax deductions for mortgage interest and property tax).
Note that at the investor’s (investor beneficiary’s) discretion, by manipulating percentages of ownership and what might be kept or relinquished at term, the EHT takes the form of, and protects, virtually ANY seller-assisted financing objective with full income tax benefits to the tenant/buyer (e.g., straight option, lease option, wrap-around, contract-for-deed, equity-share, subject-to, tax lease, etc.). And all of this is accomplished without the necessity of a title transfer to the acquiring party; without an open due-on-sale violation; and without the risk of jeopardy to the property’s title by any party’s lawsuits, creditor judgments, IRS tax liens, divorce litigation or bankruptcy actions.
The Equity Holding Trust™ Beneficiary Agreement clearly stipulates that upon termination of the trust (and the related lease agreement), the beneficiary who is residing in the property will either sell the property, or refinance tit in his/her own name, and thereupon pay the investor (you) any monies he/she may have expended in the beginning or have been carrying throughout the term of the agreement (out of the proceeds of such disposition).
In order to avoid characterization of the transaction as a security agreement or equitable mortgage the acquisition price for the property upon termination is never agreed to in advance: it is shown to be “the Fair Market Value of the property at the time of termination and disposition…though MINUS any monies owed to the acquiring party by the trust (e.g., from profits, allowable credits, earlier contributions, refunds due, etc.).
By use of the Equity Holding Trust Transfer™ arrangement, the investor can finally relax and receive profit through some or all of the following profit centers:
1) Up-front cash from the relinquishing party (“seller”), e.g., when upside-down or over-the-barrel re. Equity or monthly payments
2) Up-front cash from the acquiring party (“buyer”) to get in the property
3) “Sale” or use of the available income tax write-off (see IRC 163h(4)D),
4) A share in equity build-up from mortgage principal reduction,
5) A share in appreciation potential,
6) A return of any equity held since inception, or any expenditures during the transaction,
7) Receipt of a positive cash flow throughout the term,
8) Use of the passive tax write-off (depreciation) throughout the term of the agreement,
9) A subsequent sale of his/her interest in an established Equity Holding Trust to another investor (the ad says” “Look! Cash-flowing income property with no management, maintenance or payments…”).
At North American Realty Service, Inc. in striving for perfection and maximum simplicity we provide all documentation, legal review, trustee appointment, escrow appointment (seldom needed) and client consultation. We'll even help make the deal by teleconferencing with you and your clients and prospects. We guide you through every phase of the transaction process; we prepare all documentation; we appoint the trustee and the collection and disbursement service; we provide full client consultation, escrow settlement and legal endorsement. We also remain available and as involved as you need us to be in all post-settlement follow-up.
Bill Gatten
www.landtrust.net
bill@landtrust.net
1 800 207 4273
1. Fast
2. Cheap
3. Good
Pick any two from the list above
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Thursday, March 13, 2008
Land Trusts & Liability
Dear Fellow Investor:
I keep hearing that investors are being told that they do not
need a legal entity such as a corporation or limited liability company
(LLC) since they are using a land trust. Folks, let’s cover this one
more time. A land trust gives you no true legal liability protection.
Its primary purpose is to provide you anonymity in the ownership of
property.
Done properly, both the corporation and the LLC can also hide
ownership of the property. As a matter of fact, in most states, the
neither the corporation or the LLC is not required to divulge its
owners. This can be a good anonymity tool in itself. Of course, if
you are on the list of officers and/or the registered agent supplied
to the state, it could be guessed that you are also the owner of these
entities. But you can always get someone else to hold these positions.
Even if the opposing party knows that you own the corporation or
LLC, the liability shield provided by state law will help protect your
personal assets from liabilities within the LLC. Compare this to the
discovery of the land trust beneficiary during a court case. Opposing
counsel will simply modify the suit to include the beneficiary. This
will be allowed since the trust has no legal basis to protect the
beneficiary.
On the other hand, courts are reluctant to allow the shields of
legal entities to be pierced easily. If they did so on a regular
basis, commerce would grind down when investors in these entities
could not be protected and investments were withdrawn. Also, the
revenue states receive for organizing and maintaining these entities
would dry up.
Before the court will consider allowing the shield to be pierced,
it must be demonstrated to the court that you disregarded the
separate nature of the entity. That is why proper day-to-day
operation and formalities are so important.
But in this eBrief, we are discussing the land trust. There
is some practical protection that is gained using the land trust.
Let’s take a look:
1. It slows down the opposing side costing them time and money.
(This is also true of owning property in a corporation or LLC.) The
land trust is not a common structure and will require opposing
counsel to figure out how to approach the issue.
2. Often the opposing side does not go to the effort of finding
out who the beneficiary is. They just go after a judgment in the name
of the land trust. If this happens and you are the beneficiary, your
assets are not subject to the judgment, just the assets of the named
land trust.
Of course, post-judgment interrogatories could be used to find
out who the beneficiary is. Then a motion could be entered into court
to have the judgment expanded to the beneficiary as well.
3. If the beneficiary happens to be an innocent third party such
as your children or your wife who are not in the business, the court
frequently will make an attempt to protect their interest.
I am also told that a trustee cannot legally divulge the names of
the beneficiaries. I invite you to email me the clause you believe
supports this position. This is just not true. There are ways to make
the trustee liable to the other parties to the trust.
But the court can still compel the trustee to tell who the
beneficiaries are. What would you do if the judge threatened to put
you in jail until you provided the names of the beneficiaries? This
actually happened to a friend of mine. Guess the path he chose.
Don’t get me wrong. Land trusts have their place, but they are
not the be all, end all, prevent plaque on your teeth solution to
holding title to property. Land trusts should never be used to take
the place of a legal entity, but can certainly be used in addition
to them.
For instance, I would use land trusts to hold title to several
houses that would otherwise be owned by a single LLC. That way a
simple perusal of the courthouse records would not show all these
houses owned by one entity.
In any case, do not ever use the land trust without a good
education on the subject. Sloppy paperwork or no paperwork here
can cause a lot of problems down the road.
Dyches Boddiford
www.DBoddiford.com
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
I keep hearing that investors are being told that they do not
need a legal entity such as a corporation or limited liability company
(LLC) since they are using a land trust. Folks, let’s cover this one
more time. A land trust gives you no true legal liability protection.
Its primary purpose is to provide you anonymity in the ownership of
property.
Done properly, both the corporation and the LLC can also hide
ownership of the property. As a matter of fact, in most states, the
neither the corporation or the LLC is not required to divulge its
owners. This can be a good anonymity tool in itself. Of course, if
you are on the list of officers and/or the registered agent supplied
to the state, it could be guessed that you are also the owner of these
entities. But you can always get someone else to hold these positions.
Even if the opposing party knows that you own the corporation or
LLC, the liability shield provided by state law will help protect your
personal assets from liabilities within the LLC. Compare this to the
discovery of the land trust beneficiary during a court case. Opposing
counsel will simply modify the suit to include the beneficiary. This
will be allowed since the trust has no legal basis to protect the
beneficiary.
On the other hand, courts are reluctant to allow the shields of
legal entities to be pierced easily. If they did so on a regular
basis, commerce would grind down when investors in these entities
could not be protected and investments were withdrawn. Also, the
revenue states receive for organizing and maintaining these entities
would dry up.
Before the court will consider allowing the shield to be pierced,
it must be demonstrated to the court that you disregarded the
separate nature of the entity. That is why proper day-to-day
operation and formalities are so important.
But in this eBrief, we are discussing the land trust. There
is some practical protection that is gained using the land trust.
Let’s take a look:
1. It slows down the opposing side costing them time and money.
(This is also true of owning property in a corporation or LLC.) The
land trust is not a common structure and will require opposing
counsel to figure out how to approach the issue.
2. Often the opposing side does not go to the effort of finding
out who the beneficiary is. They just go after a judgment in the name
of the land trust. If this happens and you are the beneficiary, your
assets are not subject to the judgment, just the assets of the named
land trust.
Of course, post-judgment interrogatories could be used to find
out who the beneficiary is. Then a motion could be entered into court
to have the judgment expanded to the beneficiary as well.
3. If the beneficiary happens to be an innocent third party such
as your children or your wife who are not in the business, the court
frequently will make an attempt to protect their interest.
I am also told that a trustee cannot legally divulge the names of
the beneficiaries. I invite you to email me the clause you believe
supports this position. This is just not true. There are ways to make
the trustee liable to the other parties to the trust.
But the court can still compel the trustee to tell who the
beneficiaries are. What would you do if the judge threatened to put
you in jail until you provided the names of the beneficiaries? This
actually happened to a friend of mine. Guess the path he chose.
Don’t get me wrong. Land trusts have their place, but they are
not the be all, end all, prevent plaque on your teeth solution to
holding title to property. Land trusts should never be used to take
the place of a legal entity, but can certainly be used in addition
to them.
For instance, I would use land trusts to hold title to several
houses that would otherwise be owned by a single LLC. That way a
simple perusal of the courthouse records would not show all these
houses owned by one entity.
In any case, do not ever use the land trust without a good
education on the subject. Sloppy paperwork or no paperwork here
can cause a lot of problems down the road.
Dyches Boddiford
www.DBoddiford.com
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
Thursday, March 6, 2008
THE DUE-ON-SALE CLAUSE -- HOW TO AVOID IT
One can have a seller carry an entire non-assumable loan without needing to fear, or even be concerned with, a DOS Violation, by placing the property in a co-beneficiary land trust in the mortgagor's (seller's) own name and taking a partial Beneficiary Interest in it. The trust would be set 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." 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.).
The Dreaded Due-on-Sale Clause doesn't always say what we or our attorneys THINK it does, irrespective of whether a lender's exercising its rights under a D.O.S. clause are "real," "false" or indifferent. What it says is UNLESS PROHIBITED BY LAW, the lender has a right to forclose, if ...".
Well...make no mistakes about it! It IS prohibited by law for a lender to take exception to a borrower's placing its property in a Living Trust (such as a Title-Holding Land Trust) and creating what is tantamount to a legally shielded WRAP (AITD). This is done by the seller's merely naming you (the buyer) as the Remainder Agent or a Co-Beneficiary of that trust. For maximum safety, at least 10% of the trust's Beneficiary Interest and 50 of the Pwer of Direction must be retained by the seller, with an agreement to forfeit it to you upon disposition of the property at the trust's termination.
When calling on someone whom you want to carry the loan for you: if you really want to be assured of 'getting the Deal,' make it so good for the seller that he can't refuse. Suggest to him that for his own saftey and peace of mind, you'll pay to put the property into a neutral trust in HIS OWN NAME; and that he needn't transfer the title to you until you've proiven youself by refinancing the property. Explain that you'll merely become a co-beneficiary in that trust until his loan is retired in, say, 6 months (or 3, 4 or 5 years or more).
Note that this arrangement (called a "PAC Trust") gives you, as the buyer, 100% of the tax write-off; 100% of the Use, Occupancy, Possession; 100% of the Equity Build-Up through principal Reduction; full rights to Rents; and all Profits upon Sale or other disposition. As well, you also have any and all other rights oridinarily available under the "Bundle of Rights" in any form of Fee-Simple Real Estate ownership.
In a PAC Trust, the seller never has to take any chances with you; and you don't have to take any chances with the seller. The property is henceforth protected from liens, suits judgments, divorce actions or claims, bankruptcies or anything else you can think of, including state and/or IRS tax liens... and the Due-on-Sale Clause is no longer an issue.
As far as the attorney's suggestion that a Lease Option would be better with reference to the Due-on-Sale Clause, that's ridiculous! He just wants to make a profit on doing the deal for you (a L/O is a Due-on-Sale violation; you and your property are always subject to the other party's marital disputes, BK's, liens, suits and judgements...and you end up with no tax write-off). An attorney suggesting another course of actifon would be well advised to consider reading the law (the Garn St. Germain ACT, the FDIRA 1982): it clearly states than any lease for more than 3 years OR ANY LEASE WHICH CONTAINS AN OPTION TO PUCHASE is valid grounds for a lender's acceleration its loan's pay-off (i.e., IT VIOLATES THE DUE-ON-SALE CLAUSE!).
Phew!! These legal beagles who graduated from Dewlap Holler U., and who were sworn in over their fourth Pina Collada just p...tick me off!!
Bill
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
The Dreaded Due-on-Sale Clause doesn't always say what we or our attorneys THINK it does, irrespective of whether a lender's exercising its rights under a D.O.S. clause are "real," "false" or indifferent. What it says is UNLESS PROHIBITED BY LAW, the lender has a right to forclose, if ...".
Well...make no mistakes about it! It IS prohibited by law for a lender to take exception to a borrower's placing its property in a Living Trust (such as a Title-Holding Land Trust) and creating what is tantamount to a legally shielded WRAP (AITD). This is done by the seller's merely naming you (the buyer) as the Remainder Agent or a Co-Beneficiary of that trust. For maximum safety, at least 10% of the trust's Beneficiary Interest and 50 of the Pwer of Direction must be retained by the seller, with an agreement to forfeit it to you upon disposition of the property at the trust's termination.
When calling on someone whom you want to carry the loan for you: if you really want to be assured of 'getting the Deal,' make it so good for the seller that he can't refuse. Suggest to him that for his own saftey and peace of mind, you'll pay to put the property into a neutral trust in HIS OWN NAME; and that he needn't transfer the title to you until you've proiven youself by refinancing the property. Explain that you'll merely become a co-beneficiary in that trust until his loan is retired in, say, 6 months (or 3, 4 or 5 years or more).
Note that this arrangement (called a "PAC Trust") gives you, as the buyer, 100% of the tax write-off; 100% of the Use, Occupancy, Possession; 100% of the Equity Build-Up through principal Reduction; full rights to Rents; and all Profits upon Sale or other disposition. As well, you also have any and all other rights oridinarily available under the "Bundle of Rights" in any form of Fee-Simple Real Estate ownership.
In a PAC Trust, the seller never has to take any chances with you; and you don't have to take any chances with the seller. The property is henceforth protected from liens, suits judgments, divorce actions or claims, bankruptcies or anything else you can think of, including state and/or IRS tax liens... and the Due-on-Sale Clause is no longer an issue.
As far as the attorney's suggestion that a Lease Option would be better with reference to the Due-on-Sale Clause, that's ridiculous! He just wants to make a profit on doing the deal for you (a L/O is a Due-on-Sale violation; you and your property are always subject to the other party's marital disputes, BK's, liens, suits and judgements...and you end up with no tax write-off). An attorney suggesting another course of actifon would be well advised to consider reading the law (the Garn St. Germain ACT, the FDIRA 1982): it clearly states than any lease for more than 3 years OR ANY LEASE WHICH CONTAINS AN OPTION TO PUCHASE is valid grounds for a lender's acceleration its loan's pay-off (i.e., IT VIOLATES THE DUE-ON-SALE CLAUSE!).
Phew!! These legal beagles who graduated from Dewlap Holler U., and who were sworn in over their fourth Pina Collada just p...tick me off!!
Bill
To find out more about Landtrust and Equity Transfers Using Landtrust, Click Here.
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