re. statements concerning THE PACTRUST!! - Posted by bill gatten
Posted by bill gatten on July 12, 2002 at 14:56:49:
The forgoing thread contains some excellent information and some that is not quite so excellent re. the “PACTrust.” My congrats to JohnBoy who FINALLY gets it and to BillM who got it long ago.
First off, (d…it!) get it! Creating a revocable inter vivos (land) trust DOES NOT violate a lender’s DOSC as long as the creator (the borrower/settlor) remains a beneficiary, and as long as the TRUST ITSELF doesn’t transfer occupancy rights, quite obviously, any income property in a trust can be rented out.
Secondly the frequently allude to never-ending thread of months back wherein I was challenged until I got sick of it, never proved a single thing contrary to the true benefits of the Equity Holding Trust concept.
In that melee, every time I answered a charge by a detractor, it was forgotten about, never acknowledged, and another illogical one took its place. I keep hearing, “Yes but it?s never been challenged,” and that is pure baloney. I have gone to two court hearing in just the past one month wherein it was challenged (2 out of some 40 so challenges far)…in both cases relative to eviction and claims of equity by the dispossessed co-beneficiary. In in one case, we lost on the eviction because the company had served an improper notice and the investor has to start all over again. But in both cases, the claim of having an equity interest in the property was scoffed at by the judge when she saw that the investment in the land trust was wholly separate from the leasehold of the property. Her attitude was, “Let’s handle the eviction issue first, and then you folks can work on the trust ownership issue later.” And in this regard, note that the EHT contracts provide for a 100% buy out of the evicted party?s interest at FMV, so a claim of equity would be wholly irrelevant (such buy out would invariably be at a zero net, the defaulting party always has a right to challenge the offer and be paid in an unsecured promissory note.
On the “complexity” issue…I?m sorry about that, but the equity holding trust is just this complicated:
Create a trust; create a transfer document (deed); create an assignment; create a lease agreement. That’s it! If someone wants it simpler than that, they can let me do it for them: or they can buy my course and do it themselves, which is what I recommend about half the time any way (100% of the time on properties under $80K or so).
The only valid controversy that exists relative to that famed thread of months past (it’s in the archives asserted by Bronchik and Hyre)) is what the IRS would do if they audited the settlor and the resident beneficiary in the same audit. The resident qualifies clearly under IRS Section 163 for a complete write-off of property tax and interest payments. The settlor qualifies clearly as not having sold the property…there is no transfer of title or ownership to anyone: only the placement of the property into a legitimate asset protective trust, and then the leasing of it to a tenant. Whether the tenant claims active tax loss or not is none of the settlor?s business (he/she would have no way of knowing) and no right to do so is mentioned anywhere in the document: such right is given the resident beneficiary by the IRS (163(h)4(D), Rev. ruling 92-105, the hundreds of courts cases involving land trusts, etc…
It is possible that were such a double audit to take place (though I can’t think of a reason why it should or ever would) that the IRS COULD compel the settlor to pay a capital gains tax on a contingency sale. However, if that were to happen, how would that, in any way, be any more punitive or costly than if the same person had done a wrap, CFD, lease purchase or equity share?
Think about it: Would you feel safer in an F-14 fighter jet that hasn’t crashed yet, or in a Kinner bi-plane that hasn’t crashed yet? Each has its place, and in some circumstances, neither can replace the benefits of the other…it’s up to what your intent is, how far you are planning to go, and how high you want to fly.
And by the way, we have some forty million dollars worth of Countrywide Funded Real Estate in PACTrusts and talk to them just about every week on some issue or another. What would happen if they took the position that these transactions violated their DOSC? We would go to court and present the very best defense we could. Would we win? I don’t know…but boy, we sure think so. Would you win in the same battle over the DOSC in a Wrap, Equity Share, Lease Purchase, Subject to or Contract for Deed? No.