Re: I stand by the statement that a Pactrust violates it. - Posted by Bill Gatten
Posted by Bill Gatten on December 18, 1999 at 15:10:07:
Bud, your last sentence notwithstanding, I understand what you are saying, and–if you’ll add the words “probably” or “very possibly”–I agree with you (if you’re referring the CFR take, then you are absolutely correct with or without the contingency adverbil forms).
I have, in fact, over the years, called lenders and asked that very question, and (you’re right) they’ve ALL posited: “Yup it surely will” (…and my dentist told me all my teeth would fall out if I didn’t get gum-stripping and a root canal 25 years ago…I’ve still got 'em all, plus some really great gums…“Vitaman D”).
But bear in mind, Bud, these are the same lenders that say you have to get their permission to put a property into any kind of a trust at all; and their quick responses always come about because they don’t know the nuances of GSG off-handedly (much less anything about land trusts); and they don’t care to do any research on the subject; and they have no idea what the steps are to building a PACTrust™, much less what one is.
As you know, the PACTrust is done sequentially and the trust is all they would ever see. It’s just an “inter vivos trust to them,” and the triple-net lease portion is merely a “Lease” to them. The subsequent (silent) addition of the assignment, the beneficiary agreement…and more subsequently, the addition of the triple-net lease are other issues. The question I have gotten affirmatives to, however, are: “Can I put a property into a revocable living Trust?” and, “Can I name a remainder agent or co-beneficiary to my living trust, should my attorney advise it?” And?"Can I lease the property out to anyone I want to?
But, Bud, ask that very same lender if they know how an Illinois-type land trust differs from other trusts (or even what one is). I can assure you (and you know as well as I do) that their answer will be: “(pause)…well…duh?no.”
Would a lender win in court, claiming that the PACTrust violated their DOS? Possibly, though not necessarily “probably (but maybe even a large “possibly”)”: but it hasn’t ever happened (not in thousands of transactions) and it likely (we feel sure) never will (because of the silent and secret aspect of the manner in which one’s interests are protected). But, ask yourself, “Would that same lender most “certainly” win in court, if they were to claim that a Wrap, a Contract for Deed, an Equity share, a Lease Option or Lease Purchase violated the same DOS?”
By the way, there are several Illinois cases on the books wherein lenders did in fact assert that assignment of a land trust’s beneficiary interest violated their security interests. They all lost. The exceptions were cases wherein the loans had been made directly to the land trust itself (“…if the borrower is NOT a natural person, then the borrower must get our permission…”).
Obviously…were a lender to see someone they don’t know getting all the benefits of homeownership (in their security), including tax write-off, equity build-up and appreciation, etc…they’re going to assume a sale and transfer of ownership to the “buyer” has taken place. I.e., “Any human who can fly must obviously have sprouted wings.”
In a PACTrust, the fact is, however, that technically, no such “sale” of their security has taken place. And no other unauthorized divestiture by their borrower has taken place. And, that which HAS been transferred is Personalty (in the eyes of the IRS, all but two states, and under the probate codes)…and even that personal property transfer is secret, silent and unrecorded.
Of course a zealous lender could, if they found out about it, presume that the PACTrust™ violated the provisions of GSG, whether is does or not, and try to sue on that basis (they might even win). I merely maintain that logically and legally it DOES NOT (to the very best of my and our law firm’s understanding, contention and willingness to endorse the concept thousands of times to tens of thousands of RE, legal and accounting professional and investors thus far).
And, NO I don’t want to fight with any lender in court…right or wrong. You are most assuredly correct on that point. Although I must say that I don’t want to drive into any concrete abutments either: although I trust that if I did, my air bag would probably save me (though I’m not 100% certain it would). Therefore, I make every attempt possible to stay between the white lines and stop at every traffic light (and yield appropriately when there is none)…if I ever miss one of those lights, or drive wicky-wocky, or presume the abutment to be made of bubble gum…it could happen. No doubt about it (and there may go my air bag theory)!
And BTW, Bud, whatever it is that you want me to “take back (re. your post)”: I humbly do (and I apologize profusely having said it). (?)
Bill