Re: Garn St Germain Act (Am I reading this correctly?) - Posted by Bill Gatten
Posted by Bill Gatten on January 24, 2000 at 12:28:59:
As others have already said, placing a property into a trust is ?NOT? prohibited under "applicable law.? Therefore, foreclosure for that reason is NOT permitted by the same applicable law (i.e., 12 USC 1701). Understand that in any “living trust” it is always prudent, and will likely be advised by one’s attorney, that a trustor should indeed appoint a Remainder Agent or Co-Beneficiary in his/her land trust (creates an effective shielding from legal actions via ?non-partionability of Personalty?). Such appointment is done by a simple Assignment.
In that you are dealing here with a “land trust,” versus a trust-type in which the trustee does not hold both legal and equitable title, any such assignment is purely of “Personalty (personal property)” rather than of Realty (real estate)." Therefore, the real estate which is the lender’s loan security is not being transferred, or sold; and the lender’s pathway to foreclosure is not being impinged upon. Further, as has already been pointed out in previous posts in this thread: such assignment is wholly personal, private, anonymous and unrecorded (and no body’s business).
Obviously a borrower?s full relinquishment of “control” to someone else by means of assignment (by giving up the entire beneficiary interest and full Power of Direction) could certainly annoy, and justify foreclosure by, a lender. That’s one (of many) of the reasons that, in a PACTrust™, the title-holding trust itself remains always in the name of the borrower (mortgagor), who remains the (a) sole beneficiary of his/her own trust (until the subsequent assignment takes place). The subsequent assignment to the “buyer” is of only a fractional beneficiary interest, while the original borrower retains Power of Direction (“control,” “voting rights”, etc.) and passive-loss tax benefits (Depreciation). If necessary, relinquishment of any such control can, therefore, be subsequently effected by means of a separate (silent) Limited Power of Attorney. If I?m the seller I keep at least 50% of the Power of Direction (control): if, however, I?m the buyer, I want that seller to give me Power of Attorney to direct the trustee ?vote his shares.?
By doing it all this way, Jim, there is never a problem with hazard insurance or title (or utilities). Insurance remains in the name of the grantor (borrower), insuring the trust via a non-owner occupant policy (thus adequately and securely insuring all beneficiaries): but such premiums are paid-for by the co-beneficiary as a part of its regular monthly obligation. In a PACTrust?, the lender can comfortably be notified that the property has been placed into a living trust in it’s borrower’s name, and that, from this point onward all payments will be forthcoming from XXX (whomever is appointed to collect and disburse mortgage payments, taxes, insurance and any trustee fee being charged). In that same directive letter, the mortgagor instructs the lender to accept all checks from the paying entity, and to cooperate fully with it relative to questions, concerns or future correspondence of any type.
Remember: “…Lender shall, “IF” permitted by applicable law…”
In my workshops, I discuss the concept of “Cognitive Dissonance (Functional Fixedness),” and what havoc an attorney with a good grasp of the concept can wreak for readers of a legal document. Here is another example…another Due-on-Sale Clause (portfolio lenders use this one):
“Re. transfer, sale, assignment or hypothecation…if not a natural person, then borrower hereunder may not sell, assign, or otherwise divest any ownership in the subject property, or a beneficiary interest in any trust owning all or any part of the subject property, without having first obtained express (written) consent [from the lender]?”
Well…think about it for a second. Aren?t most homebuyers “natural persons”? They?re not corporations, partnerships, amalgamations, joint venture, associations or trusts? Therefore, since the borrower IS a natural person (named Bob), doesn’t the paragraph clearly reflect that one DOES NOT need any such permission?from anyone? Of course it does.