Posted by Glenn OH on January 24, 2000 at 15:10:12:
Some people just gotta rub it in (as I look out my window at 6" of snow and single digit temperatures)!
I agrre that transferring the 100% interest in the trust is a violation, so why not 50 or 90% - no violation, keep the depreciation, etc.
Garn St Germain Act (Am I reading this correctly?) - Posted by Jim LaVerdi
Posted by Jim LaVerdi on January 23, 2000 at 22:50:29:
I have a seller that may be interested in placing his property in a land trust and allowing me to take the property “subject to”. I know about the Garn St Germain Act and how it states that if the property is 5 units or less and is placed into a trust that the lender can not accelerate the loan to be paid. My concern is this clause I found on the Deed of Trust that reads as follows.
Lender shall, if permitted by applicable law and with the prior approval of the Secretary, require immediate payment in full all of the sums secured by this security instrument if: All or part of the property or a beneficial interest in a trust owning all or part of the property, is sold or otherwise transferred (other than by devise or decent) by the borrower.
Does this mean that the owner can place his property in a land trust and give me beneficial interest and as long as I don’t sell or transfer my interest to someone else I am legal?
Also how much beneficial interest do owners usually transfer to the buyer? What percentage ratio?
Thanks in advance
Jim LaVerdi (Phoenix Arizona Investor)
Just a triva question … - Posted by David(Ca)
Posted by David(Ca) on January 24, 2000 at 19:10:01:
Are “Garn” and “Germain” people, congressmen maybe?
Is “St” Saint or Street?
Just wondered.
Dave
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:
Jim,
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.
Bill Gatten
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by JohnWe (NoCA)
Posted by JohnWe (NoCA) on January 24, 2000 at 12:19:18:
Jim,
You’ve got some pretty good answers from people much more qualified than I, however I’ll offer my answer to your direct questions…
As stated, putting the property in a land trust is not a violation, but the minute the seller even transfers 1% of the interest in the trust to you, the seller (not you…subtle but important point) has violated the DOS clause.
How much interest do owners usually transfer to the buyer? 100%. In a nutshell,
Hope this helps.
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by Paul_NY
Posted by Paul_NY on January 24, 2000 at 09:40:47:
Jim,
The bank may ask questions when they see a different name on the check.
Having no experience in this situation, my guess is that they will not call the loan as long as they get paid. In the Carleton Sheets video, a bank noticed the check and asked Carleton to qualify. He said he would pay the cost of a credit report up to $40, but would do no more than that. He never heard from the bank again!
Paul_NY
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by Glenn OH
Posted by Glenn OH on January 23, 2000 at 23:30:47:
This clause and others like it are just intimidation to try to scare away creative homeowners. The key is “if permitted by applicable law and with the prior approval of the Secretary”. As you read in GSG, they aren’t “permitted by applicable law”, thus it may as well say “the next time it snows in July in Florida” - it ain’t gonna happen.
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by Jim IL
Posted by Jim IL on January 23, 2000 at 23:08:11:
Jim,
The placing of the home into a trust does not violate the DOS, as long as the beneficial interest named in the trust is the same person that is liable for the loan.
So, having said that, the assignment of beneficial interest DOES violate the DOS.
BUT…here it is;
Who is going to tell the lender?
The assignment of beneficial interest form is NOT recorded,and therefore no-one knows about it UNLESS you or the seller tell them.
My advice is to go read some of the articles on this topic by Bronchik, and/or buy his course on it.
He covers it well, and will make sure that you have the material to do so properly.
There are a few things you need to do when taking a home “Subject to” and they all need to be done properly to avoid problems down the road.
As you have seen here, most stories where the loan was called due were from the seller or buyer making a mistake along the line.
And, when you do this “Subject to via a land trust” type of deal, there are other things to handle, like having the seller sign a disclosure form, and notifying the insurance company and lender.
Good luck and I hope this helped a little,
Jim IL
Re: Just a triva question … - Posted by chris
Posted by chris on January 25, 2000 at 05:14:04:
I believe Garn refers to Senator Jake Garn. Another claim to fame of his is that he flew on the space shuttle.
As for the St.Germain part you got me.
-Chris
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by Glenn OH
Posted by Glenn OH on January 24, 2000 at 15:03:09:
If the seller retains at least 10% for the life of the trust, the their interest has not been transferred. See PACTrust for benefits @ www.cal-equity.com
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by Glenn OH
Posted by Glenn OH on January 24, 2000 at 15:06:21:
Thus, you want the trustee to notify the mortgage holder that the property is transferred to the trust, and the all questions or paperwork (including payments) will be thru the trust. Then, no surprises about the new name on the checks.
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by Rob FL
Posted by Rob FL on January 24, 2000 at 10:17:48:
Actually, the wording about the “beneficial ineterest” is directly off the Fannie Mae and Freddie Mac mortgage forms clause #17. It is very enforceable however is seldom if ever exercised by lenders.
It is a DOS violation to transfer the entire beneficial interest in a trust to someone other than the borrower in most cases. Garn St. Germain specifically puts a limit on who the beneficiary of the trust can be.
You could have also just said “the next time it snows in January in Florida.” Hee hee.
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by JoeKaiser
Posted by JoeKaiser on January 24, 2000 at 24:02:27:
Glenn, interesting way to look at things. Not real confident in your conclusions, but, again, interesting.
Joe
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by JD
Posted by JD on January 24, 2000 at 21:30:42:
yes, bill gatten makes that claim in his article. Do I believe it?, NO. Has he ever gotten a written opinion from the Office of Thrift Supervision on the issue of partial interest transfer?, NO. Is his PacTrust any better than Bronchick’s Trust system?, NO. Am I tired of hearing about the PacTrust?, Yes.
Re: Garn St Germain Act (Am I reading this correctly?) - Posted by JPiper
Posted by JPiper on January 24, 2000 at 15:53:38:
And if this transfer does not relate to a transfer in the rights of occupancy. Just thought I’d mention that.
JPiper