Are you there, Jim? - Posted by Kyle
Posted by Kyle on April 08, 1999 at 18:11:23:
I’m still waiting to hear back from you, Jim…
What? - Posted by Kyle
Posted by Kyle on April 07, 1999 at 12:32:27:
You said absolutely nothing.
First of all, obviously if I found a seller who whould sell, and a buyer who would buy (under these terms), I wouldn’t have a big problem with the transaction. Thanks for your offer, though.
My problem DOES lie in the risk you are handing over to your buyer…“Here, take this property over, hand me 10k of your life savings, and lets cross our fingers that they don’t yank it from you. Sound good? Ok…sign here, please”
And, Jim, what was this?:
>>And if the lender calls it due, then I’ll just refi or sell it to someone with a new loan. not too mention, I’ll also QUIT making the payments when it is called due, and not worry a bit, because the loan is not in my name!!
So you’re saying you would refi in YOUR name? Or else you’d sell to a new buyer who could qualify (hence screwing your current buyer and tarnishing your name)? “Sorry, bank’s calling their money due. Thanks for the 10k, and the payments you’ve been making on the house for the last 2 years. Oh by the way, nice remodel…and I love what you did to the yard! Nice knowing you, and remember, I “disclosed” this upfront! Oh, wait…before you go to tell your wife and kids, let me give you a couple extra business cards so you can tell your friends about my services!”
Not my idea of a sound business practice, no matter how much “EXPERIENCE” others can throw at you.
And, by the way, I wasn’t calling anyone’s advice “GARBAGE”. I was referring to the DOS clause itself.
One more thing…I think you have to be pretty naive to not agree that LeGrande has some pretty arrogant overtones. This isn’t meant as a slam on the guy, because I like his direct style, personally. I’m sure Ron would be the first person to tell you…he’s not suffering from a lack of confidence, that’s for sure.
Happy investing…and remember:
You’ve got to stand for something, or you’ll fall for anything.
Re: I got a deal for you then… - Posted by mark
Posted by mark on April 07, 1999 at 11:00:11:
You hit it on the head when you said “I’ll quit
making the payments, the loan isn’t in my name
anyway.” It’s good to see someone admit their
level of ethics. Most try to hide it.
Re: I’ve got a REAL problem with this “due on sale” garbage! - Posted by Tim Jensen
Posted by Tim Jensen on April 07, 1999 at 22:39:09:
Jim,
The reason , I eat lunch with these guys is that they are real estate investors that have come from nothing. I admire that. I think everyone should have some sort of mentor(s). When I looked for a mentor, I looked for people who are successful in my chosen field.
My point is this, I when I am looking for opinion on real estate investing ideas, I ask someone who is already a success at it(and I am not insulting you or questioning your success I think highly of you.)
You asked me “What if they routinely violated the DOS clause?” The problem with that question is that they never have violated the DOS clause. The only place I have heard talk about violating the DOS clause is here and from other real estate investors that are no longer in the business. Then again, I only have contact with real estate investors that are landlords.
Your last question about "why would they be concerned about violating the DOs clause?
I did bring that up before. They told me why would I bother with doing something like that. It could possible ruin my good name. I can pay cash anyways.
Like I stated before you have to do what is right for you.
Tim Jensen
Re: Interesting, Rob… - Posted by Rob FL
Posted by Rob FL on April 08, 1999 at 20:38:50:
If I were in foreclosure based on a due on sale clause and had been making payments for an extended period of time, I would use it as a defense and cite the court case.
If I were selling, I would not try to convince a buyer using this case. That would be walking on thin ice. I would only use it if I were the defendant in a foreclosure suit.
Re: Risk of Detection? - Posted by JPiper
Posted by JPiper on April 07, 1999 at 21:07:17:
Thanks for the comments Bill. And thanks for the chuckle?.if today was the FIRST day you noticed an error on my part, you’ve probably been preoccupied scanning that dictionary of yours.
You say? “So, how do you feel about this statement? “If the IRS doesn’t find out about it, they probably won’t care if you fudge just a little bit on your tax returns now and then: everybody does it.””
The distinction I would draw here is that taxes are a matter of federal law. “Fudging” a little on your taxes is a violation of that law, and carries certain penalties. While I would say reality is that significant “fudging” goes on regarding taxes, it’s not something that I engage in, or that I would recommend anyone engage in. For me, the possible penalties would be too heavy. On the other hand, violating the DOS clause is not against federal law. Rather it’s a contractual breach, with specific contractual remedies set forth in the loan documents to address this breach. So the distinction I draw is one between violating the law, and a contractual breach?..a big difference in my mind.
I’ve noticed in the past that you’ve had loans called, and that you’re aware of others. And in my post, I may not have stressed it, but if I didn’t I should have. I have not seen loans called where the loan was current, and careful steps were taken to avoid detection of the DOS violation. But I have seen loans called?.some of these were DOS violations, but they also had delinquent payments. I am also aware of loans being called back in the 80’s during a higher interest rate climate, where the parties to the transaction had not taken steps to avoid detection. These days I’m equally aware of many situations where violations have taken place, with no attempt to hide it, where the lenders have not acted. My point here is that I’m unaware of ANY acceleration where the transaction was done in a way to avoid detection. My opinion is that auditors pouring over the bank records would not reveal a properly executed subject to transaction taken in a trust, even if the beneficial interest is later assigned in violation. I would be interested in hearing the specifics though of the situations that you mention. I can’t figure out on what basis a lender would accelerate if he had no knowledge and/or proof of a transfer. Perhaps you could enlighten me.
As it pertains to PACTrust Bill, as you probably know I have bought your book?.now if I can get the time to read it. So I don’t have nearly enough information to comment. But I’m sufficiently interested to check it out, and if it’s all that you say, I will probably use it in some fashion. The only comment I would make is that even if the PACTrust does not violate the DOS, that doesn’t mean a bank might not interpret that it does and decide to accelerate. While you might be successful in fending off this acceleration legally, it would still be costly. Therefore I would think that using PACTrust still requires a low profile as it pertains to the lender. All in all though, it sounds like the PACTrust is a viable vehicle?and I’m eager to find out more about it. Thank you by the way for all the informative posts.
JPiper
Re: PACTrust? - Posted by Bob-MD
Posted by Bob-MD on April 07, 1999 at 19:25:21:
What is a PACTrust? Same as a Land Trust?
Bob
Re: Risk of Detection? - Posted by JPiper
Posted by JPiper on April 07, 1999 at 16:23:49:
I don’t buy via l/o…so this is not an issue for me.
The only times I have used a l/o as a buyer I have assigned the l/o…therefore the end buyer was always l/o’ing from the owner.
If I did a sandwich lease, I would disclose that I am not the owner, and would simultaneously disclose what my interest in the property is.
JPiper
All of 'em =) - Posted by Jim Beavens
Posted by Jim Beavens on April 07, 1999 at 13:34:54:
I bought all of his courses at the convention. Both Bronchick and LeGrand have a course on L/Os and seller financing, and I would say that my statement applies to both sets of courses.
Re: The Reasons PACTrust doesn’t excite me…YET - Posted by Stacy (AZ)
Posted by Stacy (AZ) on April 07, 1999 at 19:34:43:
Bill, I sincerely appreciate your posts. You obviously know this stuff backward and forward. And I appreciate the idea that the PACTrust is something you designed to avoid DOS violations and general “subject to” problems. But I’d like to give you my perspective, being fairly new to real estate investing. This is NOT meant to knock you or your product, only to give you an outside perspective. I have not yet read your book.
First, your PACTrust seems very complicated, and therefore hard to sell to buyers/sellers. I’ve been following your answers to questions on this board, and you regularly quote IRS rules and regs and federal laws that the vast majority of investors wouldn’t know. How can I be expected to answer buyer’s and seller’s questions about the PACTrust when I don’t have your knowlege base, which took years to acquire? I am an intelligent man, but to tell you the truth, my eyes glaze over when I try to get through some of your explanations. I’m not faulting you, but it’s difficult to follow the nuances and complexities involved. Maybe it’s because I’ve only been learning about RE investing for a few years.
I know that many of the seasoned investors on this site recommend and use Land Trusts and other methods that have worked for years. What has changed so suddenly that would make the PACTrust a necessity in lieu of other methods? I haven’t heard of any Land Trust horror stories, although I’m sure they happen. But, it seems to be a tried and true method being used by successful investors.
Even Bronchick recommends the Land Trust/Subject To method, and he’s an attorney doing it in one of the most “legislated” states in the union.
So, from this novice, it really just seems to be an overly complicated solution to a problem that has a very low risk of occuring. And if a loan does get called because of the DOS, we need to have ensured that we are in a position to refi or go for a new loan. That seems to be protection enough.
Just my take-
Stacy
LeGrand? Arrogant? - Posted by Baltimore BirdDog
Posted by Baltimore BirdDog on April 14, 1999 at 09:52:34:
Kyle,
After reading your post, I’ve tried to listen for arrogant overtones in LeGrand’s tapes, but I just don’t see it. At least to me, he seems to recognize a good question when he hears it, but quickly dispenses of the ones that aren’t. Like you, I prefer this type of directness because it keeps the conversation moving and headed in the right direction. However, unlike you, I wouldn’t define it as arrogant. To me, arrogant is someone unwilling to accept anyone else’s opinion or information regardless of its value. This does not seem to be the case with LeGrand. For instance, he changed the deed he was using to deed his properties into land trusts after an attorney pointed out several flaws. Anyway, I don’t want to turn this into a huge debate. Just wanted to communicate my thoughts. Happy investing and good luck!
-Jeremy
P.S. By the way, did you go to the last convention and will you be there next year?
Re: What? - Posted by Brad Crouch
Posted by Brad Crouch on April 09, 1999 at 13:45:43:
Kyle,
As I have recently discovered, the PACTrust legally gets around all this “due on sale” nonsense.
Brad
I meant “In defense of Jim!” - Posted by Daniel Lubell
Posted by Daniel Lubell on April 07, 1999 at 11:18:16:
I transposed the names Jim and Mark in my earlier post.
Sorry,
Dan Lubell
In defense of Mark… - Posted by Daniel Lubell
Posted by Daniel Lubell on April 07, 1999 at 11:15:04:
I agree with everything Mark said and if the UNETHIDAL lender were to call the loan, Mark would no longer be making them payments because, by definition, they would be calling the loan. Therefore, they would not be accepting monthly payments!
So you see, Jim, they would not be accepting payments and would accept nothing short of a full payoff. By the way, Mark indicated he WOULD make a full payoff by holding a sale or refinancing the property.
I see nothing wrong with Mark’s ethics.
I really hate to see people pile on the due on sale clause issue. It is SUCH a non issue, if handled properly.
Daniel Lubell
Re: I’ve got a REAL problem with this “due on sale” garbage! - Posted by David Alexander
Posted by David Alexander on April 08, 1999 at 24:52:21:
Ok, you opened up another door. Even if these “Millionaires” can pay all cash for the houses, Why?
Why would any good Investor tie up any more money than he has too? You take the properties Subject To, if the loan is called you simply break out your wallet, or take other actions, Refi, etc. The name of the game is Yield, the higher the better, and Infinity Rules. Do you ever speed on the highway, because if you do your actually breaking the law there. The DOS is a regulation, not law. By the way, what kind of deals do you do? If you use your own money and pay all cash, and deal with banks on their terms, doesn’t that kinda limit your paydays?
David Alexander
Re: I’ve got a REAL problem with this “due on sale” garbage! - Posted by JPiper
Posted by JPiper on April 08, 1999 at 24:30:20:
Exactly my point Tim. If a guy can pay cash or refi, then the DOS clause is a total non-issue isn’t it? I mean if you take the loan over, and if the lender exercises it’s rights, then you simply pay cash or refi. Can you explain to me how doing this would ruin the reputations of any of these “millionaires”?
By the way, just a wild guess, but I suspect that there are at least 3 millionaires that you know who violate the due on sale clause.
JPiper
Breach of contract, or not?? - Posted by Tyler
Posted by Tyler on April 08, 1999 at 12:59:23:
Jim,
A post from Rick Vesole above stated,
>>“In other words, selling a property without the lender’s consent is not a breach of the agreement, however, it does give the lender certain rights if it should choose to exercise them, one of which would be to call the loan due.”
In your post, you said,
>>“On the other hand, violating the DOS clause is not against federal law. Rather it’s a contractual breach, with specific contractual remedies set forth in the loan documents to address this breach. So the distinction I draw is one between violating the law, and a contractual breach?..a big difference in my mind.”
So, you know my question. Is the violation of the DOS really “contractual breach”, or is it simply a green light that now they can call the loan due…if they want to.
In my mind, there is a big difference.
NT
It’s PORE, gentlemen, not POUR. - Posted by Bill
Posted by Bill on April 07, 1999 at 23:53:02:
One pores over documents, etc. If you pour over them, you just get them wet.
Re: PACTrust? - Posted by Bill Gatten
Posted by Bill Gatten on April 07, 1999 at 20:21:43:
Copy of a previous post:
A PACTrust is a 3rd party trustee, co-beneficiary real estate conveyance. Works this way:
-
An investor locates a property wherein the seller is willing to remain on the loan for a while.
-
The property is placed into title-holding (land) trust in the seller’s name, with appointment of a 3rd party corporate trustee. The trust’s being in the seller’s name makes all insurance issues (title, hazard, etc.) easier and smoother, as well as avoiding transfer taxation, capital gains taxation (no sale or transfer beyond the owner’s trust), DOS violation and relinquishment of control of the lender’s security interest (i.e., conforms to Garn St. Germain 12USC 1701(b)).
-
The investor (you) acquires a full or partial beneficiary interest in the trust and executes a triple net lease of the property with the trustee.
-
A resident (3rd) beneficiary can then be located who will move in and make all the payments and handle all the repairs and upkeep, in exchange for the tax write-off, and perhaps a share in future appreciation (or the property can merely be flipped or leased, with or without an option to purchase).
This system allows for a safe, legal, clean and clear way to hold title to Realty without fear of DOS violation, without fear of the title being jeopardized by someone elses legal actions, BK, marital problems, liens, etc.
The system allows for easiest evictions without an errant tenant being able to claim “equity” to avoid eviction; and without having to resort to Judicial Foreclosure, Quiet Title, Ejectment and all the baloney usually necessary to get a bum out…
Thanks for asking.
Bill
OK, OK, OK… BETTER ANSWER - Posted by Bill Gatten
Posted by Bill Gatten on April 09, 1999 at 20:29:24:
Stacy,
How 'bout this. Consider how you would you describe a L/O to a professional who might have serious legal questions about safety and legality and market viability? Then think about how you would describe the same concept to a Optionor or Optionee?
Here’s how difficult it is to describe a PACTrust to a prospective seller:
Hi Bob. Intead of having to take any chances with me…for your benefit and safety…I’ll agree to just have you put the property into a living trust and make me one of the beneficiaries. That way I can have the tax write-oof, but you don’t have to transfer the title to me until I’m ready to pay off your loan. And you don’t have to concern yourself about the property’s ever being the subject of any personal problems I’d ever get into, which would lead to creditor judgements or liens (even IRS liens). And, furthermore ('gets even better, Bob), the trust will greatly facilitate your kicking my young buns out, if I ever fail to make the payments or default in the agreement (not to mention the due on sale clause thing… which is no big deal to me, but which I know is a really big thing to you, since its your loan we’re screwing around with).
OK, now… explaining it to your buyer (assuming you’ve opted for a sandwich arrangement… you could do a flip this way too, if you chose):
Yes, Mr. Purvis, the property is currently in a land trust, and basically I’m just looking for someone who can afford the payments and closing costs to… well…just give it to. The only thing I want out of it is to have you either sell it or refinance it in, say, ___ or ___ years. Then at that time, I’ll pull out the equity I have in it now (pause), and… if there’s been any appreication over that period of time, I’d like to split it with you.
At this point you don’t need to tell Mr. Purvis that his closing costs will be greater than yours so that you can make a load profit; or that his payments will be higher than yours, so that you can have a positive cash flow. If he asks about whether its safe and equitable or not, you say, “Yes.” If he asks if its legal, you say: “Yes.” If he suggests that it sounds too good to be true…you say, “… um… well, yes, I s’pose it does.”
Stacy, think about it…assuming you’re not in the computer business, could you sell computers without understanding ohms, watts, EMF, and Kaboochi Factors? Sure you could! But, could you sell even more of them if you knew where to look when someone asked about KF’s (Kaboochi Factor)? Sure! Would you have to have all this knowledge in your head? No… just in the archives on CRE On Line (or maybe a book somewere).
Bill
I’ll be honest: I don’t know anything about KF’s either; but I know they sure must be a good thing.