Re: L/O Draw Back?.. - Posted by Rob FL
Posted by Rob FL on May 09, 1999 at 20:18:19:
I understand that your PacTrust is specifically tailored for California. It has many great aspects and ideas which I have “borrowed.”
I realize that what I posted does not get nearly into as much detail as your trust system does. I will look up the case info Tuesday and post it.
Re: What I’ve learned (long) - Posted by FJW
Posted by FJW on May 08, 1999 at 10:06:33:
JohnBoy
If that were the case, why have an option at all?
I understand what you’re saying. However, think of it this way. If I were someone who thought you owed me money for whatever reason, and I found out you had an option on the house you live in or an investment property, via a memorandum of option and/or performance mort. in public records, I have no idea how much or how little equity you have the potential to be entitled to. Therefore, whether you have excercized the option or not, I’m going to make my claim before it’s too late and sort it out later. Either way, if you have anything coming, I’m going to try to increase my odds of collecting. Make sense?
FJW
Re: Mechanic’s Liens… - Posted by Bill Gatten
Posted by Bill Gatten on May 10, 1999 at 18:51:33:
In California (and anywhere else I personally know of) a Mechanics Lien can be filed almost anytime for almost anything: it’s perfecting it, that is the issue. If the [directive] work order is not signed by the owner, or duly appointed agent of the owner, of the property, it won’t normally fly; but it none-the-less shows up on a search and clouds the title and botches stuff up until removed.
I have a friend whose tenant ordered the building of a swimming pool on a Christmas tree farm in Paso Robles, CA (the tenant was the manager of the Christmas tree farm, but only a tenant in the property). The contractor never bothered to check the title before completing the work (an entire $25,000 worth swimming pool without a title seach). The tenant was subsequently fired from his position and evicted from the property. Then when it came time to sell the property, the title was hopelessly screwed up and had to be “quieted,” which cost $$$ (no idea how much) and a month or two delay in the sale. The swimming pool guy, failing in his lien, then sued my friend Geoff, who countered and eventually won… but only after another hefty chunk of cash outlay. Geoff finally disposed of the property and says he thinks the new buyer filled-in the pool with dirt and built a patio over it.
The point of this story? None. The same thing would have happened in a PACTrust™ had the title not been checked: it could cost money for a Quiet Title action after an unwarranted cloud on it. Though, as you say Brad, the PACTrust™ would of course prevent perfection of the claim by the mechanic, even though it wouldn’t necessarily stop the lien from clouding title.
Bill
Re: Mechanic’s Liens… - Posted by Brad Crouch
Posted by Brad Crouch on May 09, 1999 at 13:43:31:
Jim,
You’re right. The stuff I wrote could be construed incorrectly, and in fact leaves room for some doubt as to whether or not such a senario could actually happen, in ANY State. Frankly, I was looking for an example and used a concept that came to mind.
Of course the laws regarding mechanics’ liens vary from State to State. Maybe I was also remiss not to have stated that.
Also maybe I should have taken the time to find a better example. “Heat of the moment” stuff, y’know?
I really didn’t want to post anything misleading.
Contritely,
Brad
Hmmm…I think we’re on the same side. - Posted by FJW
Posted by FJW on May 08, 1999 at 10:35:06:
Mr. Crouch
In case I didn’t make it clear the first time, I’m in agreement with the PACTrust so far, although I see Mr. Lubbell has thrown a new wrench into the works.
What I meant was:
1.Trnasferring beneficial interest is not a violation of DOS(can’t be if borrower natural person) and therefore DOS doesn’t address that situation.
Have a good one.
FJW
Re: If Bill doesn’t mind, I’ll try my quizziness. - Posted by JohnBoy
Posted by JohnBoy on May 07, 1999 at 21:53:17:
Transfer of title to a trustee in an inter-vivos trust “(a land trust falls under this catagory), in which the borrower is, and REMAINS a beneficiary, and which [trust agreement] is revocable by the borrower, and which does not relate to the transfer of the rights of occupancy.”
If your not living in the property and you gave someone else the right to live in that property, then doesn’t this relate to transfering your right of occupancy? If the buyer is paying you on time and living in the property, then you couldn’t just throw him/her out and make them give of their right to occupy the property per your agreement…hence, you gave up your right to occupancy. Correct or not?
The way I read that last sentence, it sounds like as long as I retain all rights to take occupancy in the property, even for “just cause”, only then, will I have not given up my rights of occupancy as the borrower on the loan. Since giving someone else those rights to occupy the property as long as they perform under the terms of a contract, then you would be subject to violating the DOS clause since you have given up your rights to occupy the property to a 3rd party. Yes or No?
Re: Thank you Bill. Where can I find…? - Posted by Bill Gatten
Posted by Bill Gatten on May 09, 1999 at 16:36:27:
Steve!! NOOOOOOOOOOOOO! I didn’t say Lease Options were the scourge of the earth and not to ever do one. What I tried (clumsily, I fear) to say is that as good as they may be, they, in my humble opion, usually, in many cases, might possibly…by some stretch of someone’s imagination… (maybe) have some drawbacks that could be mitigated, if not obviated and overcome, with a PACTrust™. The PACTrust is not an alternative… its a shield. If you want the same end results, and to achieve the same objectives…there’s a way to get there without facing some of the problems with L/O’s–assuming that you perceive there to be any such problems. Obviously a ton of really smart folks here on CRE don’t see or feel those problems; and I wholly and respectfully defer to, and respect, their judgement, and thereby turn my attention to those looking for what could be another tool (albeit a valuable one) in the investor’s tool box.
Is the PACTrust perfect? No…but it sure works good for me and a few thousand others who have used it over the years.
Oh yes, your question: e-mail me. Our URL is down for some goofy reason this weekened. Just click on the “posted by” above.
Bill
Re:Standard deduction. - Posted by FJW
Posted by FJW on May 14, 1999 at 16:18:21:
Mr. Gatten,
Has this ever been an issue in any of your deals or facilitations? On lower priced properties, say 20K-80K, what becomes the next major selling feature, if they realize the property interest and tax write-off does them no good? My thinking is it’s the same as any other technique, but still retaining the obvious PACTrust protection features.
Current standard deductions are:(Form W-4 1999)
$7200 if married filing jointly or qualified widow(er)
$6350 if head of household
$4300 if single
$3600 if married filing separately
Thank you.
FJW
Re: What I’ve learned (long) - Posted by JohnBoy
Posted by JohnBoy on May 08, 1999 at 13:05:32:
Let’s assume I own a property that I l/o to someone. You feel that the person that has an option to buy my house owes you money. So you learn of this option and go down and file a lien against MY property in which I owe you nothing. The person I’m renting to decides they no longer want to buy my property. In fact, they vacate before their lease is up with me. I find a buyer to sell my house to and suddenly a lien against my property shows up that was filed by you. Are you not now subject to a lawsuit filed by me against you for having filed an invalid lien against my property? How do you know when the person that you felt owed you money decided not to exercise their option and forfeited their right to buy my property? Isn’t it illegal to file a lien against a property that you have no valid claim against?
Here’s another thought. I have an option on a property that you learn of and you file a lien against that property which is owned by someone else. I decide I don’t want the property and assign my option to another party. I sell my right to purchase the property, not any equity in the property I may have been entitled to IF I exercised my option. I would assume legally that I don’t have any rights to the equity I may stand to gain IF I was to exercise my option unless I first exercise that option. Therefore you would be filing a lien against something I “might” be entitled to sometime at a future date. That sounds more like a “right” than an “asset”. It can’t become an “asset” until I exercise my option. Wouldn’t you have to wait until I exercise the option and take title to the property before you could legally file a lien against the property? If I don’t own it, and someone else is still the legal owner until I exercise my option, then I don’t own an asset, the person I’m renting from owns that asset.
Re: Mechanic’s Liens… - Posted by JPiper
Posted by JPiper on May 10, 1999 at 23:36:20:
Bill:
You make a good point. Anyone can file a mechanic’s lien?.proper or not.
How well I know this one. Last year I hired a contractor who ended up walking off a job. When he walked off, he issued me a bogus bill. When I refused to pay he filed a mechanic’s lien. His filing completely failed to comply with state law. However it certainly didn’t stop him from filing…thus clouding my title.
In my state any contractor who files a mechanic’s lien, without having provided the owner a written “Notice to Owner” which needs to be signed by the owner, PRIOR to his first invoice, CANNOT under any circumstances perfect his lien. Further, filing the lien without having provided this notice can be fraud, as set forth in the lien law. You would have thought that when my attorney contacted this contractor with that particular “news” he would have released the lien. He didn’t.
I still sold the property, but I set aside part of the proceeds to be held by the title company to cover the amount of the mechanic’s lien, pending the outcome. They insured around the lien. Six months later as of yesterday, I was finally able to request the return of my money from the title company.
I didn’t pursue the fraudulent lien part of this?..although perhaps I should have?..the contractor definitely deserved it. But if I were a contractor, at least in this state, I would be quite reluctant to file a mechanic’s lien improperly. You’re right?.you can’t perfect it. But further, at least in this state, you can go to jail.
JPiper
Re: If Bill doesn’t mind, I’ll try my quizziness. - Posted by Brad crouch
Posted by Brad crouch on May 08, 1999 at 13:03:10:
JohnBoy,
Bills’ answer really cannot be improved upon, but since you’re asking me, I feel obliged to say something more.
> If your not living in the property and you gave
> someone else the right to live in that property, then
> doesn’t this relate to transfering your right of
> occupancy? If the buyer is paying you on time and
> living in the property, then you couldn’t just throw
> him/her out and make them give of their right to
> occupy the property per your agreement…hence, you
> gave up your right to occupancy. Correct or not?
The process of setting up the trust correctly and legally is the “important” thing here. If this is done right, the protection of the Garn St. Germain Act is in effect. The trust agreement does not convey “occupancy rights” to anybody. Once the property has been put legally into a trust, all bets are off. The trust can lease out the property, if it wishes (that is, if all beneficiaries are in agreement). Since the beneficial interests in a trust is “personal property”, it wouldn’t be governed by “real property” laws.
So, as Bill said, the trust does not convey “occupancy rights”. The lease agreement between the trust and “buyer”, does. No “violation” here.
> The way I read that last sentence, it sounds like as
> long as I retain all rights to take occupancy in the
> property, even for “just cause”, only then, will I
> have not given up my rights of occupancy as the
> borrower on the loan. Since giving someone else those
> rights to occupy the property as long as they perform
> under the terms of a contract, then you would be
> subject to violating the DOS clause since you have
> given up your rights to occupy the property to a 3rd
> party. Yes or No?
At the time the trust is created, the original seller is still occupying the property, and has transferred no occupancy rights. The seller actually can retain occupancy until the trust enters into a lease agreement with someone else. Even THEN, the seller does not transfer occupancy rights.
One more small point: There is no “violation” possible when it comes to a “due on sale” clause. As Rick Vesole pointed out, the due on sale clause does not “forbid” anyone from transferring interest is a property. It only lists a “remedy” for the lender if such an event should happen. Maybe we should use the term “trigger the due on sale clause” instead of “violate” the DOS. If it doesn’t say you CAN’T do it . . . then there is no way to “violate” this.
This may seem like “nit-picking” or “symantics”, but there is a very real difference here. Connotation being one of the differences.
Take care,
Brad
Re: If Bill doesn’t mind, I’ll try my quizziness. - Posted by Bill Gatten
Posted by Bill Gatten on May 07, 1999 at 22:22:50:
Johnboy,
The sentence refers to a trust which would, within itself, contain provisions for granting occupancy rights… (within the trust agreement). Obviously we hold our income properties in our inter-vivos trusts without violating the DOS. Its a lease agreement that conveys occupancy rights, not our trust agreement.
Obviously the income property in your family trust can be leased to someone. In a PACTrust, the property is simply leased to a co-beneficiary of the trust by a separate lease agreement. The trust itself names no one other than the borrower.
Bill
Re:Standard deduction. - Posted by Bill Gatten
Posted by Bill Gatten on May 14, 1999 at 22:48:12:
Dear “F,”
Yes. It has… sometimes we spend hours extolling the virtues of the tax write-off benefit for a land trust buyer, only to find out that he’s a long haul truck diver who hasn’t earned more than twelve dollars a week [above the table] since Old Blue was a pup.
Here are some of the “other virtues” in order…following failure of the tax-write off approach (pertinent to Land Trusts in general: not just the PACTrust™):
The Land Trust:
Shields and hides the title ownership (privacy and anonymity) from the prying eyes of the IRS as well as would-be judgement creditors, BK court and ex-spouses
without giving up any control or directive powers. (try explaining to the IRS how you can afford a $100K house and a have a new Peterbuilt on 12 bucks a per week).
Shields the property (assuming there’s a co-beneficiary) from creditor liens and judgements,. BKs, Martial dispute issues, and even state and federal tax liens.
Converts your Real Estate Ownership to Personal Property Ownership, without losing the tax advantages of the former, creating “personal property” benefits for your real estate, such as non-partitionability (assuming you have a remainder agent or co-beneficiary)
Allows you the right, ability and opportunity to sell off (or retain) any part of your ownership you want to: i.e., you can sell or keep any or all of the following, in any percentage you might choose [in exchange, say, for higher rents and/or the other party’s agreement to handle all maintenance and repair expenses and duties–1) appreciation, 2) equity build-up and principal reduction 3) existing equity 4) use, occupancy and/or possession, 5) tax write-off, 6 and… all other rights and incidents of Fee Simple for Fee Defeasible Real Estate Ownership. And it does all of this… WITHOUT A DUE ON SALE VIOLATION (G.S.G. 1982, 12 U.S.C. 1701(j): or did I already mention that (A MILLION TIMES!!!).
When an attorney says they know all about Land Trusts, but see no advantages… they are either lying through their fangs: or sorely mistaken about one or the other…meaning its probably time to get another attorney. The main points that attorneys miss are that: 1. Land Trusts Convert Realty to Personalty; 2. Personalty is non-partionable by judgement creditors, and 3. the IRS has special rules regarding certain types of trusts and estates, which rules allow full tax deductions to beneficiaries (i.e., see Sec. 163(h)4(D). irrespective of how much of the beneficiry interest they hold (as long as its at least 10%).
Hope this helps, F.
Bill
Oh man, now you’re scaring me. - Posted by FJW
Posted by FJW on May 08, 1999 at 13:40:40:
JohnBoy
I don’t know, but I think that’s part of the point of getting the property out of (whoever’s) name and into a land trust, not necessarily a PACTrust. When you start spreading the equitable interest around, it sort of increases the volatility factor. I know anyone can sue or bring suit against anybody for anything. Will they win and succeed in getting the lien, judgement, etc? At that point, it’s too late. The stuff has already hit the fan.
As JPiper said, not all L/O are the same, but in my mind, the non-partitionability protection alone seems worth the extra effort.
This has been a great thread, hasn’t it? Can’t wait to see what else pans out.
FJW