Land Trust Question - Posted by Aurelia

import · August 26, 2003, 12:12pm

Posted by Craig-SoMD on August 27, 2003 at 21:24:04:

Check out that great new article by Bronchick in the How-To Articles section. It says that DOSC is not triggered in transfers like this.

import · August 26, 2003, 12:12pm

Posted by Aurelia on August 26, 2003 at 12:12:26:

Disclaimer: I am a newbie, and just starting to get into the real estate investing arena, but am being asked lots of questions by friends. After explaining that I am not an expert, I do try to give whatever information I may have.

The latest is as follows. Friend is in process of getting a divorce. House is in husband’s name (only), but he says she can keep it, so long as she makes payments. Wife doesn’t want to refinance because of prior credit problems.

Home is located in the state of Nevada.

My suggestion to her (subject, of course, to review by a lawyer in her state):

Set up a land trust (wife is beneficiary, friend is trustee)
Husband sends letter to lender advising of placement of property into land trust for ‘estate planning purposes’

(3,4 and 5 all happen at same time)

Property is deeded to trust
Husband signs letter acknowleging loan is still in his name but he no longer owns house
If necessary, enter into a separate agreement under which wife agrees to pay house payments on time, pay property taxes, etc. (& address any other concerns)
Record transfer with county

From my studying so far, this addresses several issues for the couple – transfer of ‘beneficial interest’ to wife without trigger of due on sale clause (since lender is advised of transfer and wife can file transfer doc with county).

Wife doesn’t have to get new financing. Husband can walk away, but will have contract right against wife if she fails to make timely payments (but doesn’t have recourse against the house).

Question 1: Are there any issues I am missing?

As mentioned above, my friend obviously needs to run this whole thing (and the form docs I gave her) by a Nevada attorney familiar with BOTH real estate and family law. However, I would like to have given her relatively clear direction.

Question 2: Does anyone know such a lawyer in NV?

Thanks to all in advance for your help. I have been a regular reader (but not poster) of this website for over 6 months now, and am impressed by everyone’s knowledge and willingness to help!

Aurelia

Final note: I already posted this on the RE law list, but received no responses.

import · August 26, 2003, 4:07pm

Thanks for the great info everyone! (nt) - Posted by Aurelia

Posted by Aurelia on August 26, 2003 at 16:07:16:

no text

import · August 26, 2003, 4:00pm

Re: Land Trust Question - Posted by Thomas Standen

Posted by Thomas Standen on August 26, 2003 at 16:00:45:

I have found over the years when you have a question concerning the right, obligations, and duties of lenders, it is always appropriate to take a look at the statute concerning the issue.

I have listed the section from the due on sale section of the Code (Garn St. Germain Act) below. You will find the section concerning when transfers between spouses occur, the loan cannot be called due.

· United States Code
o TITLE 12 - BANKS AND BANKING
§ CHAPTER 13 - NATIONAL HOUSING

Sec. 1701j-3. Preemption of due-on-sale prohibitions
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon -

(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;

(2) the creation of a purchase money security interest for household appliances;

(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

(5) a transfer to a relative resulting from the death of a borrower;

(6) a transfer where the spouse or children of the borrower become an owner of the property;

(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;

(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or

(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

Hopefully this will be of assistance to you and others that may have the same problem.

Thomas K. Standen
North American Loan Servicing
tom@sellerloans.com

import · August 26, 2003, 3:56pm

Re: Land Trust Question - Posted by Jim FL

Posted by Jim FL on August 26, 2003 at 15:56:04:

Aurelia,
What you describe should work just fine.
However, placing the home into a trust for the purpose of getting around the DOSC is not needed.
Take a look with a search engine for the Garn St. Germaine act, this outlines the due on sale exemptions.
One of them is deeding the house to a relative, or spouse.
Hence the reason so many divorcing couples, one of them will quit claim their interest in the marital home to the other.
No due on sale violation.
Most people just do this that way.

However, getting the agreement in writing, with some recourse language to protect the husband does sound fair, to me anyway.

You are right to get an attny to handle this, but going to them armed with some ideas never hurts.

Good luck,
Jim FL

import · August 26, 2003, 1:37pm

Re: Land Trust Question - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 26, 2003 at 13:37:46:

Aurelia---------------

I’m not certain, but I think that a transfer between spouses is exempted from the loan being callable at sale. Thus, the DOSC is not enforceable, I believe. I am uncertain enough of this that I recommend studying the law and comments on it. Or getting an attorney’s view.

If I am correct, there is no need to mess around with a trust, trustee, and so on. The other steps might be sensible. I think the attorney should do more than just look at the documents, the attorney should also comment on the issue of transfer and so on.

Can your friend afford to make the payments on the loan? Divorce is one of the main reasons for foreclosure. And it is more often the female who loses the house on foreclosure than the male. Women still tend to earn less then men in this society and thus find it impossible to carry the loan on their own.

Women seem to liek to keep the house for security purposes. If they cannot afford the house, this is an illusion. If the divorcing woman cannot afford to make the mortgage payments it is probably better to sell the property and split up any cash proceeds.

Good Investing***********Ron Starr*************

import · August 26, 2003, 2:15pm

Re: Land Trust Question - Posted by Aurelia

Posted by Aurelia on August 26, 2003 at 14:15:34:

Thanks for the thoughtful comments – they are much appreciated!

I’ll suggest to my friend that she have an attorney investigate precisely the issue you raise (free transferability between spouses without tripping the DOSC). The bank had suggested she refinance in her name only (the house is currently in his name only), which is what she was trying to avoid. However, if she had some legal precedent she could show them she would probably have a better time of it.

I also believe she can afford payments – has a very good job – but another good issue that I will raise with her.

Again, thanks much! Ron, I am an avid reader of your posts and thankful of the time and energy you invest to help out those of us that are still learning the basics.