Re: Land Trusts: Changing Beneficial Interests - Posted by JPiper
Posted by JPiper on March 29, 1999 at 21:03:18:
Thanks for your comments. My view would be that if you notice misinformation that I would welcome your correcting it.
What implications/penalties/problems arise out of a “dry trust”…one in which the trustee is given no function other than holding title.
Also, I’m assuming that the beneficiary can collect rent with no problem…is that correct?
JPiper
Re: Land Trusts: Changing Beneficial Interests - Posted by JPiper
Posted by JPiper on March 29, 1999 at 14:50:17:
Thanks for your answer Stacy. Does Legrand also require a tenant/buyer under a lease/option to agree to assume or refi if the loan if called? If so, this would seem to turn the “option” into something other than an option?..thereby turning the lease/option into something looking like a purchase or equitable title situation. If he doesn’t require the tenant/buyer to sign such a document but only the seller, how does he handle his liability to the tenant/buyer under the lease/option contract?
The other question I would have is presumably that Legrand would have entered into this “subject to” deal to begin with because there was a significant profit incentive. How does Legrand cover the question that arises about why it would be preferably not to assume or refi himself in order to retain a deal that is profitable?
JPiper
Re: Land Trusts: Changing Beneficial Interests - Posted by Bill Gatten
Posted by Bill Gatten on March 30, 1999 at 14:52:33:
Jim,
Re. the 2nd part of the exemption (GSG)…
When creating the land trust, the trust itself does not (should/must not) relate to a transfer beneficiary interest OR occupancy rights. If a beneficiary is to take occupancy, the transfers are each done via separate agreements (Assignment Agreement and Occupancy Agreement). If you, yourself, are acquiring a property to rent or lease out, it’s the tenancy agreement itself that conveys the occupancy rights, not the trust.
Think about it: How many people do you know who hold income properties in living trusts? Wouldn’t all of them be in violation if the DOS admonition were taken to mean that a property couldn’t be placed into the trust, then leased out; or that a leased property couldn’t be placed into a trust?
Regarding the question of what would happen if a lender were to deem the assignment of beneficiary interest as a DOS violation: Yes. One would probably have to bring suit to stem foreclosure proceedings; and though he/she would be “virtually” certain to win the case: based upon precedents in other states, the process could prove expensive.
In most states land trusts are only statutory, and not specifically authorized and protected under legislation (i.e., by an Act of Congress); and the outcome of such a court case could never be foreseen with absolute certainty. In this regard, we only have history, logic and the fiction of law to rely upon. And that is to say: it has never happened; it would be very unlikely to happen; and “probably” couldn’t happen. And even it did happen, the lender would have to prove that it happened and demonstrate how it had been injured; and how its security interests were compromised or impinged upon.
Jim, all of this is why we say, let the borrower stay on as beneficiary (in part) and retain mutual voting rights. Anything the co-beneficiary would want to avoid voting on (remodeling, increasing rents, early termination, etc.) can easily be spelled out in advance without compromising ones autonomy. This way there clearly has been no divestiture or ownership or control beyond the owner’s own trust. As far as a partial assignment of beneficiary interest is concerned, that’s always prudent when dealing with a land trust, in order to invoke the protection of non-partionability of personalty.
Regarding the insurance issue, in our program (or yours) the seller merely converts his homeowner’s insurance to a non-resident policy, naming the trust as loss payee. The trustee is then mutually directed in advance by both beneficiaries, that any insurance moneys received by the trustee are to be remitted directly to the injured co-beneficiary. If the co-beneficiary is also to be a resident in the property, he/she will, of course, order their own contents coverage in their own name.
Bill
Re: Land Trusts: Changing Beneficial Interests - Posted by ScottE
Posted by ScottE on March 29, 1999 at 24:30:07:
Good point, Jim. Besides, I was thinking the ol’ bankers were sharper than the average bowling ball.
Shame on me.
Scott
The Missing Link…Many Thanks! - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on March 28, 1999 at 18:55:35:
Jim,
That clears up the whole process for me.
Thanks so much.
Bill K. (AZ)
Re: Deciding what’s right for you. - Posted by Bill Gatten
Posted by Bill Gatten on March 30, 1999 at 08:20:10:
John,
I agree. What others “think” should always be shared and welcomed without criticism… right or wrong: while what others “promulgate” should be looked at with skepticism, and corrected (or rectified) when and IF necessary by those whom may have taken the time and effort to study the facts more carefully.
If someone choses to take the posture that something harmful “could” happen, but probably won’t… my posts are not intended to affect them one way or another, and I wish them the best. Though in MY OPINION, it’s like saying, as long as you don’t get audited, you can take any tax write-off you want. Leona Helmsley lived quite well before her audit, as I recall.
Bill
BTW, in spelling “PACTrust™,” we capitalize the first four letters as an acronym. 
Re: Land Trusts: Changing Beneficial Interests - Posted by Bill Gatten
Posted by Bill Gatten on March 30, 1999 at 07:29:20:
JPiper,
As you know, were a trust to be deemed “dry,” its protections and intent would be lost (e.g., re. non-partionbility, flow-through of tax benefits, protection from probate tax, ancillary administration rights, etc.).
Re. collecting rents, I’m sure the validity of a trust’s structure wouldn’t create a problem, though the protections and primary reasons for the trust would be lost.
Bill
Re: Land Trusts: Changing Beneficial Interests - Posted by Jim Beavens
Posted by Jim Beavens on March 29, 1999 at 17:42:24:
Excuse me while I jump in and answer this, as I just finished both LeGrand’s FSBO and lease/option modules over the weekend.
Unfortunately, the two concepts of getting a deed subject to and lease-optioning are never really talked about at the same time, since he organizes the course material as modules. In one he talks about seller financing and obtaining deeds subject to and then selling on a wrap, while in the other he talks about buying and selling with lease-options.
The truth is he doesn’t really put much emphasis on obtaining a deed subject to. He only really mentions this option when talking about a seller who doesn’t care about their credit and is ready to walk away anyway. He’s much more interested in finding a seller with a non-qualifying assumable FHA or VA loan. From what I can gather, the course materials were recorded in about the 1994-1995 timeframe, so such loans were probably a little more prevalent then. He emphasized taking a deed subject to much more in his short presentation at the Dallas convention, so chances are that as time goes on, he utilizes this more and more. But we’ll probably never know unless one of us attends his boot camp.
As for why he doesn’t assume or refi himself, he makes a point of saying many times that he has no interest in dealing with any bank for any reason, and if that’s a requirement for getting a deal done then he’ll go on to the next deal. He’s pretty adamant about that.
Re: Land Trusts: Changing Beneficial Interests - Posted by Rob FL
Posted by Rob FL on March 30, 1999 at 19:32:51:
Bill, if the trust is the loss payee on the insurance policy, and a check is cut by the insurance company to “Bill Gatten, trustee of the ABC Trust,” how do you cash or deposit the check? Do you have a separate account for every trust? Just curious as to your thoughts. BTW I just ordered your book and am interested in what all you have to say.
Re: Land Trusts: Changing Beneficial Interests - Posted by Stacy (AZ)
Posted by Stacy (AZ) on March 29, 1999 at 19:19:10:
Jim P, and Jim B-
I’m not as far into the course as Jim Beavens, so I’m afraid I can’t answer your questions regarding L/Os. However, LeGrand is very much against any personal liability in any of his deals, if at all possible. Also, as Jim Beavens stated, he is against going to a bank for any reason other than to get your buyer qualified for a new loan or refi.
So, what I get out of his methods, is that he wants to be quickly in and quickly out, and quickly to the next deal, with as much safety as possible. I’ve heard him mention that he always wants to avoid signing personally for anything, specifically bank loans. A possible exception may be for properties he decides to hold, but this is just my take on what I’ve been reading and hearing on his tapes.
It does seem tht he could get more money out of some deals by refinancing himself, but I think he just wants the two primaries (seller and ultimate buyer) to assume the risk, since they are really the ones with the most interest and responsibility in the property.
And, you know, I can’t argue with that. It’s just his particular method.
Stacy
Re: Land Trusts: Changing Beneficial Interests - Posted by Bill Gatten
Posted by Bill Gatten on March 30, 1999 at 21:02:47:
Rob,
Thanks so much.
Re. your question… No, our corporate trustee has one main account, from which all disbursments and settlements are made on behalf of all beneficiaries of all the trusts they represent. For a single trust, you could open an account for that trust with a designated signatory; or the trustee, if functioning for several trusts could operate out of a single trust account, with internal accounting budgets for each individual trust.
Bill
Re: Land Trusts: Changing Beneficial Interests - Posted by JPiper
Posted by JPiper on March 29, 1999 at 20:43:32:
My question was not particularly about why Legrand would not refi under most circumstances. I understand his point. Rather the question was more about why he wouldn’t refi when and if a loan was accelerated. My view would be that he does have an interest (assuming he is still in the deal, and had a meaningful profit to begin with), and that particularly in the case of a lease/option to his tenant/buyer he does have a responsibility. After all he did make a deal with the tenant to deliver a deed under certain circumstances. The fact is that he could have involved 2 parties in a transaction with him as a middleman, neither of whom have the ability to refinance. While I can appreciate his desire not to incur any personal liability, it’s hard to appreciate where his sense of responsibility begins and ends. Just my view.
I might add that making this refinancing a responsibility of the new tenant/buyer seemingly recharacterizes the nature of an option. Under certain circumstances (an acceleration), the tenant no longer has an option, but an obligation, to exercise. One wonders whether making these sort of obligations a part of the tenant’s responsibility would work against Legrand under other circumstances…like the IRS view of whether it was a lease or a sale, and like whether the court would want an eviction rather than a judicial foreclosure. Points to ponder.
JPiper
Re: Land Trusts: Changing Beneficial Interests - Posted by Alex Gurevich, TX
Posted by Alex Gurevich, TX on March 31, 1999 at 11:45:08:
>>One wonders whether making these sort of
>>obligations a part of the tenant’s responsibility
>>would work against Legrand under other
>>circumstances…like the IRS view of whether it was a
>>lease or a sale, and like whether the court would
>>want an eviction rather than a judicial foreclosure.
Jim,
I think you may be misinterpreting the intent. I don’t believe the lease vs. sale consideration will even enter the picture.
LeGrand makes deals with the disclosure of the risks involved to seller and to buyer on the respective transactions. On a purchase, a seller assumes a risk of the loan being called due, and no promises are made of buyer (LeGrand) assuming or refinancing the loan if called.
On a sale, a buyer gets a disclosure about the due on sale on the underlying financing and the fact that seller(LeGrand) may not or will not be able to refi. The buyer has to assume the risk of losing the home if that happens, (which is not a high risk, although theoretically possible).
The buyer is NOT required to refinance. So, there’s no reclassification of a lease into sale.
Re: Land Trusts: Changing Beneficial Interests - Posted by Jim Beavens
Posted by Jim Beavens on March 31, 1999 at 18:03:56:
I don’t think Jim’s talking about the lease, I think he’s talking about the option. By signing a disclosure stating that they may lose the home, then that effectively makes it something other than a unilateral option agreement. You are no longer guaranteeing them that they can buy that home within the next year, despite what your option agreement says. I’m not sure what the implications of this are, but it sure sounds confusing and may raise a red flag to a judge (the only thing I could think of would be that the tenant could move out and decide they want their option money back, and they would have a leg to stand on since they could say it wasn’t a true option because they may have had to leave at any time).
My conclusion from this is that if you’re going to take a deed subject to, having your buyer sign a disclosure is fine if you’re selling them the house, because it’s only mirroring what is in the deed anyway (title is transferred subject to existing loan). However such a disclosure may nullify an option agreement. This can be remedied by either not lease-optioning a house that you’ve taken subject to if you’re dead set on having no liability, or by lease-optioning to a buyer without the disclosure and accepting the fact that you’re responsible for solving the tenant’s problem if the loan is called due (which makes sense to me).
This also begs the question of how such a disclosure would affect a land contract, like Bronchick suggests doing in his Cash Cow course. I haven’t gotten through those materials yet, and am not as familiar with land contracts, so I’ll defer to someone else there.
This is only my uneducated opinion.
By the way, at no point does LeGrand imply that if something goes wrong then it’s everybody else’s problem. His attitude seems to be that if he can set everything up so that he can’t lose, then he can be much more agressive in solving any problems that arise (ie, working out of a position of power rather than a fear that you’ll get in trouble). He makes it very clear that one should do the right thing whenever possible. I think the disclosure is just there as a last resort.