Posted by Rob FL on November 08, 1998 at 20:52:34:
Need Some Advice - Posted by Scott(AK)
Posted by Scott(AK) on November 05, 1998 at 15:20:09:
I got a call on my ad that I would like to get some advice from you folks with.
The caller has a 4/2.5/2 in a upper class area of the city. The home was appraissed just this year at $239K. The seller has a first and a sencond on the home.
The balance on the 1st and 2nd combined is right at $180K. The payments are 1st: $1520, 2nd $571 for 7 more years.
All payments are currant at this time but the seller says that on November 15, 1998 he will probably be behind on the payments as he doesn’t think he will be able to make it.
He needs to do something with the home because he is recently divorced and is getting ready to get tagged with a lien from the city. He is behind in his child support payments it appears. He said the lien is a few weeks away at most. So he is motivated.
He said on the phone he would like to pay off the 1st and 2nd and put some money inhis pocket. He mentioned $20K but I am not looking at that much. He is flexible. He knows he needs to leave something in it for me, I made that clear. But even at his numbers we are looking at $39K.
I was wondering how one would stucture something on this deal. I do not want to be responsible for that $2091 payment each month either.
Any suggestions would be greatly appreciated.
A brighter tomorrow awaits - land trust - Posted by Bill Gatten
Posted by Bill Gatten on November 08, 1998 at 18:54:11:
Not advice, but what I would do (and am happy to do tomorrow… in a heartbeat).
Agree that you’ll take the property over, but that he (the seller) will continue making the payments on the second, and receive the other half of his “$10,000” (not $20,000) only after having done so for a year (the $5K will make a lot of 2nd TD payments if he defaults); you then take the following steps.
#1. Have the property placed into a title-holding trust in the owner’s (sellers) own name, appointing a 3rd party corporate trustee (a corporation to guard against a trustee’s dying and having the trust tied up in probate).
#2 Have the seller then (after the trust is created and title transferred to his trust) assign you a 90% co-beneficiary interest in the trust, with an agreement to forfeit his 10% when the trust is terminated, and the property disposed of (i.e., to avoid due-on-sale violation and avoid reassessment for property tax, he needs to hold an interest; and the IRS requires that no beneficiary hold less than 10%; but there’s nothing to prevent him from giving you the 10% at a later date).
This process now gives you the property without much cash outlay (Closing Costs and trust set-up fee only), and without needing to deal with the lender; and it protects the property and you from the seller’s marital and financial problems (the ownership is hidden and co-beneficiary interest in a land trust is not partitionable by judgement creditors). His ex will, however, need to either 1) quitclaim it to him before the trust is set up, or 2) sign on the transfer into the trust (No. 2 is best).
#3 Next, you execute an Agreement of Possession (lease) with the trustee: a triple net lease in conjunction with your land trust interest gives you all the rights of tax deduction and the entire “Bundle of Rights” in fee-simple, or fee-defeasible real estate ownership.
The whole process takes about a week, and you are now free to: #1) place an ad in the paper for a 50:50 “equity share” participant (e.g. a 3rd beneficiary to whom you can sell all tax deductions and benefits of ownership in exchange for his/her agreement to care for the property & make all payments with a pos. c.f. to you) and freeze your equity and future profits; or 2) you can just lease or lease option it; or 3) you can take your time and sell the property and collect your profits now. E-mail me for the names of national escrow cos., title cos, trustees and facilitators who will do all of this for you.
Re: Need Some Advice - Posted by phil fernandez
Posted by phil fernandez on November 05, 1998 at 18:34:20:
What I would do here is tell the seller that you can save his credit but that would be it. He needs the relief not you. You are solving his problem and need to be compensated for that ie. that extra $20,000 of equity that the seller wants.
Without you the seller will default. I don’t think he is in the position to demand walking money of $20,000.
Re: Need Some Advice - Posted by Redline
Posted by Redline on November 05, 1998 at 15:56:07:
You first need to look at the place and see if it needs any work - and how much work. That’s going to influence the price you’d pay for this house. Also you don’t know if he has any leins right now and how much they are. What leins is he expecting? I’m still thinking about what would make sense …
However, be careful here. This guy seems too willing to walk away from his house. Why doesn’t he just sell the place traditionally with a good price, pay his loans and walk away? Be careful. Is his divorce final? If not I would make sure he’s not trying to pull a fast one on his wife - and you!
Re: A brighter tomorrow awaits - land trust - Posted by Rob FL
Posted by Rob FL on November 08, 1998 at 19:58:19:
After doing all this fancy footwork, what happens if the seller who still has a 10% interest in the trust files Chapter 7 bankruptcy. Will this be a fraudulent conveyance? Will the bankruptcy court liquidate the trust? What happens if the seller wants to move to Albania? Can I terminate the trust if seller disappears or dies?
All the articles on this site seem to make this much simpler than you do. Thanks for the input.
Re: Need Some Advice - Posted by Erskine
Posted by Erskine on November 08, 1998 at 08:41:13:
How would you structure your “relief plan” for this homeowner?
Re: A Brighter Tomorrow Dims - Sorry - Posted by Bill Gatten
Posted by Bill Gatten on November 08, 1998 at 20:38:53:
Not to spend another hour and a half at this, and belaboring the issue… but… to answer your questions:
BANKRUPTCY - The trust arrangement I described protects you against a co-beneficiary’s bankruptcy (that’s a main reason for use of the trust in the first place)
FRAUDULENT TRANSFER - The bankruptcy court cannot get to the property in a properly drawn co-beneficiary land trust (review the several posts here on Partition and Co-beneficiary Land Trusts). The seller could be guilty of Fraud, but it wouldn’t affect you or the trust property (not necessarily the case with L/O’s AITD’s, Land Contracts, Eqity Shares and the like).
DEATHOF A BENEFICIARY - Whether the seller dissappears or dies, has no bearing on the trust and/or the disposition of the property at its termination (I’ve done 500 of of them so far, and have had lots of sellers dissappear… nobody cares)… they don’t own it or control it after it goes into the trust… your trustee does (via a Mutual Power of Direction by the beneficiaries up front), and you direct your trustee in advance as to how you want the trust and the property dealt with. Whether the other dies, or not, the contract remains the same and the dispostion and termination proceeds in exactly the same manner.
FANCY FOOTWORK - The reason for handling a transaction this way (like the one you described) is to avoid all that “fancy footwork” to which you refer, and the legal pitfalls of other–perhaps simpler sounding–options.
CORNY HOMILE: Don’t forget…hang gliders are cheaper and simpler than Lear Jets: your choice 'depends on where you want to end up and how intrepid your are I guess.