Posted by Brian W(IN) on December 02, 1999 at 11:58:29:
Jim, thanks for the responding story. I know exactly where you are coming from. Let me ask you one last question if I may. You mentioned that if I did straight options that I may or may not run into problems. Well, I have chosen to pursue only assignment options and sandwich lease options. Do you see any potential “Due On Sale” clause problems with these type of deals? If so, then problems might I face? Thanks again for your responses.
PAC Trusts and lease options. What gives? - Posted by Emmett-NC
Posted by Emmett-NC on December 01, 1999 at 17:26:25:
I just finished reading “No Down, No New Loan” by the illustrious Bill Gatten. I loved the book, especially thee motivational phrases on some of the pages. Great info. My question is what is the utility of the PAC trust? It seems to be a cash cow producer and not a quick flip mechanism. Am I right on that? Also, it seems to bash lease options. They are taught like the gospel on here. Some general comments would be appreciated. Thanks!
Emmett-NC
Re: PAC Trusts and lease options. What gives? - Posted by Bill Gatten
Posted by Bill Gatten on December 01, 1999 at 20:12:55:
Emmett,
Want a confession? OK, when I wrote the book, my intentions was to point out the inherent dangers in creative financing in general (Lease Option, Wraps, Contract, Equity Shares, etc. and how virtually all of them can be overcome by using a combination the Land Trust, Assignment, Beneficiary Agreement, Triple Net Lease, Power of Attorney, etc.). And? to show how the PACTrust™ itself would help to ameliorate some (if not all) of the problems that do exist with them. I honestly never mean to “bash” anyone’s product…in all candor, at the time, I had never heard of Bill Bronchik, Ron Le Grand, Joe Kaiser, Claude Diamond, AD Kessler, etc. (to name some good ones). However, since becoming acquainted with these people to some degree here on CRE, and hearing from proponents of L/O’s (Piper, Branstetter, Crouch, Garcia, and the like) I have developed a true respect for their ideas and their integrity ('don’t know Le Grand as well as the others, but I’m sure he’s a “good guy” too).
So let me say that if any of the following items create a problem (of if you care one way or the other), they can be mitigated or eliminated through the use of the combination of documents (“system”) known as the NARS PACTrust(tm. Don’t men to be haughty or know-it-all, 'ner none of that:
Seller won’t budge for fear of the Due-on-Sale Clause, a buyer wont budge for the same reason.
Due-on-Sale concerns you, as an investor, irrespective of how benign some might insist it is (or how benign it may be).
Fear of putting someone else on title is costing you a property in a seller-carry opportunity (or a buyer in a sandwich opportunity)
Fear of your optionor’s liens, suits, judgements, BKs, marital disputes, tax liens or probate proceedings is preventing you from entering an option agreement (or perhaps a fear by the optionor that the optionee might create a cloud on his title by virtue of the option being a an asset that could become a part of someone’s personal, legal or tax problems)
The rents are not high enough to voer the nut, without being able to “sell” or “trade” the income tax deduction to the tenant (an you thank of another way to sell or trade income tax write-off to someone who is not on the loan or on the title?)
You as an optionor are concerned about 1031 tax-exchange consequences of missing your 180 window by creating a constructive Sales Contract (re. Lease “Purchase” Agreement.
You would like a way to create more income and a higher sale price and more cash up front that an option would likely provide (one I did a year or so ago for a client netted the “optionor (resident beneficiary)” $280,000 cash up front (on a $900K property that would normally have old for $800 or less).
There are dozen more of these, as you know Emmitt, but they are legitimate benefits, features and/or advantages only if you are concerned about them relative to the way you do business. No offense to anyone?honestly.
In the 60’s, a popular (in some circles) was: “A Citroen is definitely not as attractive as a Cadillac, but it will straddle more humps and climb more hills and lift its own wheel up to help you change a tire.” (There’s a connection there somewhere?though you may have to think about it for a while). .
Bill Gatten
Re: PAC Trusts and lease options. What gives? - Posted by Brian (IN)
Posted by Brian (IN) on December 02, 1999 at 10:19:40:
I just have one question. If doing Lease-Option deals is so “legally dangerous”, then why are there so many people, including ones who frequently appear on this site, so successful in doing these types of deals? Why haven’t they reported problems with the “Due On Sale” clause that you speak about? This question is geared towards anyone who wants to respond.
Re: PAC Trusts and lease options. What gives? - Posted by Steve Heller
Posted by Steve Heller on December 01, 1999 at 20:31:34:
Will your PACTrust work with a mobile home? I have your book. What forms would I need to make it work?
Thanks,
Steve Heller
Re: PAC Trusts and lease options. What gives? - Posted by Bill Gatten
Posted by Bill Gatten on December 02, 1999 at 14:59:53:
Brian,
This is not a long post–just a ho bunch of short ones.
The fact (FACT) is that a properly done Lease Option will most likely never get you into a problem with a DOS violation…another fact is that it’s possible that one “could” do so. And it is this second fact that most often sticks in the craw of the reluctant or reticent seller (optionor), or reluctant buyer/optionee (who’s brother-in-law with a 2-day-old Real Estate License is telling him “facts” about the Garn St. Germain Act, and Due-on-Sale clauses, and what an opportunist you are being at his brother’s expense).
As Bill Bronchik has said many times, “There is no Due on Sale Jail.” If you get “caught,” you merely have to pay off the loan and get a new one. I agree whole-heartedly with that, albeit it is somewhat difficult for someone whose purpose in doing the L/O because they couldn’t afford or qualify for a loan in the first place…and who may be about to lose $10,000-20,000 in equity).
Personally, I don’t worry about the DOS either (though I have had two of them called on creative financing deals [wraps] that I got into several years ago). I don’t worry because I learned my lesson the hard way, and now make certain that payments are made on time, and that the the insurance and property tax are always current. And I don’t do anything that is likely to tick 'em off or create a DOS violation. But…what would happen in a Lease Option if I wasn’t quite so meticulous? If you, yourself, were in the middle of a Sandwich L/O deal, what would happen if your optionee screwed up…what would happen if your optionor did? What if the bank wouldn’t reinstate a low interest rate loan following discovery of an unauthorized transfer of title or extension of a lease in excess of 3 years, or an option to acquire title at a specific price? (Then, again, what if there was no unauthorized transfer).
My very most honestest and candidest advice of all…if L/O’s work for you, and you’re not concerned about the DOS (“DOS? What DOS? We don’t need no @#$% DOS’s”)…then check to see if L/O’s might provide any other disadvantages or short-falls that could be overcome by a 3rd-party trustee, co-beneficiary land trust conveyance (i.e. PACTrust™. Or… check to see whether L/O’s have an advantages that a PACTrust™ doesn’t (?don’t cite simplicity or cost here, because neither program has a benefit over the other in those regards, assuming equal education and experience in both).
In closing, let me say that I agree with your position to this extent: You and I don’t wear life jackets on pleasure cruises ('cause we’re not afraid). But…in all candor, wouldn’t it be comforting to at least know where they are kept…or wouldn’t it be LESS comforting NOT to know where they are kept (?much less knowing for certain that there aren’t any at all)? And, of course, we all know that passenger liners never sink. And that even if one ever did, we probably wouldn’t be on that one: so 'no reason to seek out the life jacket storage compartment. Right?
Confession: On cross country airline flights…I don’t pay any attention to that baloney about the oxygen bag dropping down and where the safety doors are…I know lots of people who have flown lots of times, and have never known of anyone who was ever in a crash…not one single time. If I’m ever in a crash, there’ll should be ample time to do something about it during the plummeting part. And like your original question: If there was a chance of crashing why would so many people fly every day?
Bill
Re: PAC Trusts and lease options. What gives? - Posted by Jim Pasquini
Posted by Jim Pasquini on December 02, 1999 at 11:11:18:
Let me share a story with you…
In restoring old cars, one of the areas you check is the fuel tank. Now, right or wrong, a lot of people doing this kind of work check the integrity of the fuel tank by emptying it and using a match to waft around the tank looking for leaks. Understand something here…fuel burns and vapor explodes. Either way its bad. Not too long ago out here in Camarillo, CA two experienced guys from Muffler Time, a respected custom shop, were checking a fuel tank this way. Long story short it blew up in their faces and they got messed up pretty good and are lucky to be alive. Did they check it this way because they were stupid? In hind sight, hell yeah! Did they do it this way because it was the best way? I don’t think so. I think they used that method because it was what they knew and either didn’t know about or disregarded the potential problems. I am sure they checked tanks that way many times previously. Even if you do it right and are very experienced there is still potential for trouble.
There are certain things I don’t do ostensibly because I know the consequences: have extra-marital sex, do drugs, drink and drive, spit in the wind, tug on Superman’s cape, pull the mask off the Lone Ranger…you get the picture. Am I telling you not to do lease options? Not in the least. Just understand that if you choose to do straight lease options there are potential problems whether you ever experience them or not.
Re: PAC Trusts and lease options. What gives? - Posted by Bill Gatten
Posted by Bill Gatten on December 02, 1999 at 11:09:22:
Hi Steve,
The PACTrust™ involves a land trust, which can hold only real estate. The system would work with a mobile home only if the home can be transferred by a grant deed or warranty deed; or If the mobile home wee to be situated on land that can be (i.e., if the same party owns both). In that event the land can be put into a PACTrust™ and the mobile home would merely be an appurtenance thereto.
However, Bill Bronchiks land trust materials do contain an excellent personal property trust agreement that might work for you. The only problem, were there to be one, might lie in being able to legitimately pass tax deduction benefits to a resident co-beneficiary ('probably could, but I haven’t looked into it).
Bill