Sub-2 Concerns - Posted by Brian_wa

Posted by Innovator on December 29, 2005 at 09:59:50:

I don’t do CRE any other way either. Many have read about land trusts, studied them and maybe even used them. But few know that when properly structured and appended, there simply is no comparison to Bill Gatten’s Land Trust systems. Bill is the Rush Limbaugh of CRE. Not everyone agrees with Bill’s concepts just like everyone does not agree with Rush, but they are the best!

Sub-2 Concerns - Posted by Brian_wa

Posted by Brian_wa on December 26, 2005 at 21:19:19:

About 6 months ago, I did a sub-2 where I put the property into a
trust with my friend be the trustee then have the seller signed the
Beneficial interest over to me. Well, one benefit of doing it this
way was I didn’t have to pay for the excised tax when I went and
recorded the Warranty Deed to Trustee…

Well, after spending a month fixing this thing up, I was able to
find a buyer quickly. Two days before closing, an 8.5k judgment
popped up courtesy of the Seller and no matter how hard I tried to
explain to the title company that the previous owner/seller no
longer owned the house, they still didn’t provide a policy until I
got that judgment resolved. Well, I ended up making only 32k on
this deal instead of the anticipated 39k or so.

Now, I have another opportunity to do a couple more sub-2s but want
to make sure I get everything taken care of appropriately to prevent
things like this from happening again. I know that it would be
good to get title insurance but not sure how I could do it without
having to pay for the excised tax. I don’t want BKs and judgments
to mess up my sub-2s so do you happen to know of someone who is well
versed in this area who could help me?


Use an attorney - Posted by Marc Donovan

Posted by Marc Donovan on December 28, 2005 at 08:13:40:

And remember, they specialize. Find a real estate attorney. They will write your title insurance. No need for a title company. When you are dealing with a title agent you will often hear some pretty bizzarre stuff. Get a specialist and you will save a lot of dough in the end.

Re: Sub-2 Concerns - Posted by JohnBoy

Posted by JohnBoy on December 27, 2005 at 22:07:36:

It appears this all came down to when the lawsuit was actually filed VS when the judgement was entered VS when you recorded the trust taking title.

Do you know the dates?

Date the lawsuit was filed?
Date the judgement was entered?
Date the judgement was recorded?
Date you recorded the trust taking title?

Now if the lawsuit was filed on a date after you recorded the new deed then they had no recourse or right to place a lien on the property. You could probably force the creditor to pay that back if that is the case.

BTW, what was the judgement for? Credit card? Personal debt? Personal lawsuit over something? ???

Sub-2 - Posted by Nike

Posted by Nike on December 27, 2005 at 17:56:41:

If the lawsuit was filed at the time of the transfer (and it sounds like it was) then title is clouded pending litigation. Going forward you need to have a title search (including a search of the grantor) by someone who knows what they’re doing. Find an attorney who knows what they’re doing to help you sort these issues out until you know what you’re doing.

Re: Sub-2 Concerns - Posted by ken

Posted by ken on December 27, 2005 at 16:55:47:

My title rep would have wrote the policy for me.Basically the property was sold before the judgement hit it really does not matter to who.I have dealt with the same title rep for 10 years and he is very knowledgable.That is way i deal with him.Also if there was still a problem you should have put the money in escrow and tried to pay off the lien at a discount

And the rest of the story is… - Posted by Jim FL

Posted by Jim FL on December 27, 2005 at 12:48:08:

There seems to be something missing here.
I read the entire thread, and tried to see if I missed something along the way.
I did not, because it was not posted.

So, here is my question…when did the seller get this judgement levied against them?
Was it BEFORE you bought their house?
If so, then yes, it most likely attached to the property, and came along with the title, therefore you were forced to pay it off to get clear title to pass to your buyers.

IF the judgement was granted by the courts AFTER the sellers sold the house to you, no matter what method you used to take title, then yes, it’s time for a new title company.

Others have sent you toward Chicago Title, this is where I’d send you as well.
Aside from that, get yourself a good RE attny to represent you at closings, and make sure things go as planned.
Educate them if need be, and remind them constantly that they work for YOU.

The other thing that comes to mind, did you at the very least perform a title search on the property? (not your own, but pay a pro to do it?)
Obtain title insurance when you purchased?
That would have shown the condition of title, and all encumbrances.

Bottom line, sounds to me like title was not checked properly, and the lien was in place when you purchased.
The good news is that you followed the golden rule of buying right in the first place, so that lein did not prevent you from making a nice profit anyway.
The thing is, what if it was larger, and you lost money?

Next time, check title, and use your own attny to close when you sell.

Like I said, something is just missing in this picture. I’ve done my fair share of subject to deals, and NEVER had anyone attach anything to a property, once I’ve bought it, without my consent.

By the way, you mentioned in a post here that this has happened to you twice on subject to deals?
Sounds like there is surely something missing in your buying process.

Perhaps if you laid out, in detail, your actions taken to acquire the properties subject to, we can see what/where went wrong?

I see no issue with how you took title, using a trust, a third party trustee, and the beneficial interest assignment to you.
Whatever WAREIA said, disregard, they are on a kick for a different product/method for buying subject to, and dead wrong. Your process was right, just missing a piece along the way, in my opinion.

So, do tell, and we’ll see what you are missing.

I’m still betting it has to do with the title research or lack-thereof during the buying process.

Jim FL

Re: Sub-2 Concerns - Posted by george

Posted by george on December 27, 2005 at 11:21:25:

Is this hypothetical, or did this actually happen? Sounds like the question you asked a couple of days ago.

The fact is, either way, once you have the deed recorded, the sellers old liens can not stick, regardless of what type ownership entity you use.


Re: Sub-2 Concerns - Posted by whyK-CA

Posted by whyK-CA on December 27, 2005 at 01:24:25:

I gota ask?c what was the response or explanation from the title company when you explained them that former owner no longer own the place? Did they tell you to prove it (which you easily could) or did they just tell you to ?gpay or else??h Maybe the problem wasn?ft how you did the trust, it was the title company?c

Re: Sub-2 Concerns - Posted by WAREIA

Posted by WAREIA on December 27, 2005 at 24:14:03:

This would not and could not have happened if you had done the Trust correctly.

First, you should never make another individual a Trustee.

Second, never have the Seller grant you all their Beneficial Interest.

Once a Property is properly conveyed to a Trustee and the Trustee knows what the heck they are doing, no creditor, not even the IRS can place a Judgment against the propety.

There is no need to get a new Title Policy when using a Land Trust so long as the Seller, now Grantor, remains a Beneficiary. When the Trustee is directed to sell the property the Buyer will get a new Lender Policy and the Seller/Trustee will get a new Buyer Policy. If the Title was clear at the time it was granted to the Trustee the only way a lien can be placed on the property is to go to court and prove the Trust invalid.

One of the ways it may be made invalid is if your “friend” is the Trustee. One because of your relationship with him and another because he may not qualify.

Re: Use an attorney - Posted by Joe Kaiser

Posted by Joe Kaiser on December 28, 2005 at 21:54:02:

We don’t have attorneys issuing title insurance in Washington, Brian.

Re: Use an attorney - Posted by WAREIA

Posted by WAREIA on December 28, 2005 at 13:07:05:

Best suggestion I’ve heard yet. Thanks Marc.

Re: And the rest of the story is… - Posted by Brian_wa

Posted by Brian_wa on December 27, 2005 at 13:27:58:

Here was the process I went through to take property sub-2:

  1. After signing P&S, I got a title report from a title company which was clean (no judgments)
  2. Asked seller to sign “warrantee deed to trustee”, Assignment of Beneficial Interest, and everything else at the kitchen table
  3. Went and recorded the Deed (paid no transfer taxes of course)
  4. Fixed up the house
  5. During selling process, judgment got recorded by some attorneys
  6. Went to closing, ended up having to pay for judgment


Re: Sub-2 Concerns - Posted by Brian_wa

Posted by Brian_wa on December 27, 2005 at 11:59:19:

It’s not hypothetical. It happened to me twice already.


Re: Sub-2 Concerns - Posted by Brian_wa

Posted by Brian_wa on December 27, 2005 at 02:46:53:

I explained to several title companies that the previous owner is no longer the owner. The trust owns it. However, they didn’t care. They all told me the owner simply transferred the title into the trust simply to avoid the impending judgments… If you could give me the number to one national title company that would disregard the judgment(s), I’d really appreciate it.


Re: Sub-2 Concerns - Posted by JohnBoy

Posted by JohnBoy on December 27, 2005 at 21:41:40:

If the seller remained a beneficiary then they could have attached the seller’s beneficial interest in the trust and the judgement would have had to of been paid from his share of the trust.

Also, had the seller remained a beneficiary of the trust this would have cost him more than the $8500 he had to pay to satisfy the judgement. The seller would have had to retain at least 10% of the beneficial interest to accomplish what you are doing using your method. The sale price was $139k. So the seller would have gotten $13,900 from the sale for his share of the beneficial interest. $8,500 would have went to satisfy his judgement leaving the seller with $5,400 left for his share. So in this case it only cost Brian $8,500 instead of $13,900 had he allowed the seller to remain a beneficiary owning at least the 10% required.

BTW, the ONLY purpose of having the seller remain “A” beneficiary is to avoid the DOSC. It serves absolutely no other purpose. This was not an issue over the DOSC. It was over a judgement against the seller which would have still had to of been addressed had the seller remained a beneficiary.

The only thing it does do is it prevents a creditor from being able to force a sale of the property because of having multiple beneficiaries involved. But a lien against the trust could still be attached attaching the seller’s share of their beneficial interest in the trust. Only if the creditor had no knowledge of the seller being a beneficiary of the trust would prevent that.

Also, it depends on when the suit was filed VS when the property was transferred VS when the judgement was entered VS what state it is in. So even using your method would not prevent this depending on when everything transpired. In most States you can not escape a judgement lien against your `assets by placing them into a trust or selling them to avoid losing it in a lawsuit. So even if this was done with your method the transfer could be recinded and the lien attaches.

Re: Sub-2 Concerns - Posted by Brian_wa

Posted by Brian_wa on December 27, 2005 at 14:09:33:

Name me one title company that would agree to what you claimed. If you live somewhere in Seattle, I’d be happy to take you out to a nice dinner if you could help me with this.


Re: Sub-2 Concerns - Posted by Phil

Posted by Phil on December 27, 2005 at 12:08:26:

Superbly said!

Re: Use an attorney - Posted by Marc Donovan

Posted by Marc Donovan on December 29, 2005 at 07:49:59:

Well if you want to pick nits, my attorney does not write the policy, its underwritten through Attorneys Title Fund, but yes he does do my closings and I walk away with title insurance.

What about these guys?

How can these attorneys offer escrow and closing services without providing some way to get title insurance?

By the way, I still want to learn how you make 10X your investment on your deals. Noticed you got real quiet when Michaela called you on it.

Re: Use an attorney - Posted by WAREIA

Posted by WAREIA on December 28, 2005 at 22:24:36:


Does that mean they don’t or they can’t? If so why can’t they.