Subject To/Land Trust question - Posted by will

Posted by My view on September 24, 2003 at 12:16:28:

“How would the state or county know since it isn’t a recorded instrument?”

Pay the transfer when your buyer exercises. They get enough taxes then. Greedy ba$tards anyway.

Subject To/Land Trust question - Posted by will

Posted by will on September 23, 2003 at 19:38:52:

I have a Subject To question for my fella investors.

When you take the property Subject-To using a Land Trust, can the seller take out a loan or declare bankrupcy, or place any other liens or judgments after the seller assigned the beneficiary interest of the Trust to you?

I assume they can’t because they are not the legal owner, but can a 3rd party mistakenly put a lien or judgment or anything else that can cloud the title by accident since the only thing that is recorded is Grant Deed into the Trust(for estate planning purpose)?

Thanks.

Re: Subject To/Land Trust question - Posted by Jim FL

Posted by Jim FL on September 23, 2003 at 19:49:56:

will,
Once the seller signs a deed, conveying title to the land trust, and then assigns beneficial interest in the trust to you, they no longer own the house.
They cannot encumber the house at all.
The loan remains in their name, sure, but the house which is collateral for that loan, belongs to the land trust.

Now, the sellers can file a BK, and this might effect your deal.
If the deal was immediately followed by a BK filing, then the court might look at the sale as hiding or transferring assets, making the courts reverse the sale,but not likely.

If the sellers do file BK, well after the sale, and include the loan on the house, just make sure the lender continues to take payments.
I’ve got a few like this, and love them really.
Nice owner occupied loan rates, plenty of equity, and the sellers are not responsible credit wise for the loans.
They can sit there as rentals forever if I let them.

The house is yours after you buy it this way, so don’t sweat the sellers trying to get a loan against it, they cannot.

HTH,
Jim FL

Brighter side of 13 - Posted by Hank FL

Posted by Hank FL on September 23, 2003 at 22:43:49:

>>If the sellers do file BK, well after the sale, and include the loan on the house, just make sure the lender continues to take payments.
I’ve got a few like this, and love them really.
Nice owner occupied loan rates, plenty of equity, and the sellers are not responsible credit wise for the loans.
They can sit there as rentals forever if I let them.<<

Hmmm… That’s kinda cool. The sellers file 13, the loan gets discharged, and the bank doesn’t wonder why the payments are still being made.

You rent ad infinitum w/out pressure to refinance.

I like it.

Question for you - Posted by randyOH

Posted by randyOH on September 23, 2003 at 21:54:49:

Jim,
Please bear with me because I don’t do sub2s and don’t know all the technicalities, but I have another question. As I understand it, your only evidence of ownership is a contract that is not recorded. Right? And the recorded owner is a trust in the name of the seller, so it appears to be a revocable trust set up for estate planning purposes. Is this correct?

So I am wondering what would actually prevent the seller from further encumbering the property. Not that it would be legal. But it seems to me that the seller could do this and then just disappear with the money. Is this a valid risk or is there some other mechanism to prevent this from happening?

Just curious.
Randy

Re: Brighter side of 13 - Posted by rm

Posted by rm on September 24, 2003 at 07:32:23:

>>The sellers file 13, the loan gets discharged, and the bank doesn’t wonder why the payments are still being made.>>

That would be a Ch 7.

Re: Question for you - Posted by DavidV

Posted by DavidV on September 23, 2003 at 22:45:43:

Your evidence of ownership would be a deed you get from the seller. The owner would be something like…123 oak street trust, RandyOH trustee. Or get a trusted friend to be trustee to keep your name off public records. Unless you let the seller be trustee (bad idea) they can’t borrow against the property any more.

You don’t have to put the owners name in the trust if you don’t want. You can make up any old thing for the trust name.

The beneficiary then directs the trustee for all actions with the property.

Re: Question for you - Posted by gerald(tx)

Posted by gerald(tx) on September 23, 2003 at 22:41:37:

Randy,
I believe the point you are missing is that the seller no longer owns the property. In the sale, he has deeded the property to “XYZ Family Trust.” The trust owns the property!

If someone wanted to encumber the property, he would have to produce this unrecorded documentation saying that he was in fact, the beneficiary of the trust. Only this would suffice for a lender.

Hope this clears it up.

GP

Re: Brighter side of 13 - Posted by Hank FL

Posted by Hank FL on September 24, 2003 at 09:11:32:

Correct

Name of trust? - Posted by randyOH

Posted by randyOH on September 23, 2003 at 23:12:00:

As I understand it, the trust usually bears the name of the seller to make the bank think he is just using a trust for estate planning purposes. So the deed says the owner is Mr. Seller Family Trust, Mr. Seller trustee. If you use some other title for the trust, you risk having the bank invoke the due on sale clause. Right? So it seems to me that the seller could just produce the original trust document showing him to be the beneficiary of the trust and proceed to encumber the property. He does not have to show the document that transferred his beneficial interest to the investor.

I am not saying this would be legal. Just wondering if it might work for a dishonest seller.

But the trust is revocable and… - Posted by randyOH

Posted by randyOH on September 23, 2003 at 23:24:13:

Gerald,
I understand the property is owned by the trust. But this is a revocable trust that bears the name of the seller to make it appear that it is strictly for estate planning purposes. If you use another name for the trust, you risk having the due on sale clause invoked by the bank. Right?

So the seller just continues the charade and encumbers the property and disappears with the money. He would have a trust document showing him as the beneficial owner of the property. He would not show the bank the document that transferred the beneficial interest to the investor.

This would not be legal. But I am wondering how you would prevent it from happening since your beneficial interest is not recorded anywhere.

Thanks,
Randy

Re: Name of trust? - Posted by DavidV

Posted by DavidV on September 25, 2003 at 23:28:28:

I don’t use the seller’s name now in the trust. Just the street name and number.

The beneficiary is not the legal owner. Anyone that loaned to a previous seller that was listed as a beneficiary would be in error. Trustee has to sign all papers unless he desigantes a manager or someone else (co-trustee maybe) to sign.

Personally i don’t assign beneficial interest. I make an LLC beneficiary right off the bat, no assignment. If anyone wants evidence of trust i will only show a certificate of trust. It lists grantor, trustee, address, duties of trustee, termination date but not the beneficiary. It’s nothing you really couldn’t find from the deed, except trustee duties.

Re: Name of trust? - Posted by John Katitus

Posted by John Katitus on September 24, 2003 at 01:50:18:

The Trust Agreement specifies the name of the Trust, the Trustee, and the Beneficiary. It names the Seller as Beneficiary so as not to trigger the due on sale clause. The Beneficial Interest is then transferred to the Buyer in the unrecorded Assignment.

If the Seller then took the Trust Agreement to a bank and said this is revokable and I, the beneficiary, am revoking it, you’re right - it would seem that the trust would be revoked. I believe, however, that the Trustee would have to sign the paperwork revoking the Trust, seeing that he is the ONLY person authorized to sign for the Trust. The Seller could forge the trustee’s name, but that would be illegal.

Interesting point. I wonder what Bronchick would say.

By the beneficiary only! - Posted by gerald(tx)

Posted by gerald(tx) on September 24, 2003 at 24:19:16:

Only the owner of the trust can revoke it. The former seller is out of the picture – he assigned away his ownership rights with the change of beneficiary. And no, I never name my trust after the former owner, and no the lender has never questioned the name.

If a former owner went to a lender, the lender would ask to see his trust papers showing he is the owner. He has none, so no loan.

Get it now?

best,
GP

Re: By the beneficiary only! - Posted by Eric

Posted by Eric on September 24, 2003 at 08:22:56:

It doesn’t matter what you name the trust, because the bank will find out about the transfer of title when you put a new insurance policy on the property anyway.
Lender probably won’t question it. I say "probably, because they always “could” do it. They have the right to call the loan due, but in practice they hardly ever do. Even when they start grumbling, they are generally just bluffing to try to get you to assume the loan…that doesn’t mean you have to. Just get your CYA letters, keep your up-front deposit equal to little or nothing, and get as much money out of the front end as possible. Even if they do call the loan due, so what. It was all free money anyhow. Go out, get another deal, and make some more.

Re: By the beneficiary only! - Posted by Jesse

Posted by Jesse on September 24, 2003 at 10:27:46:

Hi everyone,
This ‘subject 2’ thread caught my attention regarding subject 2 and paying transfer tax. Specifically, I live in a state that has transfer tax associated with transferring title for real estate. Transferring title between Mr. Seller and “123 Main St” with Mr. Seller as beneficiary is exempt from transfer tax. However, when transferring beneficial interest to Mr. Investor from Mr. Seller, this I think is liable for transfer tax dues. For those of you in a transfer tax state, is this true? If so, do you pay them? How would the state or county know since it isn’t a recorded instrument. Interested in your thoughts, thanks, jesse