Posted by Russ Sims on March 03, 2001 at 02:38:34:
The person who wants to buy your property by means of a land trust is probably a savy investor. The idea is that a trust will be created, with you as the beneficiary. The buyer will probably name his company or an aquaintance as the trustee. Then you’ll deed the property into the trust. Depending on the type of trust that is established, the buyer may ask you to assign your beneficial interest over to them. This effectively makes the buyer the owner.
Why go through all of this? It’s probably because the buyer wants to conceal ownership from your mortgage company. If you were to simply deed the property directly to buyer without paying off the underlying mortgage, your mortgage holder could find out and envoke the ‘due-on-sale’ clause. The trust makes it difficult for your lender to discover ownership transfer. And even if they know that the property is deeded to a trust, they can’t, by law, envoke the due-on-sale. They CAN envoke the due-on-sale if they discover that you have assigned your beneficial interest over to the buyer. But that assignment is done outside of the trust on a seperate document.
The disadvatage to you of selling your property this way is that you’re effectively giving up the deed while remaining on the hook for the loan. If buyer defaults on their payments, lender comes after you, not buyer. Not good. On the other hand, if you sell your property this way, you should be able to get market value for your home. You can get a good price because you offer the flexibility of terms: you’re letting buyer get the home without qualifying for new financing.
I assume your buyer is an investor because they brought up this land trust thing; They plan to mark the price of the house up and re-sell under lease/option or owner contract terms. The problem with that is that the investor’s profit could be YOUR profit. Simply sell the property under lease/option terms for a little more than market value, say, 5 to 10% above. A lease/option is more secure for you because you aren’t deeding the property to anyone. If your tenant/buyer defaults, you evict them and find another one. Since you require that the t/b take care of repairs, you won’t have to worry about being a landlord.Use a tenant screening service to help you select your t/b…you can probably find a ton of these services in your yellow pages. They usually charge around $30.Once you have a t/b with a good rental history and stable income (credit will almost always be bad, but you can work with that), consider taking them down to your favorite mortgage broker. The broker should be happy to size your t/b up, and to give you a good idea of how long it will take to get them financed.
If you just prefer to sell to the prospective buyer you mentioned via the land trust, at least check the buyer out using the tenant/screening service. Assuming the buyer is an investor, ask for at least 4 references from folks they have done this type of deal with. Check them out with the attorney generals office, and see if the BBB has any complaints on file.When your home and credit is on the line, you really can’t be too careful about who you do business with…Good Luck!
Russ