Posted by Bill Gatten on November 08, 2000 at 15:06:33:
In contacting a potential PACTrust seller, you merely indicate that you are looking for someone who would be willing to remain on the existing loan “for a while.” You need to be careful about trying to be too “explanatory” in your approach. As Claude Diamond says: “Sell now…Explain later (great advice!).”
With the PACTrust in your pocket, the seller merely needs to agree to remain on the loan and let you take over 100% of all maintenance, repairs, upkeep, property tax, insurance, mortgage payments and management of the property. The system you will use to do all of that, and the way you will best protect his interests, is not important until he’s ready to make a decision.
As far as the benefits are concerned, you make them all those that are HIS: No due-on-sale compromise, no transfer of title to you, no potential for eviction problems should anything ever go wrong, no potential for you personal or legal problems affecting title (BK, Divorce, Tax Liens, Creditor judgments, death or incapacity, etc)…and quite a few more.
If they insist on having cash up front, here are a couple of things you (they) can do:
The seller can refinance for the maximum LTV before commencing the PACTrust and put the money in his pocket while you take over those payments.
You can cross collateralize the remaining equity with another property that you own, and the seller can then sell that note to someone at a discount (while you agree to pay him the undiscounted portion at the PACTrust’s termination).
You can do #2 above with personal property as well (i.e., with business equipment, a car a boat, etc.) with a U.C.C. filing.
You can advertise for a buyer who will come in with enough to cover all closing costs, plus all or part of the additional cash that the seller wants (the fact that they might not wish to qualify for a loan doesn’t mean they would make a reasonable down payment).
You could set up an LLC and bring in a partner with the cash need, and “equity-share” with him or her (sharing in all principal reduction, appreciation, positive cash flow, up-front moneys, etc.
You could collaborate up in the same manner with the seller…in lieu of the cash requirement.
None-the-less, remember above all that the PACTrust is not an alternative to something else: it the way to do that “something else,” but with the least amount of risk, subterfuge, chance, trust, etc. The PACTrust’s primary benefit is the transfer of tax benefits to a tenant who will gladly pay more than Fair Market Rent for the benefits and incidents of homeownership.
For more details, click on the banner ad above (if the PACTrust banner ad is not there, click on ?Refresh? or ?Reload? a few times it’ll come up).