Land Trust and Fraud (?)

23 Replies

I am very new to Land Trust and all the possible uses of them, but I wanted to post something here and here opinions on the validity of this transaction. I will try to explain to the best of my ability what I have found so far, if more information is needed, please ask and I will attempt to provide it.

  1. A married couple has a home in the foreclosure process, a company or individual has convinced the bank to accept a short sale.
  2. The home is put up for sale on MLS. Offers are submitted and one is accepted (to my knowledge $7000.00 under at least one of the best offers) for $48,000.00
  3. Sellers are delivered closing documents and asked to sign them in front of notary (husband was out of town, person delivering documents suggest they might know a notary who is willing to notarize without husband being present) Wife knows better and request my assistance in reviewing documents , before signing anything .
  4. They come in and I begin to review the documents, settlement statement shows married couple as sellers and LLC as trustee of land trust as purchasers (everything normal so far)
  5. Warranty Deed shows same, sellers married couple and buyer the, LLC trustee of land trust (still fairly normal)
  6. Land Trust Document and sellers are the sole beneficiaries 50/50,,,now it's getting weird... (still might be okay,, but I don't know), trustee is LLC, who's managing member is not a real/physical person, the sole managing member is a "fictitious name" yes fake person..the fictitious name is made to appear, like a normal (although a bit foreign sounding) name
  7. The successor to the "fake" trustee is no other than the realtors/agent's husband (had to do some cyber digging to find this)
  8. and finally an assignment of beneficial interest in the land trust is to be signed by sellers to trustee LLC, whos managing member is this "fake trustee", which fictitious name is registered to the husband of the agent
  9. In my perspective, the listing agent/broker never presented the better offer (i have proof there was a cash better offer),and consequently will end up owning this property......Thoughts ...comments...educate me please...

Light 'em up!

But, are you saying that a couple, who obviously knew they participating in some type of fraud, sought your advice after you had made a higher offer....or are you assuming that your offer was never shown to them? Also, in #6 you say the Sellers are the sole beneficiary of the LLC. This is definitely fraud, and would seem to be done for the purpose of selling "to themselves" and stripping away the excess mortgage balance. Why, if the agent were going to be the end buyer would he ever involve the sellers as the beneficiaries of the land trust. It seems this agent is going through all this set up, and committing obvious fraud, just he can collect the commission on the buying side. He could have bought it straight up, if he simply waived the commission.

@Wayne Brooks , the sellers were not privy to the fraud. They sought my advice, because through one of my other business ventures, they are my clients. I asked and my offer was never presented to them. The part of this going through all this elaborate scheme is what boggles you stated Wayne, they could have easily purchased it ( my question is, could they have bought it even though there was more money on the table?)

Take it to your title company! They are the ones who insure the title. They may need to change the trust, take out a beneficiary and name them a trustee, don't know what kind of trust it is, that could, but I doubt, cause tax issues.

Sounds like you sellers were very good guru students.

What they did is not an issue of fraud but filing false documents naming a fictitious person, but how do you know that person doesn't exist? I might have missed that. The requirements for fraud don't seem to exist here, but they can still be in hot water. Best is have them fix and continue, if you want it, didn't follow the other offer not shown, might be hard to prove the seller had no knowledge of that and simply took the other offer for other reasons. :)

Edit, ah, you made the other offer, the sellers signed the contract to accept a lower offer? That's a Realtor/Broker issue, that can be stopped if the sellers agree.

@Bill Gulley , The sellers were not aware of this set up, I know that the managing member is a fictitious name, because I looked it up, on the state records. The offers were never shown to the seller by the agent. We'll keep digging...

It is fraud against the shorted bank because there would have been an Arms Length Affidavit executed by buyer, seller, RE agents and closing agent that there is no biz relationship between buyer and seller, and there are no undisclosed agreements concerning transferring the property. Also neither buyer nor seller shall receive any monies, including commissions, form the sale that are not revealed on the HUD. Since this is Florida, the broker is required to keep and have available ALL offers submitted on anytime ray, accepted or not. Also, agents are required by law to submit ALL offers to the seller. This agent is in deep water. The sellers should not participate in this, as they are participating in the fraud, and it would be very hard to convince someone they were ignorant of what was going on......when the are the beneficiaries in the land trust buying their property, and then they will immediately transfer beneficial interest to the agent's husband.

Many banks don't allow the buyer to be a land trust in a short sales these days because of this very situation, and they realize it's a tool to get around the flipping restrictions.

Jose, I assume you have an email of the submitted offer?

I don't know what i"m talking about, so take this with a grain of salt ;-).

One of the things wrong is of course that the realtor didn't present your offer and thus put him/herself into first position. That could cost him/her their license.

Also, I know that in short sales the seller can not profit and they have to sign that under oath, I believe. So, if the seller is a beneficiary of the purchasing land trust, then that would be a problem with the mortgage company, I'd think.

@Wayne Brooks , I made copies of everything they were given to sign and I have a pdf copy of the offer that was not accepted (It so happened to be my offer, through my agent), that is how I know, that the offer was better and on equal or better terms.

@Michaela G. My client's have been duped, throughout this entire process, by attorneys, by loan modification offers and lastly by this agent and her husband.

Let me back up, this is hard to follow.

Wayne, You can have a fictitious name, perfectly legal, the name must be filed as a fictitious name with the Sec of State. #6 by itself is okay.

#7 is a big issue and can be fraud, at this point attempted fraud as it hasn't closed as I understand. The Realtor having an interest in the short sale other than the commission without disclosure as a buyer or a related party to the buyer is a lost license issue and could go further to attempted fraud.

The other issue is not showing the higher contract, that is required. Loss of license issue again.

Okay, I think I have it now. The sellers are selling to an LLC that has a fictitious name made as the manager, with that name registered to the husband of the selling/listing Realtor in a short sale. And the Realtor failed to present all offers, another being higher. Is that it?

This is pretty easy to fix and stop. Call the bank, call the Realtor's broker and call the RE Commission. That Realtor needs to be off the street.

Tell the bank what happened and tell them of the higher offer. Tell the Broker what she did and that the bank and the seller will not continue with the transaction and that (since the higher offer was submitted under his brokerage) to appoint another agent for the transaction, better yet, tell the broker to step up and do this transaction. Tell the Commission about what the Realtor did and file a complaint. Her goose will be cooked later.

The only issue might be that the bank may not want to deal with that Broker either, if not, terminate the listing and go forward privately or get an agent the bank trusts. Yes, the broker has a claim to a commission, but since his agent was acting illegally that takes care of his claim, IMO.

I'd say the best you have here is attempted fraud since the deal hasn't closed, they have not benefited yet from the activities. :)

I see that last post, edited comment, heck you're in Florida, highest RE fraud state that I know of, has been for decades! Just report it as mentioned, if they want skin, let the bank do it, I'd say, they will be selling for more so not really any loss there. I have no idea about the modification folks. :)

@Bill Gulley You are correct Bill... The sellers, knowing what they now know, are not willing to go ahead with this short sale.

Remember the bank can choose what every offer they want regards whether it is a lower or higher offer. Who told you the offer was $7000 less than the higher offer?

Joe Gore

@Joe Gore , understood Joe, there is just so much more to this , than just the bank accepting the lower offer,, and I am aware, of the higher offer, because it just so happens to be, I made it ...

Originally posted by Jose Rubio:
@Bill Gulley You are correct Bill... The sellers, knowing what they now know, are not willing to go ahead with this short sale.

Then revert to my previous post! Buy it! :)

I did not really understand why the agent and husband would first list the Sellers as a beneficiary and them moments later require assignment of the beneficial interests. Why is the beneficiary not simply the end party at step 1?

There may not be an answer here for that. Maybe it is just dumb people doing dumb things. However, it seems to me, this structure would not pass the sniff test at the bank since the Sellers are beneficiaries, even though interest are assigned either before or after the bank looks at it.

The main set of issues is all around the agent it seems. Offer not presented. Lack of disclosure. Moral turpitude.

I agree with Bill, just have the Seller's present your offer and share the issues with the agent. I would caution not to try and be the police here as it can get hairy and waste time and energy. The Seller's would be able to complain, the bank can also complain about the agent to state authorities. You have no such complaint except your offer wasn't presented but the other two parties have that idea plus the others. I suppose you could help backstop the Seller's complaint and information to the bank saying that your offer is now contingent on not having that agent or brokerage involved if it get's put into question, although I doubt it will be needed.

If I were the mortgagee, I would terminate the listing and report it once. Then move to simply enter contract with you properly. The end game for everyone is the same, sell the property. I would not be inclined to spend more than 30 mins on the bad agent.

Originally posted by Dion DePaoli:
I did not really understand why the agent and husband would first list the Sellers as a beneficiary and them moments later require assignment of the beneficial interests. Why is the beneficiary not simply the end party at step 1?

This sounds like a technique to avoid the due-on-sale clause. The Garn St Germain Act exempts a transfer into a inter vivos trust where the borrower is a beneficiary. From the sound of it, the buyers out smarted themselves by not realizing the due-on-sale was not an issue in this case ... just as they out smarted themselves by not presenting higher offers and by failing to disclose the agents relationship to the buyer. As Bill said, too many guru classes.

David, not guru misinformation, these guys know exactly what they're doing. They did the LLC to hide the husband of the agent as the buyer. Still don't understand why to put the sellers in the LLC, then transfer, unless simply to make them a part of the deception.

To know why, look at the Operating Agreement in the LLC, liability between members, a hold harmless and indemnification can keep some one from suing each other or the manager.

I'd suggest moving on, report and assist the seller, but this will be addressed by others having an interest in this shame set up. :) .

Originally posted by Wayne Brooks:
David, not guru misinformation, these guys know exactly what they're doing. They did the LLC to hide the husband of the agent as the buyer. Still don't understand why to put the sellers in the LLC, then transfer, unless simply to make them a part of the deception.

I was suggestion a motivation for having the sellers as a beneficiary on the LT, there is no reason that I can see, other than the possibility that buyers were trying to sidestep the due-on-sale clause which is dumb because they (presumably) were not buying subject 2 the existing loan. I agree they new exactly what they were (trying) to do when it comes to hiding the true buyer by using the fake name etc. I didn't get from the OP anywhere that the sellers were intended to be part of the LLC, only that they were intended to be a beneficiary of the LT and immediately assigned off.

Account Closed There is a possibility that , that could very well be the case, within the closing documents that the sellers were supposed to sign, the Disclosures page, Item 1, specifically makes reference to the "due on sale clause", and I keep wondering, why any mention of it would have been included, I assumed, that would be a moot point, if the mortgage is being settled, with this transaction.

There is no due on sale issue here it's being paid off.

It's a back door to limit liability, bringing them under the umbrella of the LLC, at that point it's a contribution to capital, then the next step is a partner/member buying out the capital contribution.

Thinking, additionally,

It also hides the audit after the transaction of the short sale, they only see the property titled to the LLC, if the seller are then excluded out of the LLC from the sale of their capital account, the property remains as titled, again hiding the husband's interests. So, when the audit of a short sale is done, it appears it was just sole to the LLC, no issue.

Yep, you have a sneaky Realtor there, lower the hammer and get them off the streets. :)

Well, this was an exciting and interesting short exercise in REI detective work. Nice job Bill with the theories, I think you called it on both those fronts. I am taken back at the complexity and efforts this agent and husband have gone. I got to think this is not their first attempt, they have done some homework. If the agent is a REO agent for the bank or servicer who knows how many times they pulled or tried to pull this off. Somebody is going to have a field day with them.

quick update... Seems husband and broker are upset their deal is falling thru and are threatening attorney action against my broker and I . To me it smells of desperation. They got caught... What are the odds that I would be asked to review those documents.

Yep, you have a sneaky Realtor there, lower the hammer and get them off the streets.

The best defense is a good offense, I'd say that if send any threat of legal action in writing, they are dosing themselves with gas before walking into the fire.

I agree with Dion, this is probably not their first dance. Every state has real estate commission examiners, it won't be hard to find offers that were not accepted on transactions that would be higher than the ones accepted.

Offers not accepted can lay dormant for years as they are required to be on file, without discovery, but when you have an issue come up, the audit trail can include searching by dates, names, addresses, by broker or agent.

Jose, don't tip your hand, the more you keep that Realtor in the dark as to why the deal is not going to happen, the better, they may get insanely ticked off giving them more rope to hang themselves.

I'd have a ball with this.....

It definitely has been interesting to say the least. Any further updates and I will post here.

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