Broker or No Broker - That is the Question

4 Replies

Good morning Bigger Pockets! 

I’m wondering if some of you seasoned investors can put me on the right track before I spend money confirming this business plan with the appropriate legal professionals. 

i have a seller who owns a portfolio of 25 rentals. The partners would like to sell off the lower income properties they have and use the cash to purchase middle income properties. 

The plan is to assume the Seller’s low rate 1st mortgages, get slightly higher rate private money to pay them their equity in cash, and wrap all of those mortgages while we sell the properties to third parties whom otherwise are not eligible for conventional loans.

Question 1:

Is it true that per the Garn-St. Germaine Depository Institutions Act of 1982, I can move a Seller’s mortgages into a Land Trust so that when she sells a batch of mortgages to me, I can take advantage of her ~3.5% rates without triggering the acceleration clause? 

Question 2:

Assuming that the answer to Question 1 is correct, does this Land Trust allow me to wrap the mortgages as I sell them to individual 3rd parties? 

Question 3:

In both questions 1and 2, do I need a Broker’s license to do this type of deal?  Or can I do t without because I technically own the properties? 

Question 4:

Separate from the other questions, is it true that I can manage any number of properties without a brokers license so long as I own them? While I obtain my license, I want to build up my own management - without breaking the law. 

I understand that no one is going to - and most cannot - give me legal consultation. I’m just looking for opinions/experience that might save me a little time/expense with the lawyers. 

Thanks in advance! 

In short......No.

First, you incorrectly used the term “assume” the mtgs.  This is not possible as only fha and va loans are “assumable”.....where the buyer actually applies for loan approval and the current owner is removed from the loan.

What you are trying to do is a “subject to” their existing mtg, plus adding a private second.

Transferring the title to a land trust does NOT prevent the bank from invoking the due on sale clause.  This is a misconception advocated by a bunch of guru types misrepresenting Garn St Germain.  GSG allows the transfer of title to an revocable trust Explicitly for the purposes of estate planning/protection....not simply transferring to a land trust in an attempt to mask sales of the property.  The banks are Fully aware of this attempted trick and can and will call the loans due if they want to.

And BTW, no one is “selling a batch a mtgs to you”.....the borrower can’t sell/assign the mtgs, only title to the properties.

Also, seller financing to any owner occupants has it’s own set of rules, traps and penalties.

Wayne, 

Thanks for the response. As you can probably tell, I'm new to REI, so I appreciate the clarification of terms.

I have private investors that are ready to put up the capital to buy all of the houses, but it would have been nice to take on the lower rate mortgages. The difference between 3% and 8% is significant.  

So, assuming that GSG is indeed not an option: If I purchase the properties with private money, and then sell them Subject To, can that be done without a broker's license? Also, if I purchase them in full, can I legally manage the majority of the properties myself while I slowly sell the properties? 

8% is not an interest rate that makes sense, or is workable for buy and holds or reselling.

You can manage anything you own a part of.

You Never want to sell sub2....wrapping the mtg.s when selling is risky enough....you have to foreclose if your buyer stops paying, while still paying Your underlying mtg. and your lender needs to not have a due on sale clause in Your loan.