Investor · Jacksonville, FL · Member since 2008 · 70 posts · 37 votes
What do you all think of this technique?
An experienced investor tipped me off on a killer technique he used to buy a property and wanted to get feedback on this.
"He just did a personal loan to a person to catch her up on her taxes. Since he can’t do an owner occupied mortgage due to Frank Dodd, he put the house in a trust with him as the trustee. She is the primary beneficiary and has the option, but not obligation, to pay him back at 15% interest. If she pays him back then he is removed as trustee and has no further beneficial interest. If she doesn’t pay him back then he becomes the sole beneficiary.
The owner gets to keep their house out of tax deed sale, and if they pay him back he makes 15% annually, or him or his kids will get a house some day really cheap. "
Wow, I typically get to know the home owner really well, until they love me like a son and decide to put me in the trust! But your technique seems more efficient! ;)
@Robert L. This reminds me a father and son that did something similar with land trusts in Des Moines over a decade ago. They were basically buying the homes sub2, taking title in a land trust in the prior owners names but they were the trustee and beneficiary, and then would sell the homes on land contract to an end buyer. When they got in too deep, they stopped paying on the first's letting foreclosure proceedings start, but still collected the land contract payments. Needless to say, they ended up clouding title on hundreds of homes, and their actions both got them a stretch in Club Fed for 7-75 yrs, along with being barred for life in Iowa from engaging in any way in the business of buying and selling real estate or selling securities.
Personally, this seems like a bad work around for Dodd/Frank, verse just hooking up with an independent licensed mortgage banker in the area, to have them underwrite the property tax loan/2nd mortgage for a fee of $750 or $1,000, which could be tacked onto the total loan amount to be repaid over a couple of years. But to each there own.
@Rene Owczarski do you have a link to this story? It seems like neglecting to pay the underlying loans is where it went wrong, but what were they actually charged for?
@Justin Hammond sure, here's the press release from the Iowa Attorney General about the Wolford's, along with some general background on what they were doing.
If he is the Trustee for the property is seems that he has the responsibility to manage the property--pay the taxes, insurance, maintenance, etc.
Also the Trustee is the person who manages the Trust after the Trustor passes. BUT by being the Trustee the person has no right to anything in the Trust unless that is specifically identified in the Trust. Seems he could rake up a lot of bills and not get much out of it but work, since the Trust has no assets to pay the bills except for the property itself.
How is the Trust worded to change the Trustee to the beneficiary? Is the Trustee the beneficiary if/when the primary beneficiary dies? IF so, the Trustee could proceed the beneficiary in death and get nothing.