Pactrust, Landtrust, Assumptions?

Question

Hi all, been a few months sense I posted here. The market in the Inland Empire is turning and we are approaching a time where assuming loans will be beneficial. Actually, I did a search this morning and found 12 homes that fit my cash flow criteria and are in default. So I need a new game plan.

My biggest worry is acceleration of the current loan. Sense FHA loans are no longer assumable and are accelerated when title transfers I can not do a typical assumption transaction. I want to hold these long term. The veteran agent I used to work for would always talk about a pactrust. I have a brief understanding of land trusts and their purpose. However, I have no idea how to set up a trust to mask the transfer of title so not to set off an acceleration of the current loan. Can any one explain this to me or point me in the right direction.

Account Closed · Answer

FWIW, courts have agreed that it is a fraud by omission of material facts. When I have more time I will dig up and point you to some case law clarifying this.

Again, I have used trusts for this in the past, I don't now because it just isn't worth the extra hassle.

As for the seller stirring things up with the lender, we have that happen from time to time. It isn't as big of an issue as you might expect and easy to get the seller to correct it once they are properly motivated.

Account Closed · Answer

There is a better chance of Big Foot being found camping in Central Park in NYC than there is of ANY lender calling a loan due under the DOSC now or any time soon.

Not saying it can't happen, after all, lenders do some really stupid things. But, I can count on one hand with fingers left over the number of times I have seen a loan called for no other reason than title being transferred over the last 25 years.

Putting a property in a trust for the purpose of concealing any material fact from a lender is an act of fraud. Granted, again, I have never seen a lender pursue that angle, but that is really what it is.

If you want to go this route, a simple trust, with the seller's names in the trust name is usually sufficient to keep the lender from sniffing around too much.

When we buy sub2 we take title in an LLC and actually notify the lender of the transfer. Since 99.9999% of the time they will do nothing with that notification it makes it harder should they decide to try to call the note due down the road. Again, I am not saying you SHOULD do this, only that WE DO this.

At any rate, if you are going to buy sub2 you must be prepared to deal with the possibility, no matter how small, no matter how remote, of the lender calling the note under the DOSC.

Gatten's PACTrust is not bullet-proof the way he claims and it has been challenged in court and the court did not side with the trust, the trustee or the beneficiaries.

Nick J. · Answer

just don't get caught up in the 'Guru' non-sense of using a trust to hide ownership. 
          
          When I say shady I mean exactly that to people who use a trust for shady reasons. Don't get me wrong, trust are a great tool for there intended purposes but when gurus preach using them to hide ownership it's merely shady to do so.

I don't think your missing much other than more in-depth knowledge about Sub2's. 
          
          These properties you want to purchase that fit your cashflow idea, If you purchased them sub2 for now and then re-financed out of the loan later on you'll be golden. 
          
          The banks aren't going to call it due especially if you bring them current and make them a performing asset again. The Guru's use that fear of being called due to get you to buy their system that shows you how to be a shady investor and use trusts to hide ownership in relation to Sub2's
          
          I hope I was a little more help. I'm not calling you a shady person personally, only if you so chose to use trusts later on in attempts to hide ownership then ya, you'll fit my idea of that term. For other uses like estate planning and asset protection I'm a huge believer in them, just not in relation to Sub2s

Taz beat me to the punch again, but I'm not deleting my post this time b/c I damn near wrote a novel of a post. I gotta get quicker at typing then Taz

Stephen McKee · Answer

God I hate GURU's. I teach all my clients investing for free. Granted I make money off the purchase but I know a lot of GURU's that do both.

Thank you both for the pertinent info. I totally hear you on the not calling notes any time soon. All these folks need is more inventory.

I like the LLC better. The note is preforming and I can be the legitimate officer on title. If one of the banks does enact the DOSC I have the credit and cash to pacify them. I just don't want to be stuck with 4 loans max.

Stephen McKee · Answer

Nick, hold your horses. Shady, seriously. We don't know each other buddy. If you read this from the get go you can plainly see I have very little knowledge in this area. Thanks for the great article. I never new how the DOC clause came to be. Sense your profile states you take properties subject too please fill me in on what I am missing.

Stephen McKee · Answer

Oh I see what you mean. I was referring to taking over the existing loan by creating a trust without escrow. The bank is not involved here. I idea is that if a deed is recorded from the owner to a trust it looks to the bank to be an estate planning strategy. If you transfer from individual to individual and the bank does some research they will in act their acceleration clause.

From what I can gather I looks like all I have to do is draw a trust for every property named after the seller and eliminate his interest while in the trust.

Nick J. · Answer

Stephen,  I'm sorry to ask this but why exactly is it your wanting to create a trust? is it to "Hide" ownership?

anytime ANY beneficial interest is transferred it triggers a DOS

If your wanting to avoid an acceleration try NOT being shady and disclosing your intentions to the bank.

If your curious about the DOS clause, here is a decent article written on the history of the DOS

http://www.biggerpockets.com/articles/857

Will Barnard · Answer

Dan
I did not intend to imply that sub2 is "assuming a loan" What I meant to say is the best way around "assuming a loan" would be to switch to a sub2 strategy. My wording was originally confusing and you misconstrued my point. My fault. YES, "two different animals"

As far as land trusts, my point with that is the second a bank sees the word "trust" in the buyers column, they know exactly what you are doing and will not accept the offer in some or even many cases (not ALL cases). So your intention of "masking" the title transfer does not really work in all cases, at least not with bank REO properties.

Stephen McKee · Answer

I'm with Dan. Buying with a Trust is subject too but you can name the trust after the current owner on title to mask the transfer. Is there something else I don't know about in a SUB2 transaction that works better.

Will Barnard · Answer

After you do your search on land trusts and Bill Gattens pact trust, know this:
Neither prevents the DOS clause.
If you want to assume the loan, then the best strategy right now would be to buy sub2.