All Forum Posts by: Dion DePaoli

Perhaps for the readers you can address the more important ideas that come with this plan of not recording things:

1. Concealment = "...in any matter within the jurisdiction of any department or agency of the United States...knowingly conceals or covers up by any trick, scheme, or device a material fact" - LINK
2. Duty of California Licensed Broker to Disclose = Suggesting to not disclose for the purpose of concealment seems to go against California Broker Code of Conduct. The sole reason you are suggesting to not record said transfer seems to be for the purpose of concealing the sale from an interest party, the Mortgagee. Not to mention the county for re-assessment of property taxation.
3. How about offsetting the other potential felonies that can arise such as mail fraud, racketeering, false statements (HUD & Conventional)

To suggest a transaction that may come to head with a DOS clause is one thing, however to purposely create or direct actions to conceal such an event is entirely different.

The common guru counter-argument is there is no Due on Sale jail. That is correct however, there is jail and punishments for these other actions which go hand in hand with these types of schemes. Any time something fails a Full Disclosure Test, it is not a good idea and can lead to harm. This is not prudent or sound advice.

If a party wishes to knowingly enter into a Subject To transaction, they should not scheme to avoid the ramifications for entering into such a transaction especially for the sake of avoiding things like taxes or infringe upon the rights of other interested parties.

Oh man, issues over all the place. A proper analogy to some of this is, can you stop a speeding train by standing in front of it on the tracks? Sure but the outcome is likely not favorable for you even though it stopped....eventually.

As to the idea of equity, if I have something and sell it to you, you have bought it and you now own it. Therefore, you now have it. The Seller does not "loan" equity to the Buyer since a loan implies that something will be given back and the idea of possession per the post does not fit in that idea. A lender's right to possession are different from the owner's rights of possession. That said, in the scope here a small hair to split amongst the other ideas.

The act of selling something where applicable state, county or federal taxes are involved, such as the conveyance of real property can fall under tax evasion. So the suggestion of not recording the conveyance of the real property can undermine the counties collection of taxes on the sale and taxes on the instrument not to mention any increase property taxation that would occur. Huge red flag.

While recording is not required per state to determine rights to title, that is not the same as reporting for taxation. I do not even understand what you mean by this, "Enough documentation is recorded to protect the seller and buyer in the chain of title without making the fact that the property was transferred public record". What is "enough documentation" when you suggest not to record the documentation that documents the act?

Just like in your loophole idea with the recording of deeds, there is no condition within Alienation Clauses or Due on Sale that mandates a recording. The text tends to say "Any conveyance of interest in whole or in part....", which doesn't imply said interest must be made public. It also would be within the Mortgagee's rights to inquire about such things and legally expect a truthful answer.

Further, the lack of recording diminishes the security which would come with the instrument. Depending on the entity directing this event and recommendation, additional liability could be imputed. Convincing a Seller of something of this can fall under predatory practices.

These are not objections to your ideas from "nay-sayers" who have never purchased real estate nor folks who have some limited understanding of RE finance.

So as to my first line of my first post, we have encountered an oxymoron. There is no nutshell about this since we seem to be ignoring significant details. Just because you shrug those off, does not mean they do not exist.

IMO, this is just a bad idea. The sale of an LLC is not a sale of real property it is the sale of a security since that is what you are selling, shares in the company whether in whole or part.

Further, it would have it's own barrier as an affluent buyer will not wish to take on the liabilities of the LLC. I don't wholesale real property, but I do not think this is a common practice. My advice, forget this idea.

Not sure what you do not like or what other mortgage rates you are comparing this rate to but this is market rate currently. Remember, if you are seeing rates below this those might require substantial down payments. Total cash looks a tad high but I can't dissect why without a more itemized list or an APR. It could simply be insurance costs or other normal transaction costs. While you mention there are no points, perhaps there are processing charges or something similar which would be revealed in the APR. Generically, your APR should be around 0.25% above your interest rate and it would not set off any alarms.

That said, perhaps look into getting an additional loan quote from another lender to compare. Compare the APR for proper evaluation. The APR is on your Truth in Lending Disclosure, which you may need to specifically ask for if the inquiry is general and not formal in nature.

A little trick to ease the removal of wallpaper is to use a warm water mixed with fabric softer, sponge the wallpaper (saturate) and it should help release the paper. Then going back over the wall with warm water and laundry detergent will remove glue particles. It saves time for sure. Work smarter not harder.

Good article Bill. I had not contemplated, since it has not arisen in my needs, the creation or affirmation of a merger of title based upon the subsequent sale. That is pretty interesting and I am sure there are some DIY events out there that could suffer from such an event. Frankly the amount of DIL's I have conducted is not all that high, certainly not in majority of disposition of NPN's due to the presence of other encumbrances and interests. A statistic that is a stark contrast against many strategies newer investors and guru's seem to gravitate to. Knowing how many wholesale type events are out there and that title companies do not catch all things, I would guess there are some snags that are pretty problematic.

In addition, it brings to light under some of the same guise, the deed language used and lack of express language to prevent merger. I have personally seen these and the Seller/Owner was fairly clueless about the problems that were created. This is the issue with using less than full service mortgage servicers and Google searching the internet for forms. Just because a form is common, does not mean it is proper for the transfer and layman might not be wise to the nuances between instruments and that eventually have a substantial impact.

The bankruptcy look back event and the idea of excessive equitable value certainly speak to offset much of what folks believe they can do with borrowers and taking title to be advantaged from the additional equity within the subject property. I have never had that happen, but I would be curious, is the conveyance simply set aside at a glance pending further diligence to understand value and equity or is diligence conducted and by someone's (creditor?) complaint then set aside? It would seem a creditor could, but can the trustee or court and how far will they look back? Any time limitations on the matter?

Do you think, in some weird possible future as values rise, we see a rise of this type of ex-borrower complaint? Where ex-borrower finds Mortgagee turned title owner, having gained well above reason and seeks compensation for the same?

@Bill Gulley

The link is not in the post. Can you paste the article link?

Thanks

I don't know your market numbers but as a concept to think about in your contemplation, making sure the replacement cost at least covers your cost basis (all in) should be a milestone. Covering your costs is different than replacing the home. There are schools of thoughts on both concepts.

A couple of years ago, we developed a subdivision with this type of product. The homes turned out as good product and the vendor did a good job. The labor costs did not really get exaggerated but we also knew the contractor. The overall cost was a little less than standard stick built.

My negative comment, was they did not really have a tremendous market appeal. We had potential buyer flow but the units were slow to sell. I think to that degree, there is a bit of a public conception to these which creates a barrier. Obviously, other things could have also played into that such as location, price point, etc, etc. But in general, some of the other product we had out performed these in general as far as time on market goes.

We built out on average 1,200 square fee on third acre lots and sold off between $110k to $90k. The community was small, about 30+ lots in Alabama and toward the end we sold off lots just to get out. Our profits were reasonable all things considered.

Would I consider it again? Yes, like I said it has been a couple of years and the market has changed. I think the key is to offset the mindset that comes into play with a potential buyer with a good perception of value. A little tweaking of marketing if you will. Many things would also go into that decision, just like any build or development decision. That said, I would be hesitant to use this product on any type of scattered set lot plan or in communities of other stick built as I would tend to think you would see a market discount based on the mental barrier of the public that I mentioned above.

Without giving what your free cash flow per period is, we can not answer this question or comment on it. We understand that one option is receiving $24k right now but we do not understand what the net income is from the subject property per period.

This is a common question in business but we need the inputs to comment properly.