All Forum Posts by: Jay Elggren

Be careful with the seller finance. It can be super risky and costly for the seller if it's not done right. I had a note called due and the only thing that saved me was I moved the property into a title holding land trust and I remained a beneficiary. According to The Garn–St Germain Depository Institutions Act of 1982 the lender is prohibited by federal law from calling the note due. 

Make sure you're protected by having the title help by a trust.

@Gulliver R. I do all my seller finance/lease options with a title holding land trust. That way I am completely protected. The trust holds title and I am a beneficiary controlling the trust. This keeps the lender from calling the note due based on The Garn–St Germain Depository Institutions Act of 1982.... and the IRS from classifying it as a sale.

The IRS considers it a sale if:

1. There is a predetermined sales price

2. There is a down payment

3. There is a change in title/ownership

4. The tenant is required to perform maintenance/repairs to the property

All these are avoided when the property title is held by a trust and the seller remains a beneficiary of the trust.

We offer full price, or higher in todays market for all our seller finance deals.

If this is a cash offer there are a lot of variables to consider...

1. location - determine if the property is in an area you should Rehab, Prehab, Wholesale or Avoid all together

2. Market - what are the comps in the area? Average sold price, average DOM (days on market), how many properties on the market right now.

3. Comp Condition - determine how much you'll need for repairs to match the market

4. Exit Strategy - What are you planning to do with the property? Flip, Buy & Hold, Wholesale

If you are wholesaling this you still want to know all this info so you can present it to your cash buyer. The more you have done your homework the easier it is to find a cash buyer. If you give a cash buyer a bad deal they won't buy from you again and they will spread the word. Show them that you the numbers and they will learn to trust you every time you bring them a new deal.

@Stevenson Adedayo I would need more info about the property and the seller, but if you make an offer of $25k, put $15k in repairs (just to get it rent ready) and sold it for $70K my numbers show you making $17,500 in profit.

That doesn't include your wholesale fee. Make sure you deduct that from the profit before you present it to your cash buyer.

@Jeff V.

First off, Be Careful! Seller finance, lease options, Deed of Trust, land contract can be dangerous and costly if they aren't executed correctly. When I first started acquiring properties I heard the same things. I bought several properties subject to with "wraps" and carried contracts. Everyone was saying the same thing. Don't worry it rarely happens.... banks won't call the note due... rates are to low. That was a huge mistake for me. 

I had a property subject to and moved a resident into the property for nearly a year. One day the original owner was notified that the bank did a random title check and because there was a change to the title the bank was executing the due on sale clause. They were given 30 days to come up with the full balance or the bank was taking the property. As a note: this was less than a year ago. rates were 3.75% and our payments were current. So don't let any one tell you to make business decision based on "something bad might happen, but don't worry it rarely happens"..... It happened to me.

Fortunately I had just connected with someone that was doing title holding land trusts. I had them form a trust for the property. They took care of everything. They moved the title back to the original owner and then transferred title to the trust. They were set up as a beneficiary of the trust so we met the requirements of federal law (Garn–St Germain Depository Institutions Act of 1982).

The attorneys send the bank a letter notifying them of the trust and quoted the law stating that they are prohibited from calling the note due because of the trust. All the harassing phone calls and letters stopped immediately and we haven't heard from the bank since. 

@Duane Smith this is the only way I know to protect your seller from having his lender call the note due. Plus having the property placed in a title holding land trust in his/her name as a beneficiary. It also protects them from litigation and having the IRS trigger it as a sale and apply capital gains to the seller. 

The IRS considers it a sale if:  

1. There is a predetermined sales price

2. There is a down payment

3. There is a change in title/ownership

4. The tenant is required to perform maintenance/repairs to the property

All these are avoided when the property title is held by a trust.

Be careful of lease options and other types of seller financing. In most cases they are done wrong and be very costly mistake and leave you, as the seller exposed to several bad scenarios including those listed above by the experienced investors.

I do a lot of seller finance and lease option deals on my properties. After learning the hard way I now put all my properties in a title holding land trust and I put my residents (tenants) on a triple net lease. This is the only way to protect yourself as the seller/owner of the property. 

Now all my properties are protected from litigation. My equity is protected, and yes I can refinance at anytime to pull out my equity. I am fully protected by federal law (Garn–St Germain Depository Institutions Act of 1982) from the lender calling the note due, and there is no need for a 1031 exchange because the IRS can't classify it as a sale because I remain a beneficiary of the trust. There is no sale because the property is held by a trust that you control and it remains that way until the beneficiaries of the trust decide to sale it to the resident down the road (3-5 years)

Hi @Rivy S.

My wife has been an Underwriter for Banks nearly 15 years. She agrees with all the previous posts about traditional mortgage financing. We can help maximize your borrowing power in the future. We buy all our properties and hold them in a title holding land trust. This way my name doesn't show up on title records but we still control the property as a beneficiary of the trust. The best way to keep your borrowing power maximized is to only use the banks when you have to. We use private funds to be the bank in the majority of our property acquisitions.

Because we acquire our properties differently it allows us to get more deals that the banks won't allow.

Definitely the best asset protection vehicle to give you the control you need. Make sure it is a Illinois title holding land trust. I can have the people that do all my trusts and contracts help you get it all set up correctly.  

Hey Jose,

Does the seller have a mortgage on the property or is it owned free and clear?

You need to be careful about QCD or anything that will change or modify title. Any time there is a change of title it can trigger a sale with the IRS or the lender's Due on Sale Clause.

The way I avoid the IRS calling it a sale and triggering the DOS Clause is by placing the property in a trust with the original seller as a beneficiary of the trust. Federal law and the Garn–St Germain Depository Institutions Act of 1982 prohibits banks for calling the note due as long as the original borrower is a beneficiary of the trust.

Placing the property in a trust allows you to set up triple net lease to protect both you and the sellers interests. Not only are you protected but now you control the property as a beneficiary of the trust.

I have escrow agents and my attorneys that handle all my settlements.

The best way to protect your mother's interest and give you the control to do what you need is to place the property in a revokable land trust in her name and both of you as beneficiaries. I hold all my properties this way. It's the only way to protect the property and give the beneficiaries the power. Since the property is own by the trust and the trust is controlled by unanimous decisions of all the beneficiaries, you both have your interested protected.