Anyone experienced with land trusts?

Foreclosures, Short Sales, Tax Foreclosures
1

I’m going to start using land trusts to buy short sales, and our LLC has 2 of the partners licensed Realtors. Have you seen sticky situations involving this combination?

We’ve raised some questions about ethical pactices in regards to tying up control of the property, marketing it for the trustee, who is a non-licensed member of the company who will be assigned the beneficial interest, and subsequentially, by negotiating the largets discount that we can, we are increasing the deficiency or 1099 to the home owner.

None of us represent the home owner as Realtors, but would the licensed members be liable for something like “using superior knowlege as a real estate licensee to gain an unfair advantage in a transaction”?

Obviously we can argue that they could be off worse if they 're foreclosed upon, but …

Any experiences much appreciated. Ah. We are in Las Vegas, NV if that makes any differences. Thanks

2

You will be using your “superior knowledge” negotiating with the lender, who in most cases would be considered “more superior” if you know what I mean. I think ethically you have the responsibility to point out the potential tax implications to the homeowner and advise them to seek out tax advice from a qualified professional. My opinion.

3

Disclose, disclose, disclose. IMO.
I don’t really understand what the unfair advantage would be? They, owner, will eventually go into foreclosure.

4

We disclose everything, no problem there, the issues are more of an ethical dilemma. What is best for the homeowner and the bank involved, what is the “right” thing to do?

By Realtor standards, they make it sound like you are supposed to bring the banks the highest offer obtainable. i.e., if we can find a Buyer at a price we like, morally and ethically, that should be the offer going to the banks.

I’m also being told that if the homeowner does not have representation, it could create an automatic “dual agency” transaction.

I’m being advised that if someone in our company is acting as the trustee, we have conflict of interest, and that the trustee should have no “skin in the game”.

Almost all of these issues are raised at the level of licensee involvement.

One statement was that, as a licensee they have fiduciary duties to ALL parties in a transaction, which includes the bank. This means presenting ALL material facts revelavnt to the transaction to all parties.

My feeling here is that this is complicated, and we’re going to need an attorney to make it air-tight.

5

IMO you should be looking out for the homeowner and not the bank.
So are you representing the bank or the homeowner? Seems like you shouldn’t represent neither. I don’t see how you can represent the homeowner when he/she gets nothing out of it? The bank already has there rep which is the person you are neogiating the short sale with. That is my IMO.

Does’t seem complicated to me IMO. An RE attorney would be nice.

6

I just got another deal today by shooting down a short sale offer by a competitor. Just point out the tax implications (which the competitor failed to point out as usual) and they run away. Like shooting fish in a barrel.

My biggest competition is BK attys. Who are just looking for a fee. There is big money to be made in pre fcs if you can get to them “before” they get snagged by one of these aforementioned predators.

Land trusts are easy to use when you want to flip to a buyer with conventional financing.

EH

EH

7

equity hunter
i dont understand how you got a deal from a competitor by talking about tax implications, could you elaborate for me please?> thanks

8

Gald you asked. IRS laws state that any forgiven debt is to be considered income to the debtor in the yr of the sale. So let’s say say a miracale happened and a short sale deal was consummated. Avg discount of 50K.

You are going to be very gracious and give the seller 1K for their cooperation. In Jan. of the following yr. the lender sends a 1099 income form to the borrower and the IRS showing 50K income on top of any income the borrower made that yr.

Assuming a 30% marginal tax rate the borrower would owe 15K to the IRS on top of whatever taxes they owe on their regular income. Since they didn’t anticipate this and didn’t make advance payments, they will get hit with other penalties and late charges. Since they don’t have the 15K they will get caught up in a mess with the IRS.

Once you explain that to them, short sales as they are promoted, fade hard and fast. BTW, before I go over the tax implications I explain the chances of an “acceptable” short sale for this “investor” they are talking to is practically nil. So the one two punch is …#1 It won’t happen. #2 If it does they’ll pay dearly.

I tell them foreclosure is not the end of the world. BK is much worse. My option to them is to avoid foreclosure without BK or short sale. They ones that take me up on it are the ones I convince their house is not worth screwing up their credit for the next 10 years. The amt of money they get depends on the amt of equity. If there is no equity they still get something. And I have a soft heart to them out.

EH

9

EH,
So what type of deal are you getting with the owner?

J

10

How does this at all relate to the above topic? If you want to discuss your deal making do so in another thread.

11

Oh landlord are you the moderator police? I wasn’t talking to you. Where do you come from telling anyone to post on another site? You don’t like what I say? Disprove it. Don’t interrupt me when I am talking with someone else. If you have something to say say it somewhere esle.

12

In response to Joseph’ question not the landlord from ct here is my answer since this site has a problem with handling respones I will hav to spell it out.

Joseph, here is the answer to your question which is a very good one and one I was looking forward to when I made the post. I knew “someone” would have the guts to ask it and you are it. I also knew someone would make a stupid comment as has already happened. See CT.

The exit strategy requires NO CASH/LIABILITY. I am going to get an assignment fee off a contract to buy with the buyer taking deed sub 2 on a property with NO equity in pre foreclosure.

EH

13

Definition of terms for this post…

Pre-Forclosure: Before filing of NOD
Foreclosure: Period between NOD and auction
Total encumberance (TE): 1st TD + 2nd TD + 3rd TD + etc…
Fair Market Value (FMV): Appraised value of home + fees + commissions
Equity: (FMV-TE) > 0
Upside down: (FMV-TE) <= 0
Short sale: negotiated discount of TE to price home at or below FMW when the property is upside down.

… end of definitions…

When I first started this (all of two months ago) one of the pitches that I heard over and over and over was how lendors are not in the business of selling real estate and how they had to maintain a certain liquidity… a liquidity that was reduced by holding REOs. What WASN’T said was the reality that while all of those assertions may be true it in no way shape or form precluded a lender FROM ACTING IN THEIR BEST INTERESTS which means that they absolutely will take a house back regardless of what all of the pundits say.

Now, before the older and wiser heads chime in to say something along the lines of “Well OF COURSE, what did you THINK” let me point out that the pundits work very hard to make sure that you only think about making money, not reality.

Only homes that are ‘upside down’ are candidates for a short sale. There are thousands of people with money ready to solve all of your problems if your home has equity! If your home is ‘upside down’ there ain’t NOBODY with half-a-brain that is going to buy your home for more than it is worth!! Remember, ALL of the TE must be paid!!! An investor may wait to buy the home at auction when the subordinate notes are wiped out, but that does a homeowner no good.

May I also point out that while a auction will wipe out the debt of the lender who foreclosed, it does not, wipe out the subordingate debt of the homeowner, it only wipes out the collateral. Consequently a home owner will either be on the hook for the total debt still owed, or, if the lendor forgives the debt and walks away, for a percentage of the forgiven debt equal to the homeowner’s marginal tax rate.

So given that your marginal tax rate is 10% and the debt owed is $1,000,000 woujld you rather be on the hook for a million bucks or a hundred thousand bucks?

Is this a difficult question? A successful short sale insures the latter outcome.

I only market to people who are upside down precisely because I have no money to compete with the big boys who have already made a bundle and can afford to ‘buy equity’.

EquityHunter and I are not competing in the same market seqment. The homes that EH deals with are, must be, at or above FMV. I only deal with homes that are below… too often way below… FMV.

Hope this helps.

14

Wheelema >>
Let me expand on your accurate comments about lenders a bit. Most of the large servicers out in the real world are concerned about delinquencies and foreclosure/REO losses and actively work to mitigate those losses. Also, most of those same large servicers do not have a financial interest in the loans they service. The loans are pooled into securities and owned by institutional investors. So when some “guru” espouses a notion that the lenders must take radical steps to maintain liquidity levels, blah blah they are chiming a mantra that is about 20 years out of date.

Also just a point of clarification on the “wiping out” of subordinate debt. There are instances, such as with purchase money debt in California, where no deficiency judgments are allowed. So a junior lien being wiped off title would have the effect of making it uncollectable if the lien was established in a purchase money transaction.

15

Where do they run a name search to find out if you have any assets? If they run a LLC members search too? Just curious.

16

Equity,

I love it when a homeowner gives me the same spill you tell them about the tax consequences.

And i win them right back over. Only a newbie investor can’t reel in a rebuttal to your scare tactic.

If you are a realtor, how do you handle a response too, i can buy your home now? The realtor only wants to list your house and has 20 other listings to maintain at the same time. Do you want someone that is putting you on the back burner and might sell your house or one of 20 others? Or someone that wants to buy your house now personally and help you avoid the would if fact your home doesn’t sell? Remember it takes realtors 3-6 months to sale a home. Do you have that much time? I can buy your house by next week. May i continue?

17

boo ya!

18

I am not an attorney and i am not sure if i really understand your statement. But if you are saying that the trustee will also have beneficiary interest. I think one person holding two titles as such will make the land trust null and void.

Meaning it won’t be a legal entity, plus you will have a hard time getting a title company to insure the sale of the property.

19

In response to Wheelas response. The subordinate lienholder usually will NOT come after the debtor after the fc sale because there are NO assets to attach. So that argument to the debtor is just a scare tactic in my opinion. Whella can also provide proof of a judgement to support the argument.

EH

20

EH,

Please forgive me but I was under the misapprehension that we were discussing resolving a foreclosure pre-auction, not post. Furthermore, while a subordinate lender may choose to not pursue a deficiency… and quite frankly it is a crapshoot… the paper will enter the secondary market, someone will pay pennies on the dollar for it, and that person may hound the homeowner and screw up their credit well into the future.

A release is always the superior consequence and that occurs only through a short sale.

Any other position is disengenous and IMO is a disservice to the homeowner.