Being scared of the lender!!!

Well, not exactly scared. I am doing “subject to” deals and I have two documents that I mail the lender once I get the house under contract. The first one is an “authorization to release information” which is signed by the seller authorizing their bank to release to me (sonriffic) any information I may need for a loan balance, payoff, credit transaction, loan transfer, or loan inquiry. The second document is a “notice to the lender” which is also signed by the seller advising the bank that my company will be taking care of the seller’s account and that the seller would appreciate all information, instructions, documentation or anything related to the house or any business concerning the house directed to me (sonriffic). It also states that I (sonriffic) have the sellers authority and permission to act in any and all ways regarding the property.

Here’s my question-These documents seem to allow me to do what I need to gather loan data and it also gives the bank a heads up that my company will be taking care of the house and possibly making the payments but will these two letters raise a red flag in any way? I am worried that the bank will see these letters and immediately see that an investor is involved with their property. I can’t imagine that they don’t notice when all at once the mortgage is being paid by a corporation instead of the people who took out the loan. Even if I tell them I am a ‘property manager’ for the mortgagees house, some loans not only have a due on sale clause but also a ‘due on transfer’ clause which means the lender has the right to not allow renters into the home. Somebody please put my mind to rest on this one. I really don’t want lenders furious because I volunteered information in the wrong way. What’s the best way to deal with the lender? Any suggestions?

Thanks,

Sonriffic

Hello sonriffic,
As you said the banks are really not that dumb, and yes they could call the note due. However, as long as everythng is being paid on time, and they are making their money they most likley will not do anything. If a bank calls a 200k note due, how many people are just going to write a check to cover it? When that happens the bank will usually get nothing and then have a non performing note, they would much rather somebody pay that payment.

trwilliams

trwillaims,
Thanks for the response. I am still wondering if I should make the wording different as to not make the lender get too interested. Any thoughts?

Sonriffic

If I did subject 2 (and I do not) I would only do the letter of authorization to the bank if you get the correct power of attorney you would not need the other letter sent to them too many red flags!

  1. Find a copy of the Garn-St. Germain Act. http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00001701---j003-.html so you don’t have to look it up.

  2. Under Title 12, Chapter 13, Section 1701-j-3 you will find Preemption of Due On Sale Prohibitions.

  3. Under clause (d) you will find:
    Quote:
    (d) Exemption of specified transfers or dispositions
    With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon-"

  4. In line 8 pursuant to clause (d) you will find:
    Quote:
    (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or

Therefore, so long as the borrower is, and remains, a beneficiary in the trust that owns the property serving as collateral for the loan the lender cannot accelerate the loan based on it being an unauthorized transfer. There are no court cases that I am aware of. It is the law…and it is Federal Law which places it on top of the food chain. This is one of the reasons why when executing a PACTrust/NEHTrust the settlor remains a beneficiary throughout the term of the trust.

On the other hand, if you as an acquirer of the property do so by receiving the entirety of the beneficiary interest in a trust that owns the real property you have violated the lender’s protections under the provisions of the due on sale clause and if discovered they could exercise their right to accelerate the loan.

That’s why a NARS land trust is the safest way to handle Subject 2’s, no subterfuge and full disclosure.

Sonriffic,

Glad to meet you.

Here is an excellent article by Bill Bronchick that will help you.

http://64.78.5.175/public/121.cfm

However, I do not use land trusts in my Subject To deals, but for those that feel the need, I say have at it. My main problem with using them and always has been, which was proven correct in North Carolina, is that they consider using them fraud. Usually it is not long before other states will look at them the same way.

John $Cash$ Locke

That’s ridiculous, John, and you know it. Thousands have been written since 1984. The difference between the trust and your method is the trust is perfectly legal and doesn’t require non-disclosure or subterfuge. I guess it’s time to release your new course or book or whatever is next.

In this case, a couple of guys MISUSED a land trust in North Carolina (NOT A NARS LAND TRUST), making themselves beneficiaries and ripped off the Seller. They could have done it just as easily using a LEASE OPTION or subject 2.

My partner in North Carolina uses trusts all the time and has written several since than without a problem. They are perfectly legal in 48 states with the exception of Tennessee and Louisiana. Bill Gatten straightened you out before on this and you keep spreading misinformation.

No Attorney General can usurp Federal law. This isn’t rocket science, John. Here is a response I received from my Trustee, a non-profit corporation that handles all NARS Trusts:

United States Code

o TITLE 12 - BANKS AND BANKING
„X CHAPTER 13 - NATIONAL HOUSING
Sec. 1701j-3. Preemption of due-on-sale prohibitions

With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may NOT exercise its option pursuant to a due-on-sale clause upon

(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;

(2) the creation of a purchase money security interest for household appliances;

(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

(5) a transfer to a relative resulting from the death of a borrower;

(6) a transfer where the spouse or children of the borrower become an owner of the property;

(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;

(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or

(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

As trustee for many EHT Trusts for several years at this point we have not had a successful challenge from any lender on this law and no enforcement of their DOSC.

I really do not mean to come off harsh on this topic; however, sometimes we need to be reminded you do not need a parachute to jump off a curb. This statute is very clear and not ambiguous in the least.

In each case where we have had a lender state they were going to call a loan due we have provided them with this statue and notified them they could not do so and were barred by statue they have backed off. I really doubt you will find any cases on this topic. Specifically if they have used the program as directed.

Happy New Year.

Gary,

What’s ridiculous, have you been asked by any authority in any state about real estate investing like I was?

“While not mentioned by name, some of my activities have been commented upon in “NC AG Troubles” and another thread posted below that.

Due to ethical considerations on commenting about pending litigation and investigations, I am unable to fully respond and address both the misconceptions and valid concerns expressed in some of the communications posted.

I would welcome a call from Mr. Locke to discuss the legal principles involved, what is clearly recognized as legitimate activity on one’s own account, and how many practitioners of one or another of the discussed methods take themselves into trouble.

Both the Real Estate Commission and the Attorney General’s Office have no problem with legitimate business persons engaged in the purchase, rental or sale of their own real estate.

B. M. Brogden, Jr.
Chief Deputy Legal Counsel
NC Real Estate Commission”

I emailed Mr. Brogden and requested his phone number so that we could discuss Subject To investing in North Carolina. He graciously responded with his phone number.

I called Mr. Brogden in the afternoon of August 24, 2004.

Here is a synopsis of our conversation and was reviewed by Mr. Brogden:

North Carolina has no problem with Subject To investing as long as the following guidelines are adhered to:

The problem with the use of a “Land Trust” as a means of concealing a violation of the “due-on-sale” (DOS) clause is that even where the designated trustee is a real person or entity, the identity of the actual beneficiary is concealed or obscured.

This can constitute a deceptive, misleading or unfair trade practice in violation of Chapter 75, N.C.G.S, and, in the opinion of the Commission legal staff, is a circumstance tending to show the person actually controlling the trust is attempting to act as a real estate broker without a license.

Much the same is true for agreements, such as installment land sale contracts or lease/option or lease/purchase arrangements that are not properly recorded in a timely manner in the chain of title.

No reasonable person or prudent investor would fail to immediately and properly record a document transferring an interest in title due to the risk of loss associated with the failure to timely and properly record.

A person or firm truly dealing on their own account would typically obtain a deed, option or contract, properly notarized and recorded, in order to protect their investment.

Failure to do so is very convincing evidence that there is no real investment and that such person or firm is no more than an agent without a license.

The Subject To transaction is a matter of public record. The deed between the seller and buyer must be recorded in a person’s name or corporate entity.

As most of you are aware, I have not been a proponent of Land Trusts, however I have not advised anyone not to use them if they felt they needed to do so.

Subject To investors who are under scrutiny from the Attorney Generals office, as far as I gleaned are those who used Land Trusts or did not adhere to the following excerpts from:

Deceptive Acts or Practices
Article from Attorney General’s Office
Consumer Protection Section

North Carolina law provides that unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful and are subject to a civil injunction by the Attorney General.

So that you will have a better understanding of how this law applies the following is a brief, and by no means conclusive, checklist you should keep in mind.

(1) Intent to deceive, or the seller’s good faith or honest belief is not relevant or material to a determination of illegality.

(2) Opinions which are misleading or deceptive are unlawful.

(3) Any false inducement is a violation if it is likely to mislead a substantial segment of the purchasing public, or that portion of the public to whom the representations is directed.

(4) Failure to disclose a material fact is unlawful.

(5) Advertisements or representations which have a tendency or capacity to mislead are unlawful.

(6) Misrepresenting the’ nature of or the extent of a guarantee or warranty is unlawful.

(7) Any person who engages in a transaction which in whole or in part is in violation of an already declared statute may have in fact engaged in an unfair or deceptive act or practice.

Finally, in judging the likelihood that an act or practice is likely to deceive, the measure is whether it is likely to deceive the unlearned and gullible.

In determining this, courts generally are concerned with the impression a statement or representation is likely to create upon prospective purchaser, which arises not only from the sum total of what is said but also of all that is reasonably implied.

If you as an investor makes a full disclosure to your seller and buyer in your paperwork and I am not referring to CYA letters, but paperwork that adheres to the state statutes, this will go along way in resolving you of any wrong doing should a complaint be filed against you.

We also covered “equity skimming” whereas an investor collects the payments from the buyer and does not make the payments on the existing loan.

This is an excellent reason to use a licensed and bonded Loan Servicing Company to collect the payments from your buyer and the LSC makes the payments to the lender.

Sometimes it is too convenient when someone gets into financial problems to “borrow” from the buyers payment, thinking they can make up the payment at a later time.

This is a federal offense, however a great concern of the Attorney General’s office.

Of course, last but not least, the DOS (acceleration clause). As most everyone is aware this is an option the lender has and is not in the realm of criminal activity, but would leave open certain civil court liabilities.

However, I have found no case law that would suggest the lender calling the loan due pressing any other issue.

This I consider part of the risk versus reward in doing Subject To deals. My personal belief is if the loan is kept current, the lender is not out looking to call loans due.

They have enough concerns with the high rate of foreclosures in the United States today.

North Carolina has no problem with anyone purchasing or selling property in their state and feels strongly that the Constitution allows its citizens to do so. This was emphasized by Mr. Brogden.

I feel this is an important first step in understanding the concerns from both sides concerning the creative investing industry.

I would personally like to thank Mr. Brogden for taking the time from his busy schedule to talk with this investor and stating the views of his office.

I also said he should be glad he doesn’t handle the complaints regarding used car dealers.

John $Cash$ Locke"

Now what were you telling me about land trusts in North Carolina?

John $Cash$ Locke

John,

Did you ask the AG about the new JA trust? I created it just for North Carolina and as far as I know, it has never been successfully challenged in court.

And I can guarantee that for each transaction, I will charge no more than $5000 for my form completion services, MAX. It used to be more, but I’m trying to compete with NARS.

BTW, I’m offering a 50% affiliate fee for anyone who wants to sign up for my affiliate program. I’ll give you a nice plaque that states your are a certified JA. You can order online or at your local Spenser Gift Shop. You get free crystals from Sedona, AZ with each order.

People, quit hiding your transactions by recording the deed in your name, silly’s. Get a JA trust and all of your maintenance fees are automatically paid for!!! The JA trust solves every problem! Even if they don’t exist! Guaranteed!

Best Regards,

JeffP

P.S. Steve Crewchief says hi

Jeff,

I will run the JA trust by the powers that be and get an opinion for you.

However, let me express that from my first take it sounds terrific, there are plenty of (JA’s) out there that will go for this trust.

John $Cash$ Locke

Sonriffric

Here is one way you can look at it.
If you own a house in state {A}
And move to state {B}
You hire a company to manage your house “RENT” in state {A}
You would sign the same paperwork you are talking about. Limited power of attorney and such.
As long as the mortgage is getting paid on time and there is not a lot of equity. I don’t see a problem.

By a lot of equity. Say the place comps at 150 and you only owe 80 and rates go up 3.5 or 4 points in the next 48 months, Yep they might take a long hard look at you.

They want their payments !!!
You just manage the place. ;D
You are doing what a property manager does.
You have an obligation to make those payments on time every time.
And when your renters buy the place and you get a big fat check 8) :slight_smile: :smiley: 8)

Wishing You Success
Bruce

John,

You said: "The problem with the use of a “Land Trust” as a means of concealing a violation of the “due-on-sale” (DOS) clause is that even where the designated trustee is a real person or entity, the identity of the actual beneficiary is concealed or obscured. "

The NARS land trust is NOT used as a means of concealing a violation of the DOS. Anybody is legally entitled to place their property in trust. That is Federal Law. The clause in the DOSC that prevents the lender from calling the loan is the “unless prohibited by applicable law”.

Like I said, we are writing land trusts in North Carolina all the time and the AG can say all he wants, but cannot usurp Federal law. My trustee reports that he has never had a problem with any lender once he advised them of the trust and quoted the Garn-St. Germain Act. It’s sad that your method requires you to call the Attorney General to get approval. Ours is from the Federal Government.

The land trusts have been used successfully for 21 years. We don’t have to hide from the lenders. I called the lender when I moved from my own home and put in a Resident Beneficiary. No problem and no DOSC violation. There is only one truth and that truth is the NARS Land Trust does not violate the DOSC and offers both buyer and seller far more legal protection. You are not protected from creditor judgments, bankruptcies, divorces, etc. when you do a subject 2. You are with a Land Trust.

Keep the faith, John. With these little NASCAR groupies with clever names running around idolizing you and posting mindless comments that reflect the depth of their two-digit IQ’s, your birdseed bill must be huge.

Gary,

Take out your pencil and take some notes, just make sure you have some lead in your pencil.

Not once in my posts did I mention the NARS land trust, as I said before I am not not that aquainted with the way it works. This means that I have been speaking of a land trust as most investors use one.

Quote: “You are not protected from creditor judgments, bankruptcies, divorces, etc. when you do a subject 2. You are with a Land Trust.”

Answer: When I hold the deed in a Subject To deal that means I own the property, so whatever happens to the previous owners does not attach to the property, albeit a judgment, bankruptcy, divorce, etc., meaning I am protected. You need to learn about how Subject To deals are really done so you will not make false statements.

Some folks use Countywide lending as the big bad wolf in Subject To deals so I will give you a recent story related to me by one of my students.

My student called me and said they had a call from Countrywide on a Subject To deal they recently did. The gentlemen from Countrywide asked the student if he took the deed to the property and my student answered yes and thoughts of the loan being called danced through his head. The gentlemen from Countrywide responsed “we thought so the back payments are current and the payments are being made on time, have a good day.”

When the folks in North Carolina had a problem with the AG’s office over using a land trust several course writers jumped in and offered their services, John Hyre, Bill Gatten are two I am aquainted with. I personally in an un-offical capacity spoke with the powers to be and the folks in trouble attorney and offered a resolution to the problem after speaking with all concerned. Remember I do not use a land trusts, however I felt that I was helping all investors by resolving this issue and keeping a positive light for future creative investing deals.

Your scare tatics to promote what you believe do not impress me because I have done to many deals and still do my way without incedent. There are also thousands of posts from my students doing Subject To deals everyday without incident on our web site.

I have posted on Bill Gatten’s web site several times and was treated with the utmost respect, even though it was like the anti-Christ showing up in chruch. You however have managed to insult posters on this board including my self.

I have never asked any student or poster to join in with me when someone I am having a discussion with that I agree or disagree with, here again you are just guessing, because you should realize I do not need help at any time especially in your case.

I will now call Bill and tell him to back off the drops of water on your head, as I think you have been overly brain washed, your are acting like a player in the Manchurian Candidate.

John $Cash$ Locke

Well unlike John, I use land trust

But I side with John.

Gary, I think you are narrow minded :o

You always go out of your way to say something bad about somebody, thinking it will make you look better.
Well it does not. You just look like an old fool.
How do you think all those people made all that money ,NOT doing it your way ???
Your THEORY that everybody is wrong but you is just shameful.
Your a grown man. Try and act like one.

No its not your mother speaking
Just Bruce

Nascar 1

I have never said anything bad about John. He does his thing in his own fashion and he’s upfront about it. What can you say about a man who puts $$ in his name? I merely scolded him for posting misinformation or at least misleading information. I recommended a NARS land trust and he stated you cannot use a land trust in North Carolina. That is untrue.

My exchanges with John have been polite and productive. I said the land trust is the BEST and SAFEST method of handling subject 2’s, not the ONLY method of making money. That is true.

Bug off, Brucie. You say you use land trusts (I doubt it) and then you go into your personal attack. That’s your M.O. On several threads you and your little pitboss are the only ones making disparaging personal comments with very little to offer in the way of substance.

You can check all the forums and you’ll see my posts are designed to inform and assist people who are asking for assistance. I address them courteously and that’s the way I treat people. I’ve been a counselor and helped people for almost 30 years and I don’t need your help or interference with anything. After all, you are Just Bruce.

See you are just an old blow hard.

You HAD to put in a slam. You can’t help yourself.
It looks like you are just trying to sell your product or get a commission selling someone else’s. Maybe I am wrong.
Maybe you really think that everybody is wrong but you?

As for as John goes. I have never meet, talked to, sent e-mail, received e-mail, or IM the man.
Were you the schoolyard bully or were you the one who got beat-up all the time. So now you go after people online.
“My exchanges with John have been polite and productive”
Bull… Go read your past post. Attack Attack Attack. That’s your MO

And yes Gary I use Land Trust. But I understand other ways also work.
Sorry Gary but I don’t like bullies.
When you tell people there way is wrong and your way is right…YOUR WRONG.
So if you can TRY and exclude the attacks in your future post. :cry:

Bruce

Gary, aside from the negative attacks on anyone who doesn’t agree with your NARS trust, the only thing I see from you is either insults or negativity, or trying to steer people to the NARS trust. Surely you can offer more to investors who are looking for answers. Every single post you make is about NARS trusts. I am not knowledgeable enough to comment on them, but in my opinion, you come across as someone looking to drum up some business instead of being a fellow investor looking to offer help and/or advice. I would just like to see some free advice from your experiences…and there has to be more you can offer than constant mentioning of the NARS trust.

And this “nascar groupie” comment, and other insulting bashing posts are a real turn off to the average poster. You don’t have to agree with what $Cash$ and others say, but there is no need for the insults. As a newer investor, I am looking for educated answers, and not looking to be “steered” to certain things. There is no need for the attacks and insults…it takes away from the forums.

I think the Nascar comment was directed at me. Watch it. I might hurl some badmitton insults.

You guys are killing me here…

Please keep it civil and watch the name-calling, please…that goes for all.

Keith

While I am thinking about it…Note to Norm…history lesson about the French…so that no one with a French ancestry is offended.

YORKTOWN, VIRGINIA October 19, 1781 - In a stunning reversal of fortune that may signal the end of fighting in the American colonies, Charles Lord Cornwallis today signed orders surrendering his British Army to a combined French and American force outside the Virginia tobacco port of Yorktown.

Cornwallis’ second-in-command, Charles O’Hara, attempted to deliver Cornwallis’s sword to French general, Comte de Rochambeau. But Rochambeau directed O’Hara to American General George Washington, who coolly steered the British officer to Washington’s own second in command, Major General Benjamin Lincoln.

Without the French we would be singing “Hail to the King or Queen” today.

John $Cash$ Locke