Hello everyone,
Does the H.B. 725 stop Sub2’s in NC at this time or only if the state senate passes it in May 2006?
Also, for all REinvestors this site might be interesting,
www.narhri.org
I just wanted to post a link to what the House Bill 725 is about. I know Ca$h did in a earlier post. http://www.kse50.com/billdatabase/billTexts.php?show=NC+HB+0725
I had no idea that this bill was in the makings until I saw the post here on this site and wanted to get a better understanding of how much time we have here in NC.
IF any…
Thanks
This law will only apply to those considered real estate dealers. Those who use land trusts will not be affected.
NCvestor,
At this time it does not stop Subject To deals as the legislation has not passed.
Here is a link to watch what is going with the bill.
http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2005&BillID=HB725
You can pretty well bet it will not stop in North Carolina should this bill pass and if I were a betting person the smart money is on it passing from what I understand.
In North Carolina right now it is considered fraud to use a land trust this is what the Attorney Generals office says…period.
John $Cash$ Locke
John is correct to a point. The AG in North Carolina did say land trusts are illegal.
Federal law clearly states that for the land trust to be legal,
- it must be revocable,
- that the borrower need be only A (not THE) beneficiary,
- that the property can be freely leased out assuming no Purchase Option exists,
- that there is no leasehold being granted for longer than three years, and
- that the trust agreement stand alone, containing no provisions within itself for the granting of a leasehold interest (which is not to say that a subsequent and separate lease agreement wouldn’t/couldn’t grant such leasehold interest).
The NARS land trust meets these criteria and I know of several NARS members who write them regularly in NC without challenge. I am certain the AG in NC will not challenge legally written land trusts because he will lose in Federal Court. Unfortunately, most of us cannot afford to fight that battle.
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Do the words, “unless prohibited by applicable law” ring a bell?
No State Government or Lender Contract can overwrite “Applicable Law”. Federal Law allows ANYONE to place their property into their own Inter-Vivos Trust, Name Remainder Agents (Beneficiaries) and any one of those “Beneficiaries” has the right to reside in, pay for, and maintain that property as long as the Grantor remains “A” Beneficiary and the “Trust” does not relate to the transfer of occupancy rights. The State of NC cannot overwrite Federal Law! PERIOD!
Has the State of NC and others successfully prosecuted would be investors using Land Trusts? Absolutely! They deserved to be prosecuted. They used them illegally, named themselves as Trustees and ripped off the Seller. Were they NARS Trusts? NO! Not once.
I’m on your side, John. It is my belief that subject 2’s should be legal, whether done in or out of a trust and I think the AG in North Carolina is way out of line. I’ll be the first to stand side by side with you to fight against any law that prohibits subject 2.
The new North Carolina and Texas laws are designed to stop the small investor and we all lose when that happens.
Gary,
In one post you say Land Trusts in the next post you say NARS Land Trust apparently you are confused by the difference if there is one.
The test does not come until someone files a complaint with the Attorney Generals office and then they will find out whether a Land Trust is fraud or not, as some investors there have already found out the hard way. The state of North Carolina has already expressed their feelings on land trusts, they consider it hiding ownership and thus fraud.
Since I see nowhere the powers that be in the state of North Carolina talked with you to express what they consider fraud or brokering without a license in their state and until the time they do, you are the one posting incorrect information.
Read it one more time Gary…
http://www.reiclub.com/articles/nc-commission-answers
You may think you can argue with me, but the article states the facts, which you are unable to do as you have nothing factual to dipute what Mr. Brogden has related. So before you tell someone it is legal have some real proof or some person is likely to find out the hard way you gave them mis-information.
John $Cash$ Locke
Thank you Gary and $Cash$ for your replies.
How disappointing the news is to hear. I know that if the investing community doesn’t make a stand, that simliar laws (against the investor) will appear in more states…ITS ONLY A MATTER OF TIME…
Iam only a newbie but i feel that there are better compromises that can be presented to protect the “public” without killing the investor.:grim:
:sad: :sad:
Thanks
Dianna
Any suggestions on how to get the NC Senate to re-write the bill 725?
or am I trying to part the Red Sea?
Dianna
I think we are trying to part the Red Sea but if someone will play Moses, I’ll join in. I apologize that John and I may have confused the issue a bit. NC Bill 725 is targeted against the investor who buys a property subject to an existing loan, then resells the property by lease/option or land contract to a consumer. (It has nothing to do with land trusts).
The proposed bill requires the seller to get express written permission from his lender before transferring a property subject to an existing deed of trust, which will never likely happen. And, even if it were possible, the time frame it takes for a seller to get his lender’s permission while he is in foreclosure is wholly impractical. This will hurt the seller who is in foreclosure and seeking to simply “dump” his property for whatever he can get. If the investor can cure the seller’s back payments and/or negotiate a short sale with the lender, everyone walks away happy. If a seller has no options, he is going to walk away from the property and the bank will have another REO. Everyone loses.
However, real estate brokers are exempt and may buy “subject 2” without these restrictions. Does that raise any suspicions as to who is behind this bill?
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John says the AG has made land trusts illegal in N.C. I disagree. He has DECLARED them illegal, but Federal Law allows ANYONE to place their property into their own Inter-Vivos Trust, Name Remainder Agents (Beneficiaries) and any one of those “Beneficiaries” has the right to reside in, pay for, and maintain that property as long as the Grantor remains “A” Beneficiary and the “Trust” does not relate to the transfer of occupancy rights. The State of NC cannot overwrite Federal Law! That is not just my opinion, but that of Bill Bronchik and Bill Gatten as well.
Here’s a perfect analogy: Many states have DECLARED AND LEGISLATED that marijuana possession is legal for medicinal purposes. However, whenever so inclined, the Feds come in Gestapo-style and raid a cannabis club, taking all the pot for themselves. Federal law ALWAYS supersedes State Law.
I don’t buy real estate. I buy beneficiary interests in land trusts ONLY after the Seller has placed the property into a land trust, and transferred title to his Trustee, which is his legal right to do under Federal Law. Once in the trust, the Feds and the IRS consider it to be PERSONAL PROPERTY.
I assume the payments subject 2 in the same way as anyone else, but I am buying a beneficial interest in a Trust (PERSONAL PROPERTY), NOT in the property itself, which is legally owned by the Trustee. I never take title. I never own real estate. On my personal loan application, my ownership is listed under stocks and bonds.
Once my transaction is completed, the Lender is powerless to exercise the DOSC due to Garn-St.Germain Law.
In my opinion, this will be the only way to legally acquire a property “subject 2” if the bill is passed in NC. Current status is that the bill has passed the House and is in committee in the Senate. I urge everyone to write the politicians in NC who will be voting on this bill and voice your opinion. Here is the link:
http://www.ncga.state.nc.us/gascripts/members/memberList.pl?sChamber=House
Gary,
I did not write the legislation in North Carolina and the reason for this part of the bill should be quite obvious about what the law makers think about using trusts.
“Real estate resale transaction. – Any agreement however denominated or structured with right of possession in the buyer through which a person who is a buyer contracts with a person who is the owner and seller of residential real property to transfer real or equitable title to the residential real property to the person or the person’s agent, representative, or designee or into a trust for which the person or the person’s agent, representative, or designee serves as either trustee, beneficiary, or both and that remains subject to an existing deed of trust or mortgage.”
This portion of the bill says if you do this you are brokering without a license. Note that the word Trust is used in this part of the bill.
Should this bill pass, you can explain to the Attorney Generals office about the legaity of your trust, as states do have the right to tell people how to conduct business in their state and what licensing is required to do so.
John $Cash$ Locke
We agree to disagree, John. I enjoy the repartee, however. As I said, the analogy to marijuana legalization is pertinent.
States can pass any law they want, but when and if challenged, federal law will win out. Let’s wait and see. It’s good to see we’re on the same side, however, as the small investor is being attacked.
Gary,
Whoever drafted this bill took a different posture than just saying trusts are illegal, it looks like they worded it to stay away from arguing federal law and confined it to specific state statutes.
By these words “a buyer contracts with a person who is the owner and seller of residential real property” so they are not saying the trust is illegal they are saying if you do not have a real estate license and approach a seller about puting their property in a trust then you are brokering without a license. This is not covered by Federal Statute as they did not attack the trust itself, but if someone approaches a seller to put their property in a trust and they are involved in the deal in any capacity. A lot of thought went into this one.
I have spent many hours on the phone with the powers that be listening to the cases against investors who in the eyes of the state were not operating in a professional manner. At first I took the position the realtors board was behind this legislation, however after listening to what turned out to be case after case of what some investors were doing to sellers I had no idea about the amount of poor investing tactics or just downright illegal activities were as prevelant as they are and becoming.
This type of legislation was bound to happen not only in NC, but other states where sellers are being scammed out of their properties. Look at how the states are approaching pre-foreclosure laws with new legislation. What happened to let’s make it a win/win for everyone involved in the deal in our great industry?
John $Cash$ Locke
I agree. I don’t work pre-foreclosures, John, and ALWAYS protect my seller’s equity.
As to approaching a seller about putting property into a trust, I feel confident this part of the law is probably unconstitutional and I don’t think that is what they are saying. As I read it, they say a buyer who contracts with a person to place their property into a trust. I don’t contract with a seller until he has placed the property in trust. Everything done after that falls under Federal law and is legally unrecorded.
I am Certified by the Dept of Real Estate in California under its Continuing Education Program as a Trust Consultant (Asset Management and Protection Specialist). I don’t buy or sell real estate, only provide counsel and information to the Seller as to how best manage and protect his asset – his home.
Most Real estate brokers are unqualified to consult on trusts. The 1st Amendment will come into play as well as NC is trying to force all seminars to include the language of the new law. I believe they are treading on thin legal ice.
Gary,
As they say in North Carolina “we don’t care how you did it in California or anywhere else for that matter you do it our way here.”
Someone is going to approach the seller about using a Land Trust and whomever that someone is will need to be licensed, if they are involved in the deal in any capacity. I do not see how this would be unconstitutional, just a law that the state passed.
You hit the button on the head when you said you were Certified by the Department of Real Estate as a Trust Consultant and apparently this is not unconstitutional, so if you consult with someone in North Carolina about doing a trust you would also have to fall within the laws they pass and even if a real estate licensee knows little about trusts this is a problem for the state and would not be against the rules as applied.
Well if the law passes I will wait and see who the first one is to give a seminar and not follow the law by not including the language of the new laws.
Do you remember the old saying “You can’t fight city hall”, can you imagine the resources a state has to fight this and the amount of time and money it would take anyone to prove something is unconstitutional that is selling a course?
John $Cash$ Locke
Apparently Bill Bronchik is itching to be the first to challenge it. These are his words:
"the most laughable porition of the bill addressed people like me, requiring all educational seminars to include a copy of the new law in our materials. I suppose the drafters of this bill failed to examine the first amendment, which prohibits the government from restricting the content of free speech.
I don’t regularly give seminars in North Carolina, but I might consider it just so I can dare them to enforce it on me."
Gary,
I think the words from a famous game show apply “well come on down” and meet the good ole boys from NC.
Bring your toothbrush and a change of clothes, never mind the clothes how do you look in orange?
Really lets see who jumps on the seminar circuit down here to challange this, it is one thing to talk the talk and another to walk the walk.
John $Cash$ Locke
I am certainly not a legal expert, and not at all qualified to give an opinion based on experience. But I can read and try to use my common sense. When I read all of this, it doesn’t seem to have anything to do with placing a property into a trust, which is legal. The problem NC has with all of this seems to be when any or all of the beneficial interest is transfered. I’m not sure how correct this is, but that is how I read it. Anyone can feel free to correct anything I didn’t understand.
It seems they want to prevent people from “hiding” the transfer, which can be seen as deceiving the lender. Even if the entire thing isn’t transfered, it seems like the transfer is done to keep the lender from knowing. That is how I interpret it. I’m not saying it is correct. I’m sure the knowledgeable investors will clarify any errors.
Personally, I may use some kind of trust down the road when I start buying and holding long term, but for sub 2’s, I’m just going to deed to an LLC and let them see everything. The DOS is a non issue for me, since they rarely get called. Most sub 2 deals here will have such little perceived equity that there is zero concern about it being unethical or immoral or whatever some critics call it. I am new, and my business will be ran in an ethical and moral way. I am not going into business to “hoodwink” or rip off a seller. I am doing to for profit, but in a fair and ethical way. If I do that, I won’t have any concerns.
By the way, I don’t live in NC, I live in Michigan. But I always read up on laws passed in other states, for educational purposes, and to prepare myself if things should change here. As I become more active and experienced, I will do all I can to contribute to my local investor groups and protect the investing business.
Regards, Tony
Tony,
Overlook all the whereas’s and wherefore’s, bottom line if you buy and sell houses in North Carolina as an investor they are saying conform to the Dealer Status rules, which makes it near impossible to do or make it easy on yourself and get a real estate license.
Just read between the lines.
John $Cash$ Locke
Tony
For a man that is not a legal expert you are doing quite well. Reason is the only real tool a man has to discern reality.
GAry keeps talking about transferring personality with one breathe, and beneficial interest with another. He keeps trying to call a rose by another name.
He talks about Federal laws trumping states laws. He forgets about the powers that the States reserve for themselves, namely the right to regulate trade and travel within their borders. RE investing is a trade, and they have a right to regulate it.
Our problem is not how to get around it, with a Trust, nars or otherwise, our problem is one of education, and public awareness. Trust me, if the people believe that all investors are crooks, they will and have cried out foul. Now that they have the legislature making more laws to stop an otherwise ethical practice. Why create more laws for the same purpose, which is protecting someone from fraud. Because they are politicians, and they answer to the voters, or who they perceive them to be.
Instead of trying to get around the laws and hiding maybe we should be above board and up front with what we do.
That is why we use a land trust. It is protected and legal under Federal law. I’m sorry you can’t grasp the concept. We don’t have to get around anything. The land trust is legally protected against the DOSC and you are naive if you think a state will be able to overturn a Federal law that has been in existence since 1982.
As a matter-of-fact, holding one’s real estate in this manner is a prudent estate-planning device, whether conveyance of ownership is the objective or not [e.g., see: Get That Property out of Your Name-Using Land Trusts for Privacy and Protection, by Wm. Bronchik]. Federal law (the Garn-St. Germain Act of 1982) emphatically prohibits lenders from taking exception to a borrower’s right to place its property into such a trust.
What you don’t seem to understand is that when the settlor (seller) transfers title to real property to his Trustee, that transfer is protected under Federal law. The Trustee owns the property, the settlor owns his trust which is personal property under the law. Any transfer of beneficial interest that occurs in the trust is of personal property (it is a beneficial interest in the trust, not the real estate) and is legally unrecorded.
Despite an almost universal ignorance of land trusts, the fact remains that anyone residing in, and making payments on, a property owned by a revocable, beneficiary directed, inter-vivos [“Illinois-type”] title-holding land trust, need only be made a co-beneficiary in it, in order to reap the myriad benefits of homeownership. For the resident beneficiary, this trust/lease arrangement actually provides pride of ownership, use, occupancy, equity build-up, appreciation and income tax write-off [Belden, 70 TCM 274, Dec. 50,802(M) re. IRC Reg. §1.163-1(b); IRC 163 (h)4(D); Rev. Rul. 92-0105, etc.].