Does anyone have any experience in creating/working with Title Holding Land Trusts (like a PAC Trust) in Texas?
thanks,
Steven
Yes. Due to the changes in Texas law that affected lease options by categorizing them as “executory contracts”, PAC Trusts are used by many investors in Texas to be in compliance with the law. I, personally, do not invest in Texas property but work with investors who do.
You 2 are doing a swell job peddling that redundant crap.
:beer
I love you Jason… :banana
Steven,
I’m not here to argue or to get into personal issues with posters who seem to live for that eventuality. I can only tell you that I have used PACTrusts for a decade to acquire and to hold properties without a single problem. I can assure you that my answer to you re Texas and the use of this investment vehicle in that state is accurate. Again, good luck to you.
Excellent, could you cite some case law in the State of Texas where Pact Trusts were challenged in court and how it prevailed?
A PACTrust is not an executory contract, nor is it a sale. I know of nobody who has had it challenged as it is in compliance with the law. I went to the NARS board and they have dozens of current ads for RB’s, ground partners, etc.
On what grounds would you expect it to be challenged? Let’s turn this around. The onus is on you. Please furnish case law showing it had ever been challenged. Thank you.
…please show a case where it is actually needed to
buy and sell real estate.
A land trust is simply a way to hold title. Some take title in their own name, others in an LLC or corporation, others as joint tenants, etc. I use a land trust to acquire and control property anonymously, and without having to obtain new financing or be on title or have any loans in my own name. The best feature is that it converts real property to personal property enabling me to obtain the goals of a lease option, WRAP, land contract, equity share, etc., without the inherent problems associated with each.
To apply it to this poster’s question, in Texas, lease options are generally a no-no unless you are a licensed real estate agent. They are executory contracts. Any lease of 3 years or more with an option to purchase is also a violation of the DOSC.
The IRS considers lease options as “disguised sales” if there is a predetermined price and rent credit or credit toward the purchase price is allowed, creating tax headaches. According to the IRS, a masked land sales contract occurs when, “the Tenant is in possession of the property and makes the payments, which apply in part against the purchase price, but has not yet received the deed.” "When a Lease Option is a masked land sales contract, the Tenant with a purchase Option becomes an owner of the property with equitable ownership in the property! [McClellan v Lewis, (1917) 35 CA64] In other words, if it smells like a duck, walks like a duck…
Please notice that they did not talk about whether the Lease Agreement was separate from the Option Agreement or, if they were dated at different times or, even that they were offered by different parties. By proper usage of the land trust, our poster can accomplish the same goals as a lease option by using the lease without an option but giving a first right of refusal to purchase the property at FMV at the end of the lease. As long as the lease is less than three years, there is no DOSC violation as the land trust is exempt within these parameters.
My main reason for using the land trust is to help people obtain home ownership who could not otherwise qualify. Only 14% of Tenants in a Lease Option ever get permanent financing. It is this fact that some LO Gurus use to hype up Investors to be in the Lease Option business. A Lessee gives you a $5000 Non-Refundable Option Deposi,t and then can’t get qualified or leaves early. Now you can get over on someone else by getting another $5000 Deposit from them. This is taught as a Cash Flow strategy by some of the biggest Gurus. In my opinion this is Fraud.
Upwards of 90% of the RB’s in the land trust I use complete the purchase. In my case, my batting average is 100% over 10 years. I have never had to evict a tenant and none has not qualified to refinance at the end of the lease.
So, to answer your question, the trust is not actually needed to buy and sell real estate. For my own purposes, I find it to be the best way to go for all the reasons stated. I hope this clarifies this issue for you. Good luck to you.
trustpro,
I am somewhat familiar with the PACtrust, through Bill Gatten himself. As a matter of fact in “My Opinion” I helped Bill out when a young lady from Tijuana was looking for him and I told her he was a Monk in Monastery somewhere in the Himalayan mountains.
The reason the PACtrust becomes a controversy when it is mentioned on just about any discussion board except www.landtrust.net is the way it is presented.
Take this thread for an example, a poster with one posts asks about it and then you come on with just a few posts and tell everyone about the method’s of using a PACtrust. When you said about Lease Options “This is taught as a Cash Flow strategy by some of the biggest Gurus. In my opinion this is Fraud.” I always use in “My Opinion” also to prevent charges of Libel.
You should realize that there are some course writers who have Lease Option product’s on this site and the site administration receives a compensation out of the sales of their products to help maintain the site.
Take me for an example I am one of the “Need for Greed” Subject To investors I believe is the terminology used when referring to what I do, when I receive the whole pie rather than half the pie.
The key to posting on a discussion board is to offer help to the posters when they have questions about a deal they are working on or want to work on. When you have helped enough posters with answers that relate to their particular situation, not just mentioning one method of investing as the only way, you will find that you will be the go to person for answers and gain the respect of the posters.
Before this thread takes off into another “Flamer”, just thought I would give my views.
John $Cash$ Locke
Thanks for your input and advice. I was answering the original poster’s question and tried to direct the answer toward a Texas transaction. I have no idea who he is and responded directly to him. I told the others that the trust is not needed to buy or sell real estate. and that it is simply my preferred method for my purposes. I am not here to argue and am happy to limit my responses to the topic at hand. In my opinion, I was being baited, and I am not sure as to why.
I don’t post that often on message boards, came across this one, and thought I’d join. I know what you are saying about a single post and then someone coming aboard and praising that product. We run into that often with Nouveau Riche. If I offended any of the local gurus, that was certainly not my intent. I know about PACTrusts and offered my insight. Thanks again.
Trustpro,
That’s cool.
I respect that.
Yeah, what set things off was that the initial
post was from someone with only a post or 2 (was @
3 last I looked) and then you come and answer, with
only having 1 (at the time).
Just looked kinda fishy, especially when the topic
was PACTrust.
Lots of folks have been called on this while trying something
similar. It’s usually either 1 person, posing as 2 or more, or
a couple of folks in on the scheme.
Nothing wrong with a particular method of investing.
Just the way it’s presented in a discussion forum, is
what rubs folks the wrong way. And from what I’m
seeing, you did it in “good taste” and didn’t appear
“salesy”.
Coming from the PACTrust crowd, that’s not too common.
Take care.
:beer
Thanks, Jason. I didn’t realize that I was running with such a rough crowd. :banghead
trustpro,
Rough is being known as someone who sells Kool Aide to investors, you are doing just fine.
John $Cash$ Locke
Well, I have many investment properties in Central Texas and I hold most titles in Land Trusts. That’s a completely different topic than Lease/Option as discussed above.
Due to abuse of L/O, Texas changed the “rules.” You can not offer a L/O (legally) in TX unless the property is free and clear of liens, mortgages, loans, etc. I’ve done L/Os both ways: As a combo document and as separate docs. I tend to favor the separate doc approach to minimize confusion. I go out of my way to make sure the potential buyer understands what he is getting into. In addition to the Option doc, I also have them sign a Memo of Understanding in which I state in plain English, what the legal doc says. My option period is typically one (1) year. That gives the tenant a chance to clean-up/improve their credit rating, see if they like the house and neighborhood, accumulate the funds required by a regular lender as a down-payment, work directly with a formal lender. I don’t charge outrageous option fees and usually agree to refund all but $X as a retained fee if they do not exercise their option. The tenant pays their rent into one bank account and their option money into a separate bank account. I do not offer rent-rebate credit towards the option. There is absolutely nothing wrong with treating folks fairly and helping them help themselves.
Old Guy,
If you use land trusts, why do you bother to do a lease option at all? A triple net lease with a right of first refusal to purchase at FMV at lease termination is all that is necessary, and is compliant with both Texas law and the DOSC. There is no reason to do a lease option and no need for separate documents or an option agreement. I can only conclude that you use the trust only to hold title and don’t make your Tenant a beneficiary, in which case you are not taking advantage of the benefits of the land trust. Is that correct?