Sub2 - Is it legal?

General Real Estate Investing
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How does your trust holder remain a beneficiary if he assigns it to someone else.

I think the key term here is percentage. Once the home is placed in a trust, a percentage of beneficial interest is assigned. Example, original trustor keeps 10%, investor gets 50%, and resident gets 40%. You can use any number to get to 100% Hence the trustor still remains a beneficiary.

If he does not transfer rights of occupancy, how does he sell it and allow someone else to occupy. Does this mean that at any time your seller can now evict your tenant/buyer when ever he feels like it? He would have to have this right if he retains occupancy rights. If he does that what happens to you and the tenant or buyer?

No one said occupancy rights are not transferred. The Garn St Germain act does not say the trustor must retain occupancy rights. It says the trust can’t relate to the transfer of occupancy rights. The lease transfers occupancy rights not the trust. And a leases does not violate the DOSC as long as it is 3 years or less. As with any lease the trustor can’t just evict a tenant unless the tenant is not paying. If you read up on trust, you will find that the trustee is the owner of the property. The beneficiaries tell the trustee what to do with the property. So if the property has to be sold, the beneficiaries will direct the trustee to sell the property.

Also how do you go about convincing people to set up this trust? Surely you can not be telling them about it? That would be acting as a lawyer, and dispensing legal advice on how to get around the DOSC?

You don’t convince the homeowner. You sell them on the idea of the subject to, and the benefits. The DOSC is just one of the benefits you can mention. Then you let them know how you go about accomplishing the subject-to transaction which is via the landtrust.

I personally know a few large CPA firms that assist investors by recommending and setting up corporations and landtrusts. Are they dispensing legal advice or breaking the law?

Beggar Sue

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You’d do well to listen to Beggar Sue. As they say in the Guinness commercials: “BRILLIANT”.

Da Wiz

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i didn’t realize that beggar sue’s name was gary too. :slight_smile: I thought that framer asked gary the question

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Glad you piped in Tony. “think the worse that they would do is call the loan due, if they were alerted of the title change. the way most lenders are alerted is when the orig homeowners insurance pol is cxld. that is why we can’t let that happen. however why would a lender call a loan due that is making them money? if it’s current and there are no other issues, then they have no real reason to call it.”

Tony, here’s what happened to one of your subject to boys who thumbed their nose at the DOSC as you and Locke advise. This just recently happened in Michigan. Guy bought a house sub 2 and placed his tenant on a land contract. The loan was an ARM with 3 1/2 years to go at 4.7%. The BANK CALLED IT due a few months later.

The investor had to come up with an additional $16K because the comps just weren’t sufficient to enable him to payoff the entire loan in 90 days. He didn’t have it so the bank foreclosed and his tenant is now suing him. The bank will get the property back and issue a new loan at 7% or so. They’ll make money.

That’s why I feel so confident with a land trust. I change the homeowners policy and notify the lender of what I am doing. Not once has any lender even tried to invoke the DOSC once I quote Garn-St.Germain. However, two of Bill Gatten’s students have recently received DOSC violation letters from Washington Mutual and Countrywide and it took a letter notifying them that there had been no sale, simply a transfer into a land trust to get them to back off. Don’t say banks or lenders never invoke the DOSC. There have also been recent cases in Colorado, California, Illinois and Texas of which I am aware.

Have a good one, Tony.

Da Wiz

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Tony you are right. It does say Gary right on the top of his question. I don’t know how I missed that one. Wiz can you ever forgive me.

Do you guys ever sleep. I don’t

Beggar Sue

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gary u left out the part that says what the reason was the bank called the loan due. where is documentation this even happened? oh wait, let me find one of the 500 some other threads u cut and paste from regulary. maybe even check the “other” www forum.

u now admit the DOSC IS the reason u use the trust. and u use the Garn St Germain act (actually sounds like na-na-nana-na, i have it, and u can’t have it!) as more leverage to strong arm the lender. u should be a mafioso big guy. are u arizona’s version of Tony Soprano? dang it anyway! i wanted to be him!

i don’t thumb my nose at anything. just do it in the open.

i never said banks will never invoke the DOSC, just asked why they would do it on a functional loan. it’s most always a stupid, irresponsible mistake that makes them invoke it.

how many cases recently in CO, TX, CA and IL? even several hundred is minimal to all the sub 2 deals going on around us every day. i doubt there are half that. point me to the cases, and let’s see why the DOSC was invoked.

the trust is not a solve al Mr Gary.

ok, i gotta get ready for church now to repent my sins.

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Church will be good for you, Tony. You said, “u now admit the DOSC IS the reason u use the trust.” No, Tony. I just used this example to show how reckless and irresponsible it is to advise students to ignore the DOSC. Exemption from the DOSC is only one of so many benefits a land trust provides.

Da Wiz

P.S. to Beggar Sue: Chip in at any time. It’s good to have a fellow warrior to clean up the Dark Side.

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i think sue will soon see the light and the dark side of the moon

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I don’t see it as a dark or light side. It is more like the Nays and the Yays. Everyone stands their ground and no one gives in. And I must say that we are keeping it professional this time without the personal blows. How did we manage to pull that one off. Who wishes to toss the first stone. :wink:

Isn’t it funny how the original post just got some light shined on it a year later?

I thought you were going to church Tony? Did you say a prayer for the rest of us?

The Beggar

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gary is a good fighter, as i am sure since he is offline right now, he is off getting the answers to my questions about WHY the DOSC was called on the loans he has used as examples a few posts ago.

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Yes Big Wiz is a true warrior. And all those who oppose his rein of terror shall be crushed. LOL :smashpc:

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Mr. Beggar Sue

"No one said occupancy rights are not transferred. The Garn St Germain act does not say the trustor must retain occupancy rights. It says the trust can’t relate to the transfer of occupancy rights. The lease transfers occupancy rights not the trust. "

So you do admit that there is a transfer of occupancy rights? So you just say that the lease is transferring it not the trust? But doesn’t that mean there still was a transfer of occupancy? Now then does not the resulting lease violate the DOSC. A pig by any other name still can’t fly, unless you put it into a Gary NARS trust I suppose.

I can suggest to anyone I know that they can put their assets into a trust, But I can not help them fill it out, or direct them to put me on their assets benefits list. It would seem to be a conflict of interest, or earning a fee.

Or is all of this done on the sly with a wink and a nudge. “Well your honor, I only told them about the NARS trust, they found it filled out and just happened to put my name on it as a beneficiary that also happens to have more control and a greater share of the potential profits. I did not intend for them to do that.”

And I think that CPA’s are legally qualified to set up a corporation. I can set my own up, but I can not set one up for my buddy nor get paid to do so. I can suggest that he investigate getting one but I can not do it for him.

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Framer35. May I call you Framer?

So you do admit that there is a transfer of occupancy rights? So you just say that the lease is transferring it not the trust? But doesn’t that mean there still was a transfer of occupancy? Now then does not the resulting lease violate the DOSC. A pig by any other name still can’t fly, unless you put it into a Gary NARS trust I suppose.

Have you read any of the previous posts on this subject. Someone brung up that same point and I counter pointed. Do you have anything different to add? I would love to hear a diffent view on it.

My post that you quoted should answer your question. In previous posts I iterated that there are 9 exemptions to the DOSC. The NARS trust uses 2 of them. I can use all 9 of them in any combination I choose and not violate the DOSC. I didn’t read anywhere in the Garn ST Germain act that reads, “Thou shalt choose only 1 exemption from the provided list. All others are voided upon your chosen selection”. I also made a statement that a large number of real estate investors hold title to their investments in a trust. They also have tenants in their property. That is not a violation of the DOSC.

I can suggest to anyone I know that they can put their assets into a trust, But I can not help them fill it out, or direct them to put me on their assets benefits list. It would seem to be a conflict of interest, or earning a fee.

There are attorneys at NARS that help facilitate and review every transaction. Landtrust documentation is pretty simple. You can even buy some online. What is an asset benefit list?? Where is the conflict of interest. The homeowner and the investor has the same interest. Helping the homeowner move on to better things, securing the homeowner equity and getting a tenant into the property. The only fee charged is to the resident beneficiary paying for the right to be a beneficiary of the landtrust.

Or is all of this done on the sly with a wink and a nudge. “Well your honor, I only told them about the NARS trust, they found it filled out and just happened to put my name on it as a beneficiary that also happens to have more control and a greater share of the potential profits. I did not intend for them to do that.”

I don’t comprehend the context of this statement. All beneficiaries sign the beneficial agreement. There is nothing glib about it. The trustor’s equity is normally established at trust’s inception. That does not mean an agreement can’t be made for the trustor to participate in future profits, and there is nothing wrong with the investor getting a greater share of the potential profits. We are in the real estate business. No one has more control of the property. All beneficiaries must agree on what happens to the property

And I think that CPA’s are legally qualified to set up a corporation. I can set my own up, but I can not set one up for my buddy nor get paid to do so. I can suggest that he investigate getting one but I can not do it for him.

I don’t know of any legal qualification requirement to help others set up a business. There are plenty of companies online that help set up corporations. Most are neither accountants nor attorneys. Some of them are also quite large. Maybe someone can jump in on that. THAT IS ALL

The Beggar

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My state: Colorado
Disclaimer: I am NOT an attorney, nor offering legal advice.

My thoughts: It is my understanding, and the way in which I am operating, that ANY transfer, including a simple quit claim, CAN trigger the DOSC. It’s up to the lender. Their remedy is foreclosure. 30-days notice is required here, which would give me more than enough time to refinance, if needed, and I have no problem doing that.

In order to avoid any possible conception of fraud, DO NOT tell the seller to not inform their lender. In fact, I have heard of a number of sub2 buyers sending certified letters to the lender to inform them that they are buying the property sub2, are taking title, and will be assuming the payments of the existing loan, just to cover all bases. I have no intention of doing this, but some people do it.

-Jassen

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Jassen,

You are right. Any transfer of ownership can trigger the DOSC. However land trusts are exempt and do not transfer ownership, hence no violation. Ownership of the property rests with your Trustee.

Da Wiz

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Hello,

I keep hearing the term, “DOS” and “violation” A violation of what? The seller never agreed to inform the lender if a sale would take place, right? There are no laws in most states forbidding a subject to. The seller has legal title to a property and can sell without notifying the lender. So what is the violation? Please help clarify? Thanks ;D

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One more thing. What is wrong with concealing something that took place legally? We all conceal things in our lives. My password to this account is concealed. Am I breaking the law?

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hobbyinvestor,

You asked: “a violation of what”? The Garn-St. Germain Act of 1982, an act that banks fought consumer groups to get passed. Here’s the link:

http://www4.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00001701---j003-.html

The term “due-on-sale clause” means a contract provision which authorizes a lender, at its option, to declare due and payable sums secured by the lender’s security instrument if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent; A violation is not a crime, it’s just not very smart.

Da Wiz

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Wiz,

 I think I finally understand this whole concept, but please correct me if I'm wrong. Basically, a lender can invoke the DOSC if ANY transfer of ownership (under their individual opinion) takes place. A land trust however, Is exempt BY LAW to be viewed as a transfer of ownership ONLY IF the "seller" is listed as a trustee. The investor is also listed as a trustee, therefore the property cannot be "recalled" by the "seller" if they have second thoughts. The property is then transferred to the investor by the "seller" conveying their remaining interest in the trust after they have been compensated for the agreed upon amount.

I got a bit confused during all the legal “stuff” earlier in the post, so I hope I have these basic concepts correct.

My question is, “if the lenders view ANY change in ownership as a violation, and its left to their discretion, can the addition of a trustee(the investor) be viewed as such? The Land trust may be legal (i still don’t totally understand that part) to change the FORM of ownership, but isn’t the addition of another party with an equitable interest in the property a violation IF THE BANK WANTS IT TO BE? Or is that also protected by law?”

Again, excuse my possible misinformation in the subject :-. But I’m trying!!! :eek:

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the land trust is a concealment of ownership otherwise it would not exist. by using it for the reasons Wiz uses it is to conceal the change of ownership to AVOID the DOSC being called. be careful if u set up a trust for this reason. do a search here for ALL the posts on this issue and u’ll see Wiz in about a million shining moments.

wiz will tell u it’s legal becuz, in actuallity it IS legal to have a trust, but not a wise move especially for a newbie to use for this reason. he will argue the point until he is blue in the face but the fact still stands that the only reason he uses the trust, and sites the Garn St German Shepard Act is becuz he can, and becuz it’s his cure for the common cold.