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Land Trusts = Problems |
tcowan17
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Posted: 13:33 on 04-07-2008
Land trusts have long been the method of choice for conducting simultaneous closings on short sales. In essence, they allow investor to buy and sell a property with no money out of pocket.
As such, they have been promoted by real estate gurus for years as the perfect way for one to build their million dollar real estate business without needing a penny (other than to buy their promotional materials).
So why are so many state attorney generals concerned? Using land trusts, particularly the Warranty Deed to Trustee (transferring ownership of the property from the homeowner in default to a trustee who is closely aligned with the investor seeking to make a profit) can become problematic or often illegal in some states.
Likewise, the largest title insurance underwriters recently issued underwriting bulletins to their agents and offices indicating that transactions involving land trusts are to be avoided, or carefully handled.
Years ago when I first learned how to use the land trust, it seemed too good to be true . . . After several successful transactions, I finally found that my suspicions were correct.
Land trusts are used in short sale transactions by investors for these two specific reasons.
Most investors are trying to set up a simultaneous purchase and resale of the property (a simultaneous closing). A problem created when trying to do a simultaneous closing is that most people buying the short sale from the investor are going to go get a loan to buy the property. Just about all lenders providing loans to buyers have a seasoning requirement. Seasoning requirements state that the lender will not loan money on the property unless the homeowner has been on title for at least 6, 12 or 24 months. Land trusts have seemingly provided a perfect foil to this obstacle –– when in fact they are deeply flawed. In using land trusts investors are able to show that the homeowner or seller is still on title when in truth they are not. The land trust is a “smoke and mirrors” tactic used by the short sale investor that allows them to pull all the strings behind the scenes to gain the profits from the transaction. Unfortunately, they are misrepresenting to the end lender the true nature of the transaction. Likewise, investors using the land trust as a method to conduct a simultaneous close are committing actions that border on bank fraud.
Many investors doing short sales have tried to create a “subject to” transaction in which the investor will short sale 2nd and 3rd mortgages (thus creating the equity and future profit). The only way to complete a subject to deal is through using a land trust. The investor would then “take over” the 1st mortgage “subject to” the existing mortgage (thus eliminating the need for the investor to use their own cash or credit to “buy” the property). Laws have been enacted specifically to eliminate this practice.
What’s amazing to me is how many investors are willing to put themselves on the line by ignoring the risks inherent in these type of transactions involving land trusts, when a better way exists.
As short sales have grown more common, more Realtors and investors have migrated over to what was once a niche market. I’m curious . . . how many Realtors have attempted a short sale using a land trust? Also, how many investors are still trying to close deals using land trusts? What have your experiences been? What questions were raised?
_________________
ted cowan, SREC Coach
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jackbenimble
125 Posts
Member Since: 12/04/2007
Canyon Country, CA
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Posted: 15:23 on 04-07-2008
I have tried about every possible way including land trusts. Double close using a grant deed is the best hands down. There are NO seasoning issues the way we do it despite the consensous claiming so.
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tcowan17
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Posted: 13:17 on 04-08-2008
"Double closing using a grant deed is the best hands down."
That is usually an accurate statement, however the information you provided is too incomplete for me to completely answer the question. I would need to review some of your deals particularly looking at the following documentation: the title commitment prepared by the escrow agent or title attorney that is sent to the end buyer's lender and compare that with the two HUDs, the one for the first closing where you are the buyer and the second for when you are the seller. If all of those documents are conguent and consistent with two deeds being used back to back and being recorded back to back then you are doing it exactly perfectly right. That is how the option contract method sets it up for it to happen
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loon
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Member Since: 03/27/2003
Duluth, MN
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Posted: 13:39 on 04-08-2008
JackB, I look forward to your reply, keeping the typical investor in mind. You and I have had some dialogue about this, and I think you said that part of the reason seasoning isn't an issue for you is that, as a mortgage broker, you can write loans yourself that don't have seasoning requirements. Since most of us cannot do that, we need to address the seasoning issue in other ways. If you didn't or couldn't write loans yourself, how would you do that?
Dragging a buyer to our own chosen lender--and assuming we even know one who'll do no/low seasoning loans--is not always possible unless the buyer's really in love with my house and will do whatever it takes to get it. Isn't it the case that most don't want to fill out more applications and will just keep looking for another house?
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jackbenimble
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Posted: 20:19 on 04-08-2008
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On 2008-04-08 13:17, tcowan17 wrote:
"Double closing using a grant deed is the best hands down."
That is usually an accurate statement, however the information you provided is too incomplete for me to completely answer the question. I would need to review some of your deals particularly looking at the following documentation: the title commitment prepared by the escrow agent or title attorney that is sent to the end buyer's lender and compare that with the two HUDs, the one for the first closing where you are the buyer and the second for when you are the seller. If all of those documents are conguent and consistent with two deeds being used back to back and being recorded back to back then you are doing it exactly perfectly right. That is how the option contract method sets it up for it to happen
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I Don't have any questions just sharing. I agree with your comments on the trust.
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jackbenimble
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Posted: 20:30 on 04-08-2008
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On 2008-04-08 13:39, loon wrote:
JackB, I look forward to your reply, keeping the typical investor in mind. You and I have had some dialogue about this, and I think you said that part of the reason seasoning isn't an issue for you is that, as a mortgage broker, you can write loans yourself that don't have seasoning requirements. Since most of us cannot do that, we need to address the seasoning issue in other ways. If you didn't or couldn't write loans yourself, how would you do that?
Dragging a buyer to our own chosen lender--and assuming we even know one who'll do no/low seasoning loans--is not always possible unless the buyer's really in love with my house and will do whatever it takes to get it. Isn't it the case that most don't want to fill out more applications and will just keep looking for another house?
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Whether we provide the loan services for the buyer or not it has zero to do with seasoning. There is no seasoning issues because there is no consideration for transfering title. As I've stated on here many times this is a conveyance given for 'no value'. This is not viewed on by lenders as a Sale. No due on sale clause triggered, no moneys showing on title. Zero consideration = zero problems with seasoning. I double dog dare someone to try it like this. WARNING... It can be quite addictive as the checks tend to be quite large.
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GKREI
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Member Since: 01/16/2007
Riverview, FL
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Posted: 19:52 on 04-09-2008
So when we start the SS process and get the paperwork from the owners have the warranty deed say $0 dollars and record it?
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jackbenimble
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Posted: 21:01 on 04-09-2008
It's called a "Conveyance given for no value". Considered a bono fide gift and the seller received nothing in exchange. Your title will know.
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charlotteinvestor
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Member Since: 07/19/2005
Charlotte, NC
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Posted: 16:41 on 04-11-2008
hey jack how many gifts can a person receive in your area? great answer by the way.
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jackbenimble
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Posted: 14:29 on 04-12-2008
Thank you.
There is no specific number to the amount of property's you can record this way that I'm aware of.
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jackbenimble
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Posted: 14:31 on 04-12-2008
BTW... Most of our property's are in Los Angeles, Ventura, and San Bernardino County's.
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Freeflyer
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Posted: 12:31 on 04-15-2008
JackB are you then getting paid outside of escrow?
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jackbenimble
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Posted: 12:45 on 04-15-2008
No, we collect our proceeds from the sale of the property to our end buyer.
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nyproperty
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Clifton Park, NY
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Posted: 20:49 on 04-17-2008
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On 2008-04-15 12:45, jackbenimble wrote:
No, we collect our proceeds from the sale of the property to our end buyer.
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Can the Grant Deed be used in N.Y. Every time I see a form online it always has California written in.
thanks
Jay
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jackbenimble
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Posted: 20:57 on 04-17-2008
Check with your title and or County recorders.
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