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REAL ESTATE Acquire SFR without Financing

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AroundTheWorld

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What is the current environment of SFR for investors?

  • An impending buyers market with large number of bargains coming on the market
  • A dry credit environments... making it harder for investors to acquire numberous properties.

If you didn't have the foresite - or were a little late to move (as I was) and didn't hord cash - what can be done with this situation?

Use a Illinois Type Land Trust...

Find property in which an owner would like to walk away from the property ... perhaps they have been trying to sell and it won't move. Perhaps they are looking at getting behind in payments... they just want to get rid of the burden of the payments.

Offer to take over their payments for them - they walk away from any equity that may be in the property. The property goes into a land trust.... the seller remains a 10 percent beneficiary and you now have 90 percent to play with.

You can do several things with that 90. Keep it all and simply rent the property out for cashflow

Find a renter that would like to buy but can't obtain financing. They can become a "resident beneficiary." They become a tenant, but pay more rent.... and share in the tax benefits of home ownership and any shared appreciation occurring in the property. The split can be 45/45 80/10.... what ever you arrange.

If you do it right.... you are creating win/win/win deals and making some mulah too.

  • The seller wins because you are helping them out of a financial jam
  • You win because you can control unlimited properties and never touch your own credit
  • The would be buyer wins because you are giving them a chance at home ownership.

:smx9:

www.landtrust.net
 

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NoMoneyDown

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Aug 28, 2007
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There was a guy on REIClub.com that used to consistantly push a similar thing called a NARS PACTrust (by Bill Gatten, see more info here). I never got the full details, but he was always being called out by other investors on the board. After a while, the moderators finally banned him - not because of what he was pushing (although many there questioned it), but because he kept violating the TOS. John T. Reed has a write-up about Gatten's PACTrust here. Again, I'm not saying the PACTrust and what you are mentioning are the same thing, only that they sound similar.
 

kurtyordy

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Aug 28, 2007
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you could achieve the same financial scenario with less hurdles by just getting a quit claim, and assume their mortgage debts.
 
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AroundTheWorld

AroundTheWorld

Be in the Moment
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There was a guy on REIClub.com that used to consistantly push a similar thing called a NARS PACTrust (by Bill Gatten, see more info here). I never got the full details, but he was always being called out by other investors on the board. After a while, the moderators finally banned him - not because of what he was pushing (although many there questioned it), but because he kept violating the TOS. John T. Reed has a write-up about Gatten's PACTrust here. Again, I'm not saying the PACTrust and what you are mentioning are the same thing, only that they sound similar.
It is the same thing, actually.

I have met Bill. He is a good guy. I'm not impressed with some aspects of the company.... they have a product that cost's about 10K - educational, maybe.... but I have never paid much attention to it... and would never spend the $ for it.... Education only costs your time and motivation. Take what works for you and leave the rest.

As for JT Reed.... are you kidding me? That guy makes his money by bashing anything that moves.

kurtyordy said:
you could achieve the same financial scenario with less hurdles by just getting a quit claim, and assume their mortgage debts.
Doing this, I think, would invoke the due on sale clause.
 

kurtyordy

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Aug 28, 2007
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So the thinking is giving the original owner part of the trust benefit, you circumvent DOS? I would like to see some case law on that. Also, I had heard once, and I this may be a very gross misparaphrase, but by keeping a seller involved you can be found guilty of circumventing foreclosure law? Not sure on that one. My biggest issue would be wether circumventing the DOS is worth the trust hurdles. I would be more inclined to record the quit claim, bring the mort. current, and if that triggers DOS, I would have a few months to get my own financing or negotiate with the bank. With the current mortgage market, I would imagine that banks will be much more flexible with DOS clauses.
 
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AroundTheWorld

AroundTheWorld

Be in the Moment
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So the thinking is giving the original owner part of the trust benefit, you circumvent DOS? I would like to see some case law on that.
yes, that's the idea.

Also, I had heard once, and I this may be a very gross misparaphrase, but by keeping a seller involved you can be found guilty of circumventing foreclosure law? Not sure on that one.
Interesting thought. I don't know much about foreclosure. This is certainly something that can be used before one gets to the point of foreclosure.

There are other beni's as well.... you can use the trust to keep yourself totally anonymous... which would be a beni to some... asset protection and all that jazz.
 

phlgirl

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Aug 29, 2007
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hmm, yes, that is what I liked so much abot this option - the ability to avoid the possibility of DOS. I recognize that the banks typically do not call the loan unless the note goes unpaid but it was always a concern of mine, when thinking about standard subject-to deals (particularly, if you are working with volume).

I have no knowledge as to whether or not this would breach some type of foreclosure law.

The trust work really is not too bad. It is more paper....don't get me wrong... but, once you get used to it, it just becomes another step in the process. At least here in FL.... PA may be different - we have never used land trusts for our property in PA.

I have a friend who is a bit of a trust 'guru'.... will run it past him.
 

Bilgefisher

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A subject to deal is the same as obtaining a quit claim, is this correct?

In this thread Investment Partners phlgirl stated they were not able to obtain many properties via this method because many homes were bought using an ARM.
I am curious why an ARM would be an issue?
If your holding onto the property for CF(in her case), couldn't you just switch the mortgage?
Or in my case were I am looking to flip properties would it matter since I will pay off the mortgage as soon as the property is flipped?
Also when you obtain a subject to deal, is the lender likely to enact their "due on sale" clause?

ATW, thank you for this thread. This is exactly the type of information someone who is just entering the field (like me) is looking for.
 
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AroundTheWorld

AroundTheWorld

Be in the Moment
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A subject to deal is the same as obtaining a quit claim, is this correct?
If your holding onto the property for CF(in her case), couldn't you just switch the mortgage?
You could, but one of the limitations becomes financing a number of properties. If it is a part of your plan to do this in volume, eventually the banks are going to make things extra challenging for you!

Or in my case were I am looking to flip properties would it matter since I will pay off the mortgage as soon as the property is flipped?
Also when you obtain a subject to deal, is the lender likely to enact their "due on sale" clause?
I wouldn't see much advantage to a flipper... other then - again if you are doing it in volume, and financing for your projects becomes more difficult.

If the seller remains one beni of the property - the DOS is not invoked.



:driving:It's all about the conversation... get the creative solutions going and tweek things until they match your situation or solve your problem!:driving:
 

Allthingznew

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Aug 26, 2007
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Interesting concept. Some questions I have even after reading the link mentioned above, doesn't a trust have to be set up by someone? In this case the seller gets the trust, possibly not having the cash to set up the trust, maybe it's not that much and I'm questioning nothing.

Additionally, many of the loans out there are ARM's and the fact they are going up up up may be why the owner is wanting to walk away, in distress or whatever the case may be. Yes, there are other reasons for the owner to be motivated, but my question is about servicing these loans. If these loans have grown to the point they're out of rent/lease range, you have negative cashflow. If you can afford that great, but the very nature of the ARM may keep increasing the negative cashflow.

I know one answer is don't do the deal, but with a large number of loans potentially falling into this catagory, is there an answer other than letting the bank take it and waiting to buy from them?
 

kurtyordy

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Aug 28, 2007
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my point was not that a trust is difficult to setup, but that it is extra hurdles. seller- get them to sign over, but also be part owner moving forward plus the debt still remains in their name.

buyer- rent from a trust plus have tax benefits plus have some ownership interest.

Just seems to cloud a farely simple process. The only advantage I see is if it legally protects from DOS, then I see some advantage, though not sure how much it is.
 

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NoMoneyDown

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From what I've heard - and this was before the current subprime fallout - lenders would VERY rarely invoke the DOS clause when ownership changed without the loan being paid off. Now with the subprime fallout, I would imagine they would be even MORE reluctant to let a property slip into foreclosure. Usually, all they care about is getting the loan payment each month on time.
 

RE Taipan

Contributor
Aug 28, 2007
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I'd like to get some ideas on this one....as a way to accomplish what you are trying to do yet avoid the DOS clause...

Assume that Mary Owner has a SFR located at 123 Main St, Anytown USA. Owner wants out of the property

Draft a loan agreement with Mary whereby you loan Owner a sum of money on a promissory note which is secured by a TD on the property. Record the mortgage. Of course, you will be in a Jr position to the original mortgage holder (and possibly the 2nd mort holder too).

Owner of course defaults on your mortgage and to protect your security interest in the loan, you move to foreclose giving proper notice to Owner. Owner gives you a Deed in Lieu of Forclosure to avoid the foreclosure. You record the deed and transfer the property into a land trust called, in this case, the MO 123 Main St., Land Trust with yourself as trustee.

This gives you 2 options:

Option 1: You notify the 1st mortgage holder that you are taking over the loan, under the same terms as the original holder pursuant to the original terms pursuant to the Garn-St. Germain Federal Depositary Institutions Act of 1982 (12 U.S.C. 1701-j) and keep making payments to the lender. Note: While Garn-St Germain codified the enforceabliity of DOS clause notwithstanding any local jurisdictional court precedent to the contrary, it also carved out some exceptions where the DOS clause cannot be enforced including the one applicable here --- the creation of a subordinate security instrument not related to the transfer of the subject property.

Option 2: Say nothing to the lender and continue to make payments to the lender from the land trust checking account.

Next, offer the SFR to a buyer on the typical easy close, no qual basis with the option to buy for $X00,000.00 at anytime during the next Y years under an Assignment of Deed. Charge them K% down @ a rate and payment in excess of the original mortgage to give you cash flow. At the time they execute the Assignment, they also excecute a Quitclaim Deed.

Since they have bought the purchase option on the property, they are not renters, but "owners" in that they are responsibile for all repairs, property taxes, etc. If they default on the payment, you file the quitclaim and retake the property and relist to a new owner.

--Good?
--Bad?
--Insane?

....you guys are the experts (or at least more knowledgeable that I am)

Thank you in advance for your feedback on this!
 

Jason_MI

New Contributor
Jul 25, 2007
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It would seem to me that in many of these situations, a straight-up flip would work well. Then again, what's the end goal here? To own the home for.....a rental? Or to turn around and profit from it.

I had several flips that I didn't know were flips when I first started. The second house I bought....well....'controlled' was a flip. Or maybe it was an assignment. But in any case; I had been trying to buy it from the guy, but he wouldn't budge, so I used all of my $1500 to buy another house. While that one was moving through the process of selling, the first guy came back. I couldn't 'buy' his house, so I took it under contract, ran an ad in the paper, then assigned my contract. Flip/assignement/whatever....it was pretty simple. My goal was never buy-and-hold, however.
 
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AroundTheWorld

AroundTheWorld

Be in the Moment
Speedway Pass
Jul 24, 2007
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1,874
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I hadn't looked at this thread for a while... lots of people to respond to!

Additionally, many of the loans out there are ARM's and the fact they are going up up up may be why the owner is wanting to walk away, in distress or whatever the case may be.
I wouldn't want to do it with an ARM - - so that would (for me) rule out a lot of properties.

my point was not that a trust is difficult to setup, but that it is extra hurdles. seller- get them to sign over, but also be part owner moving forward plus the debt still remains in their name.

buyer- rent from a trust plus have tax benefits plus have some ownership interest.
seller - chance to heal credit.
buyer - uh.... I'm giving you tax beni's and that is a hard sale? hmmm. I better bring in the heavy hitters to get that one done.

It would seem to me that in many of these situations, a straight-up flip would work well. Then again, what's the end goal here? To own the home for.....a rental? Or to turn around and profit from it.
In the basic land trust stategy - hold for cashflow is the name of the game.
 

rcardin

Contributor
Oct 30, 2007
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Arlington, TX
My dad has taken over "subject to " properties. He uses the Land Trust as asset protection. If anything ever happened with the particular property he picked up it limits the liability to just that property or specifically the equity in that property. I want to say he has picked up 6 or 7 properties subject to existing financing. Looking through the forms I have, you would need a warranty deed signing the deed over to you and a letter to the lender assigning the management of the property to your company. I can ask more questions when he gets back from vacation but this is his preferred method of finding houses. If you really want to be the legal owner in every aspect of the situation refinance it under your name. The deed is already in your name and if you bought it right you should be in a low enough LTV to refinance with little to no money out of pocket.

I can get more info on how he does it or push him to write an article on it and put it up here if anyone wants more info.
 

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