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leasing back to owner after short sale

This topic contains 5 replies, has 0 voices, and was last updated by Avatar of areyes areyes 9 years, 4 months ago.

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  • #6309
    Avatar of areyes
    areyes
    Member

    my friend gave me a scenario of using a EHTtrust as a lease back to the original owner after the short sale has been negotiated.

    please give me your thoughts

    his email in quotes

    A = Distressed Seller
    B = Investor (cash buyer – who will carry the note – become the bank)

    1)Property is put into a EHTtrust
    2)Listing is taken – seller creates the trust
    3)Offer comes from cash investor who is willing to carry the paper – offer states investor have the right to buy beneficial interest in the trust
    4)Assignment of Beneficial interest is signed – with a verbiage of “Transfer of beneficial interest shall perfect and shall be in effect upon acceptance and closing of an agreed short sale with the transferor ‘s lender that is accetable to the transferee”
    5)Sign “Use and Possession Agreement” – (Lease option) with the same type of verbiage above. Only allowing the “option” to take in effect when we buy AND when the “option/down payment” amount is made.
    6)Short Sale negotiation starts
    7)Strike point purchase price is met
    8)At closing – a pay off is made… but title is still remains in tact. (How does investor hold 100% beneficial interest?)

    remember “B” is a cash investor. not someone qualifying for a conventional loan.

    what happens to the title and the EHTtrust after the payoff is made from the short sale?

    #32356

    In my opinion, forget all those steps. If you have a cash buyer for a Short Sale, just have them buy it. Only after they do so should the property be placed in the new buyer’s EHTrust. Then if you really want to leave the previous owner in the property you may do so. But, I don’t recommend it. It is very rarely a good idea to leave the former owner in the property, even when using an EHTrust.

    Why not have your “cash” buyer pay for the 3ARC program for only $7500 instead. The property would be in trust and the owners would/could remain in the property with a new lower private loan. The Investors ROI would be much higher and much safer.

    Just an idea.

    #32357
    Avatar of areyes
    areyes
    Member

    i just had a longer conversation about his intentions and i did mention just doing a cash transaction with the private money investor and then do the EHT right afterwards with the original owner. its cleaner. he liked this idea. but since the property would be free and clear with no underlying mortgage, wouldn’t we have to create a mortgage note to allow an RB to access mortgage interest deductions?

    i got more clarification on this original scenario with the intent of doing a leaseback to the original owner. original owner creates a trust retaining 100% of the beneficial interest. EHC as trustee is holding title. cash investor pays off the short sale via cash and wants to keep the land trust intact along with EHC holding title. cash investor “wants” 100% of the beneficial interest transferred from original owner to investor. also what business does the underlying lender have against the investor receiving 100% of the beneficial interest after a short sale payoff? can this be done? i would think the underlying lender would only deal with the deed of trust and mortgage note – NOT the conveyance of 100% beneficial interest. for educational purposes, what happens to the trust, title and the deed of trust after a “cash” investor pays off the short sale?

    i dont think the property needs to be taken out of the trust since there’s no conventional lender involved on the buying side.

    if the property has to be taken out of the trust even on a “cash sale”, then it would be as simple as terminating the first EHT. cash investor would then get clear title to be transferred to EHC and retain 100% beneficial interest. and then vest the real property back to new EHT and have the original owner as an RB.

    am i on the right track?

    ive search in the archives for sale leasebacks using the EHT but could only find limited information. my friend really wants to make it work by keeping the owner in place via EHT after he buys out the short sale using private money. he also wants to keep the defaulting owners in place via EHT on property that have equity after he cures any back payments. of course if the owners cant afford it, we’d use RB’s.

    how does bill structure his foreclosure bailouts or sale leasebacks via EHT?
    1)he would have to keep $1200 in escrow which is used to make the monthly payment $100 less for 1 year.
    2) if the property has equity, the SB would receive all of it after the property is sold or refinanced
    3) if there’s no equity in the property the original owner wouldnt get anything out of it.
    4) if the property has equity, the investor would only profit on any future appreciation
    5) investor wouldnt be able to cashflow
    6) if original owner defaults, theyre evicted but still retain 10% beneficial interest and still entitled to their equity contribution. just have to find an RB afterwards

    anything else?

    even if we’re able to structure leasebacks to the owner using the EHT, what are the reasons why you dont recommend them?

    im sure amnesia is one of the main things. but what else are the risks?

    sorry ive been on the sidelines for a few months and i forgot a couple of things.

    i honestly do not know what 3ARC is about nor the LFC programs. ive just been ignoring them since i wanted to stick with the EHT.

    is there a 3ARC website to get more information?

    thanks scott

    #32358
    Avatar of shortsaleguy
    shortsaleguy
    Member

    @Scott_L._Moyes wrote:

    In my opinion, forget all those steps. If you have a cash buyer for a Short Sale, just have them buy it. Only after they do so should the property be placed in the new buyer’s EHTrust. Then if you really want to leave the previous owner in the property you may do so. But, I don’t recommend it. It is very rarely a good idea to leave the former owner in the property, even when using an EHTrust.

    Why not have your “cash” buyer pay for the 3ARC program for only $7500 instead

    Scott if you think the 3ARC process works then can you help us sell it? I do not have any way to get $7500 for the process. I would not ask anyone unless I had a paper trail of proven results. It is very esoteric at this point.

    #32359

    @areyes wrote:

    i just had a longer conversation about his intentions and i did mention just doing a cash transaction with the private money investor and then do the EHT right afterwards with the original owner. its cleaner. he liked this idea. but since the property would be free and clear with no underlying mortgage, wouldn’t we have to create a mortgage note to allow an RB to access mortgage interest deductions?

    No

    You would use an unsecured promissory note and a UCC1. The Payment may then me tax deductable. We have covered this many times over the years. Do a search on the site for Paid Off or Free and Clear Properties.

    #32360
    Avatar of shortsaleguy
    shortsaleguy
    Member

    Have you seen a combination of free and clear(aka No Mortgage) with a motivated seller?

    Seems in all my calls I have seen these:

    No equity, over-encumbered, high monthly payment

    Some equity, 80 LTV, payment around rents in market

    Trashed in need of 30-50 in rehab costs to get to the point of sellable or rentable.

    Investors in trouble and are in over their head

    Very low or paid off mortgage and cash flows as a rental for the owner.

    I have not seen these yet:

    Motivated Sellers willing to deed to Trust

    #32361
    Avatar of sstanton
    sstanton
    Member

    Have you seen a combination of free and clear(aka No Mortgage) with a motivated seller?

    They have motivation, just probably not the kind we can use in an EHT. Shawn Watkins had a course on dealing with Free and Clear properties. I don’t know if he sells it any more or not.

    No equity, over-encumbered, high monthly payment

    If the are selling, then that is a short sale opportunity. Possibly an LFC or 3ARCk transaction. Depending on the amount overage and the sellers situation, an EHT may work.

    Some equity, 80 LTV, payment around rents in market

    Rents must be up in your area. Two years ago, a loan at 80% would still be 2-300 dollars over the rents. Factor in maintenance, repairs and vacancy, and I’ll bet they are still losing money.

    Trashed in need of 30-50 in rehab costs to get to the point of sellable or rentable.

    If you can get it for 50% or so, flip it to a rehabber.

    Investors in trouble and are in over their head

    What can you do to solve their trouble (EHT, SS, LFC, 3ARCK, Flip….)

    Very low or paid off mortgage and cash flows as a rental for the owner.

    Good for them, why are they selling?

    Motivated Sellers willing to deed to Trust

    I would like to see a seller motivated to put it into a trust without having to go through the process of explaining to them why this is the best solution. 99% of the explanation is in the NEO. You need to get that infront of them and go over it in detail. Then, maybe then, you will get the opportunity to work the other half of the equation – finding a buyer.

    Like you, I have noticed a large drop in FSBO lately. But, hang in there and keep to the task.

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