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NARS Trust does NOT circumvent seller title seasoning

Home Forums General EHTrust/EHT Topics and Creative Real Estate Financing NARS Trust does NOT circumvent seller title seasoning

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  • #5626
    Avatar of homesavers
    NULL
    Member

    The premise has always been dealing with “Title Seasoning” let us now define it clearly. The following from HUD (source:

    FHA defines the seller???s date of acquisition as the date of settlement on the seller???s purchase of that property. The resale date is the date of execution of the sales contract by the buyer that will result in a mortgage to be insured by FHA.

    Transfer of Title into the owner of record’s own inter vivos Trust does not constitute a “sale”. When that owner deeds the property to a Trust then no “sale” has occurred. So if there is no Sale then there is no Buyer, right?
    There is one beneficiary of that trust- The owner and there is a second beneficiary of that trust- You.
    Now when you do sell the property to the final end buyer you have yourself a bone fide sale and that starts your date of acquisition.

    #29305
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    No one has EVER said that a Trust, including a NARS EHTrust “Circumvents” Title Seasoning. The placing of ones property or title into their own inter vivos trust simply does not create a title seasoning issue. What does that, or not, have to do with circumventing title seasoning?

    Put it “in trust” one day and sell it the next. Just because some jackass Lender or Title Company that doesn’t know this or refuses to understand it won’t let us you them, who cares. Use the ones that do. That’s all I’ve ever said… AND DONE!

    I’m sorry, but I still have not experience this myself. Perhaps it is my Good Looks and Charm or maybe its just that I know what the hell I’m talking about. I suppose it could be either but I’m sure it’s a little of both.

    This kind of reminds me of an episode of M.A.S.H. when Hawkeye figured out what everyone was fighting about. He figured it was all about toilets. We had them and the enemy didn’t. All they wanted were our toilets.

    Thank you!

    #29306
    Avatar of homesavers
    NULL
    Member

    @bill_gatten wrote:

    “Why (How) does (can) using a land trust avoid seasoning issues?”

    Well…if a short sale seller places his property into the land trust prior to the short sale negotiations, and the end-buyer acquires the property from the trustee who has held title for the requisite amount of time (irrespective of who the beneficiaries may be…you me, another investor, etc.)…the title has been held by the relinquishing party sufficiently long for the title-seasoning requirement and becomes a non-issues.

    So you are saying since it will usually take at least 90 days to negotiate the short sale we will be able to ask the OWNER OF RECORD to DEED the property to the Trustee of the Land Trust, then negotiate the short sale, find a buyer, and on the 91st day the Trustee as the new owner of record for the past 90 days can sell the property to the end buyer with an FHA loan or other conventional lender that has no issue with Trusts and will fund a transaction using a Trustee instead of the original borrower of the loan they are paying off? (whew long question) :?:

    We just need to figure out how to get the Owner to DEED the property to our named Trustee before we do anything for them and while we negotiate with the bank we need to find a buyer that will pay what we want for the house. Getting the OWNER to trust enough to DEED the property to the Trustee is the challenge for me at least. Finding a buyer is the other challenge. Anybody beside Scott able to get the seller/current owner to DEED their property to you while you negotiate?

    #29307
    Avatar of bmckee
    bmckee
    Participant

    What we’re talking about are short sales and/or flips and seasoning questions.

    What am I missing?

    Let’s assume the title company will insure title where a property is held by a trustee for settlor’s land trust… Let’s assume that the settlor is the SOLE beneficiary.

    You don’t need to own the settlor’s beneficial interest to do the flip. You (the investor) just need to control that interest. That can be done by an investor using an option to acquire the settlor beneficiaries full interest in the Trust, duly noted and acknowledged by the Trustee.

    The take out buyer’s lender will get a preliminary title report, showing a corporation owns the property and is trustee for the xyz trust. Sold beneficiary is still the previous owner/settlor. Shouldn’t that remove the seasoning question (assuming settlor had owned the property for a year or more). The beneficial interest is solely (in this instance) held by the settlor. (naturally, this does open the deal up to some risk.. but isn’t that part of life?)

    Let’s say a suitable payoff is negotiated with the lender. You’ve found a buyer who is commited to buy at a price which is $15k higher than the payoff.

    now what?

    Well, escrow is told to proceed and the short payoff is funded ( investor’s money, or short term flip money is used to payoff the loan). At the time you fund the payoff, you also exercise your option on the beneficial interest and acquire the settlor’s full beneficiary interest in the trust. Title is still held by the Trustee- no change in deed records. The title insurer insures that title is legally held by the Trustee. Buyer’s lender will require insured title before they will make the loan.

    Later that same day as the short payoff occurs, your buyer signs the HUD 1 and his loan docs for the purchase. Trustee signs the deed to the new buyer. as authorized by your directive (as full owner of the beneficial interest). Escrow records the reconveyance received from the short payoff lender; then records the new deed, conveying title to the retail buyer.

    Escrow disburses the sales proceeds to investor/seller.. reduced by costs and any loans investor may have used to finance the transaction. Any balance remaining is paid to investor.

    Naturally, there are many variations that COULD be tossed in, but isn’t this the essence of the concept?

    The only “arguable” points that stand in the way:
    1- title company refusing to acknowledge trust as legitimate entity for holding title, and requiring settlor to take the property out of trust before insuring title
    2- Escrow company is afraid that some sort of fraud may be put upon them in regard to the beneficial interest being assigned just before closing on the retail sale. If the escrow company is advised of the mechanics of the transaction and investors intention to exercise his rights under the option- disclosed when the escrow was originally opened, it seems to me the escrow company should go along with this…but, ???

    Aside from these two issues, I don’t see the takeout lender giving a rip about the mechanics (or seasoning) so long as title is insured and their collateral is secure.

    Stumbling block, as I see it, will always be title insurance. They see so few of these kinds of transactions that , these days, they basically refuse to handle them, in my experience. All the whiz bang documents we can come up with aren’t worth anything if the title company won’t insure the transaction.

    IF someone can provide me with one.. just one.. title company/escrow company in Oregon that will insure a transaction involving an equity holding land trust transaction, as I’ve outline above (or even remotely close to this procedure), Please post contact info!

    Bill in OR.
    http://www.realtyadvisorsweb.com

    #29308
    Avatar of nyreattorney
    nyreattorney
    Member

    I posted my legal analysis of the FHA seasoning underwriting requirement which many, if not most, bank underwriters apply incorrectly and you can read it on my blog link below:

    http://realestatelaw.typepad.com/where_is_blackacre_anyway/2009/04/seasoning-.html

    This should answer this question easily and finally for you all.

    #29309
    Avatar of bill_gatten
    bill_gatten
    Participant

    Kathleen, you are not only brilliant, a fine lawyer and a looker…you’re my next wife (assuming my present one will relinquish title to me and give me back all the jewelry).

    Thank you so much for that input. It answers the questions and enlightens us all as to the reality of what’s is going on.

    Our thinking re. our proposed program…is that the land trust itself becomes the bona fide silent purchaser of the property for a pending all cash funding to the underlying lender at the beginning of the usually lengthy short-sale approval process (i.e., no beneficiary interest held by the seller). During this approval and acceptance process, the end-buyer is simultaneously qualifying for the “take out” mortgage to buy the property at 90% of its legitimate FMV from the legal and equitable title owner–i.e., the title-holding trust’s trustee (Equity Holding Corporation, a non-profit, licensed and bonded trustee corporation).

    In this scenario, the owner (the trustee) has held the property as its own for the requisite seasoning term and then sells to the end-buyer for 90% of FMV with a simultaneous closing once they have their financing in escrow. Also, if opted for, we will use the buyer’s own MAI appraisal as the basis for pricing.

    Is my thinking skewed? Are you perhaps suggesting that the procedure wouldn’t satisfy the end-lender’s title seasoning requirement? Our attorneys are in favor of the system and have seen no problems with it at this point…but if there’s another take on it, I want to know about it.

    E.g., Would you defend it as presented?

    Bill

    #29310
    Avatar of lgoudie
    lgoudie
    Member

    I have one little nitty-gritty question:
    When beginning a short sale, and you have had the seller transfer title to a land trust with Equity Holding Corp as Trustee, whose name goes on the purchase and sale contract as buyer, that is submitted to the short sale lender? If it is Equity Holding, I assume we would need to get Thomas Standen to sign the P&S contract. Would the short sale lender ever bother to run a title check and find that Equity Holding already owns it? And if they did, would this blow the deal? (Iguess that was 3 little nitty-gritty questions).
    Larry :roll:

    #29311
    Avatar of dave salcido
    dave salcido
    Member

    @lgoudie wrote:

    I have one little nitty-gritty question:
    When beginning a short sale, and you have had the seller transfer title to a land trust with Equity Holding Corp as Trustee, whose name goes on the purchase and sale contract as buyer, that is submitted to the short sale lender? If it is Equity Holding, I assume we would need to get Thomas Standen to sign the P&S contract. Would the short sale lender ever bother to run a title check and find that Equity Holding already owns it? And if they did, would this blow the deal? (Iguess that was 3 little nitty-gritty questions).
    Larry :roll:

    Even though EHC (the trustee) is actually now the owner, EHC will be offering to purchase from the lender and the trustees name will appear on the purchase contract. In reality, this could be considered for all intents and purposes, a short payoff. The lender sees it as a short sale. Either way. The directing beneficiary can sign with EHC’s acknowledgment. If title is transferred to EHC and recorded, the lender won’t care who is on title, they merely want to liquidate at discount their non performing asset rather than include it in their portfolio. However, if the lender did ask why title was transferred to a trustee, (some may), we just tell them it was done for asset protection, accounting and legal reasons, which are all true. The lender really never has a problem with the explanation and we move forward. Trust me, IF EXPLAINED CORRECTLY, lenders do not have issues with this. The only obstacle that could jeopardize these short sale offers is the inexperience and shaky nervousness of the presenter that becomes obvious to the loss mitigator over the phone. If you are not comfortable with the process, don’t try this at home. Get Bill, Scott or myself on the phone to help you through it. We have already done it and are doing it today. It’s kind of a pain in the rear, but the steps are pretty predictable.

    #29312
    Avatar of homesavers
    NULL
    Member

    So it looks like you need to record the Deed to Trustee as soon as the owner of record agrees to the short sale. Upon the first transaction which is usually called A-B you will make the offer in your own name or that of a corporation or LLC that you control. Once you have the Option you Deed to Trustee and then start the negotiations with the lender. If they agree to the price after they get a BPO and have other conditions you can then find a buyer. The buyer (tbd) if found will pay 90 LTV of appraised value. This buyer will make the offer to the new owner of record-The Trustee. If the numbers are right then the beneficiaries will direct the Trustee to accept the offer and then proceed to close. You need to close on the 91st day if you are using an FHA insured loan.
    Is this correct?

    #29313
    Avatar of dave salcido
    dave salcido
    Member

    @homesavers wrote:

    So it looks like you need to record the Deed to Trustee as soon as the owner of record agrees to the short sale. Upon the first transaction which is usually called A-B you will make the offer in your own name or that of a corporation or LLC that you control. Once you have the Option you Deed to Trustee and then start the negotiations with the lender. If they agree to the price after they get a BPO and have other conditions you can then find a buyer. The buyer (tbd) if found will pay 90 LTV of appraised value. This buyer will make the offer to the new owner of record-The Trustee. If the numbers are right then the beneficiaries will direct the Trustee to accept the offer and then proceed to close. You need to close on the 91st day if you are using an FHA insured loan.
    Is this correct?

    Ideally, yes. Instead of an option however, we have the seller sign a special short sale acknowledgment and waiver of liability form, (Bill has that). The FHA issue has not really been tested. I still believe in the power of the EHT even in the face of FHA guidelines (guidelines, not codified law). Yeah, I know, everybody and their dog is talking like an expert on the subject, but nobody really has yet shown evidence to substantiate. As a former cop, I want evidence beyond a reasonable doubt. Otherwise, it’s just hearsay. I’m willing to retract if I can see a specific response from FHA in this matter.

    #29314
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    There is no need to create a trust until and unless a fully qualified and approved end buyer is ready to close. It doesn’t matter if the trust is ten minutes or ten years old.

    However, there are some good reasons to put the property in trust as soon as you get it “under contract”. For example, it would prevent any further encumbrances from being placed on the property. It would also prevent the original seller from signing offers or options from other investors.

    #29315
    Avatar of dave salcido
    dave salcido
    Member

    To further clarify my position. There is, as of yet, no precedent, no case law that I know of that has come to light with respect to FHA seasoning when a title is transferred from the property acquirer to his/her trustee. I believe Kathleen in her most recent post is probably the most informed of anyone (maybe in the entire country) on this subject, but once again, nobody will know for sure until it has been tested and FHA responds with a new guideline or opinion specific to the Equity Holding Trust.

    #29316
    Avatar of dave salcido
    dave salcido
    Member

    @Scott_L._Moyes wrote:

    There is no need to create a trust until and unless a fully qualified and approved end buyer is ready to close. It doesn’t matter if the trust is ten minutes or ten years old.

    However, there are some good reasons to put the property in trust as soon as you get it “under contract”. For example, it would prevent any further encumbrances from being placed on the property. It would also prevent the original seller from signing offers or options from other investors.

    Perfect answer Scott.

    #29317
    Avatar of homesavers
    NULL
    Member

    @Scott_L._Moyes wrote:

    There is no need to create a trust until and unless a fully qualified and approved end buyer is ready to close.

    What if you record a memorandum of Option with the County Recorder placing a cloud on the Title while you negotiate? This will not protect the Title from further liens but they will have to deal with you first if they try to contract with someone else. Right?

    #29318
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    @homesavers wrote:

    What if you record a memorandum of Option with the County Recorder placing a cloud on the Title while you negotiate? This will not protect the Title from further liens but they will have to deal with you first if they try to contract with someone else. Right?

    Not necessarily true. I’ve seen owners contract with as many as 5 other investors on the same property even with a Recorded Option. Of course you Recorded Option takes precedent but do you have the time, money and resources to fight an owner who now wants to accept someone elses offer or claim you took advantage of them?

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