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Sellers Lawyer response

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  • #4216
    Avatar of pick-a-home
    pick-a-home
    Member

    The conveyance to the trust with multiple beneficiaries is a “conveyance” that triggers the Due on Sale.

    This was a statment made to me by a potential sellers lawyer.
    The due on sale clause issue was actually brought up by him…

    I have provided him some reading material but I am not sure if he will even read it..

    Thoughts?

    #23771
    Avatar of bmckee
    bmckee
    Participant

    The owner/settlor conveys his property by deed to HIS TRUSTEE. Where’s the DOS violation? He notifies the lender and insurance company that from now on, his bills are being paid by his trustee. Where’s the violation?

    So when you explain it to the attorney.. remember, owner/settlor is deeding/conveying TO HIS OWN TRUSTEE and receives 100% beneficial interest.

    Settlor may then decide to assign a portion of his interest as beneficiary in the trust.. say 50%. Did that violate the DOS clause? NO (see Garn St Germaine). Apart from the assignment of beneficial interest, the RB also agrees to lease the property. That’s not a violation of the DOS.

    Settlor is free to privately manage and/or assign his benefcial interest as he sees fit (always retaining at least a 10% interest).. and he may choose to tell no one other than the Trustee about it.- That’s fully within his rights.

    The attorney may have “misunderstood” your transaction.

    Bill McKee

    #23772
    Avatar of jerry carey
    jerry carey
    Member

    I totally agree with what Bill Mc Kee said.

    Just to simplify this … when the Trust is created ONLY the person or persons named on the existing recorded title are allowed to be named as Beneficiares of the Trust (Settlor Beneficiary/ies). Making other third parties as initial Beneficiaries would trigger a Due-On-Sale violation.

    After the trust is created and the deed recorded with the Trustee named as legal and equitable owner … the subsequent beneficial interests in the trust become Personalty (personal property) and may be assigned without triggering said violation.

    Jerry Carey

    #23773

    @JCarey wrote:

    I totally agree with what Bill Mc Kee said.

    Just to simplify this … when the Trust is created ONLY the person or persons named on the existing recorded title are allowed to be named as Beneficiares of the Trust (Settlor Beneficiary/ies). Making other third parties as initial Beneficiaries would trigger a Due-On-Sale violation.

    After the trust is created and the deed recorded with the Trustee named as legal and equitable owner … the subsequent beneficial interests in the trust become Personalty (personal property) and may be assigned without triggering said violation.

    Jerry Carey

    As long as, that Assignment is Not for More than 90% Beneficial Interest, just to reinnerate and emphasize what Jerry and Bill McKee have said;

    since, those Two Instances of:

    1.) “ONLY the person or persons named on the existing recorded title are allowed to be named as Beneficiares of the Trust (Settlor Beneficiary/ies). Making other third parties as initial Beneficiaries would trigger a Due-On-Sale violation” and

    2.) Making a subsequent Assignment of more than 90%,

    WOULD both be cause for concern.

    You probably sent the standard cover letter to them that is a part of the Proposal Templet.

    I did make another, softer, version of that legalize on there, to be my cover letter ( although, it includes all of it, I put some user friendly Headings to them, directly from some of Bill’s other Body of Work.

    And, yet, I DO send this Standard Cover Letter.

    But, I re-name it and direct it, therefore, straight to the Legal/ Financial Professionals.

    My idea is, “This is Writen to you = How about you read it ( before, you think this is some kind of Buzz Word Pen-the-Tail-on-the-Donkey / Stab in the Dark = GUESSING / Game.)

    ( I said this is just an idea. My ideas can certainly be inadvisable and/ or dead wrong = we’ll see).

    http://www.m-w.com/dictionary/Precedence

    Declaration of Legal Precedence

    Dear ,

    As per our conversation regarding your available property, I would like to present the accompanying acquisition proposal for your review and careful consideration. In anticipation of any concerns you may have, or which may arise later, the following important points are made for clarification and for your consideration.

    There are two primary ways to transfer ownership in real property 1) by a transfer of the property’s legal and/or equitable title to an acquiring party, or 2) by a transfer of a beneficiary interest in a title-holding entity (such as a land trust) which owns the property. Our use of the Illinois-type title-holding land trust model entails the property’s legal and equitable title being vested with an unbiased third-party corporate trustee for the duration of our arrangement. In such a transaction the co-beneficiaries (you and I) remain 100% in full control of any and all of the actions of the trustee and all matters relating to the property and its title. When using this method of transfer, maximum legal safety and asset protection is attained, and no benefits or advantages of real property ownership need be foregone. One might think of this method of transfer and asset protection as being analogous to holding the property in Escrow for the term of our agreement, in order to best protect the property, it’s title and both our respective interests.

    Although not widely known and grossly under utilized by the vast majority of legal, accounting and real estate professionals, the land trust (Illinois-type title-holding trusts) is in-fact, valid in virtually all states, (excepting only Louisiana and Tennessee due to those state’s characterization of use in trust and use in land being indistinguishable). The land trust is highly respected by those who understand it as a foremost viable and protective real property transfer and holding device. Vesting the property’s ownership with a land trust trustee effectively shields the property from virtually all legal perils (e.g., creditor judgments, IRS tax liens, divorce actions, bankruptcy, partition, charging order, probate, spousal claims, etc.). The land trust is authorized either by specific statute, specific authorization or by the land trust’s exclusion from prohibitions within a jurisdiction’s statute of land uses. It is important to know that, despite its relatively sparse use over the years, the land trust model has been employed in real property transfer since before the beginning of the twentieth century (promulgated first by Chicago Title and Trust of Illinois in 1899, and restructured into its present form in the early 1920′s by Chicago Land Title).

    Unlike other inter-vivos (living) trust structures, it is the beneficiary/ies and not the named trustee who holds the power of direction and management, or control over the actions of the title-holder trustee. In other words, it is the beneficiaries (you and I) who make all the decisions (100%) relative to the property, its title and any and all duties and actions of the trustee.

    In view of the fact that the property’s ownership is wholly vested in the nominated trustee, the property remains protected from virtually any legal action that would attempt to involve the trust’s beneficiaries or it’s property (even including attempted tax lien actions by the IRS). Although the beneficiaries can be sued in personam (against the person) for their own actions, a suit in rem (against the property) is not available to claimants.

    While the IRS continues to treat all beneficiaries of land trusts as owners of Realty for income tax purposes, the actual ownership by beneficiaries is that of personalty (personal property versus real estate) and therefore protected under any state’s personal property law (IRR 92-105; The Doctrine of Equitable Conversion; Black’s Law, 6th ed, pp 332/538). This feature of the land trust form creates excellent protection from partition by judgment creditors, charging orders and outside creditor judgments and their resulting liens.

    Another important feature of this very versatile transfer device is the simplicity of conveyance of the benefits of real property ownership to a second party without the need for lender involvement, new title insurance or formal escrow settlement.

    By combining the title-holding land trust form and a possessory agreement (i.e., a full payout lease), the benefits of real estate ownership can be effectively transferred to a named co-beneficiary without a violation of a mortgage lender’s due-on-sale admonitions relative to unauthorized title transfer (the due-on-sale clause re. exclusions found in FDIRA 1982; 12USC1701-j-3: vesting a property’s title with a bona fide trustee in an inter vivos trust cannot be characterized as alienation of ownership or constitute cause for foreclosure). The subsequent letting (leasing) of the property by the trust and the naming of a remainder beneficiary (successor manager/director) are also fully allowable under the same title of the US Code.

    By utilizing a title-holding land trust as the transfer device for conveyance of real property benefits and control, one can easily and effectively buttress his/her ownership interest against virtually any threat of lawsuit, judgment creditor claim, IRS tax lien, bankruptcy including protection from legal claims in marital dissolution, probate proceedings, etc. From an asset protection standpoint, one’s holding any real estate in one’s own name is risky, to say the least, and is considered by many to be an open invitation to lawsuit (ergo, conversion to ownership by land trust is highly recommended for any relinquishing party (seller, optionor, vendor, etc.). A truly knowledgeable and well-studied attorney or accountant would consistently advise that all real estate be held in such a title holding trust device for its asset protection purposes.

    The 3rd-party land trust transfer proposed here is commercially referred to as the EHTrust (Equity Holding Trust) Transfer, which effectively allows for simple and convenient conveyance of ownership and property rights and benefits, along with full income tax benefits, to a co-beneficiary without a title transfer to the acquiring party. In other words, virtually all of the bundle of rights in so-called fee-simple or fee defeasible real property ownership can be afforded another party without the need for new title insurance, hazard insurance, escrow, down payment, new loan or formal transfer recordation (see IRC 163(h)4(d)).

    Please review the accompanying documents carefully and call me or email me with your intentions to proceed (number and email shown below). Then upon your verbal or email acceptance, a signed copy of the Offer and the Option Agreement will follow by Certified Mail.

    Please feel free to contact me at any time whatsoever with any reservations, concerns, questions or comments you may have.

    Respectfully,

    Alan D. Gross

    #23774
    Avatar of tom
    tom
    Member

    Here we go again with another attorney who has not read and-or understands the rule contained in the Garn – St. Germain act.

    If you provide the attorney with the following information; it may clear up his confusion on this matter.

    Sec. 1701j-3. Preemption of due-on-sale prohibitions
    With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may NOT exercise its option pursuant to a due-on-sale clause upon

    (1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;

    (2) the creation of a purchase money security interest for household appliances;

    (3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

    (4) the granting of a leasehold interest of three years or less not containing an option to purchase;

    (5) a transfer to a relative resulting from the death of a borrower;

    (6) a transfer where the spouse or children of the borrower become an owner of the property;

    (7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;

    (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or

    (9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

    #23775
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    @tom wrote:

    (8) a transfer into an inter vivos trust in which the borrower is and remains “A” beneficiary and which does not relate to a transfer of rights of occupancy in the property;

    #23776
    Avatar of jerry carey
    jerry carey
    Member

    Thank you Tom and Scott for the clarification on this legal point.
    I do understand what both of you said that the party or parties on title must become Settlor Beneficiares (10% minimum) and the point I missed was they cannot transfer the rights of Occupancy in the property at the Trust’s creation.

    My question is the point I made about other Third Party Co-Beneficiares being named at the trust creation who are not listed on the title vesting to the Trustee. Would this trigger a violation of the Due-on-Sale clause?

    My opinion is that it would … and that’s why the Assignment of Beneficial Interest (ABI) is done subsequent to the title transfer. I fully realize now that the Occupancy Agreement is and must be entered into after title transfer.

    Please help with whether or not my assumption is correct or incorrect.

    Thanks.
    Jerry Carey

    #23777
    Avatar of mtnwizard49
    mtnwizard49
    Member

    Jerry,

    When title is transferred from the Seller (owner) to his Trustee, no other beneficiaries are named — just the Seller and his Trustee. Once the Deed is recorded and title is now vested with the Trustee, other co-beneficiaries may be named through an Assignment of Beneficial Interest. This is a private, un-recorded transaction.

    Of course if you named a bunch of co-beneficiaries at the inception it would cause all sorts of red flags to go up, but that is NOT how we do it. Your point about the other beneficiaries being named at the creation of the trust really doesn’t apply. You can name them all you want, just don’t write their names on the Deed. The Trust Agreement is NEVER recorded or made public.

    Good luck.

    #23778
    Avatar of jerry carey
    jerry carey
    Member

    Gary … thank you for your confirmation of what I thought was correct.

    Jerry Carey

    #23779
    Avatar of homesavers
    NULL
    Member

    I agree with Tom and Scott. However, it is not about the due on sale clause in the Deed of Trust or Mortgage depending on what State you are in. It is about the Lender calling the loan due. If the lender feels like it they can call it due and payable at anytime if they want. Question is if they do can you fight it?

    #23780
    Avatar of mtnwizard49
    mtnwizard49
    Member

    I disagree. I placed my California home in trust and then arranged for a Co-Beneficiary to take over the payments in one of our typical transactions. My homeowners insurance was with Countrywide who also carried the loan. I converted it to landlord coverage and advised them as to what I was doing. A loan officer told me that they could call the loan due. I told him in no uncertain terms that he could not. He said he would discuss it with his legal dept and get back to me the next day. One week passed so I called him. He reluctantly admitted that I was correct and that the law as posted above prevents them from doing so.

    The lender CANNOT call the loan due anytime they want and in fact, their hands are tied. The DOSC is contained in the loan docs, NOT the Deed of Trust. Just stick up for your rights.

    #23781
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    @homesavers wrote:

    I agree with Tom and Scott. However, it is not about the due on sale clause in the Deed of Trust or Mortgage depending on what State you are in. It is about the Lender calling the loan due. If the lender feels like it they can call it due and payable at anytime if they want. Question is if they do can you fight it?

    Ok, now you have me confused. What do you mean “it is not about the Due-On-Sale Clause in the Deed of Trust”? Of course it is. And then in the next sentence you say, “If the Lender feels like they can call it due”. Any violation of the Due-On-Sale Clause the lender can call the note due “if they feel like it”. That is by virtue of the DOS Clause.

    The Garn-St. Germain Law of 1982, as posted above, prevents a lender from calling their note due for one placing their property in their own “Inter-vivos” of Living Trust, as long as the trust remains revocable by the beneficiary”s” and the Settlor/Grantor remains “A” beneficiary.

    I know that over the years NARS has had several Lenders proclaim and attempt to call their notes due for a Seller/Settlor/Grantor vesting their Title to the Trustee of a NARS EHTrust. I also know that NONE of the them were successful. And I also know that Bill/NARS actually has letters from some of the largest lenders in the industry basically saying, “oops, sorry, we didn’t know and you are right, never mind”.

    Although this has never happened in one of my transactions, I know that NARS has a letter that goes out to the Lender to resolve the issue.

    Previous to 1982 Lenders were in fact calling notes due for any reason they wanted because interest rates were climbing and they wanted to force borrowers to refinance and higher rates, thus the reason for the Garn-St. Germain Law of 1982. Now there is Federal Law prohibiting Lenders from calling notes due for just any reason and without cause.

    #23782
    Avatar of mtnwizard49
    mtnwizard49
    Member

    The ironic thing is that it was the Lenders who fought so hard against consumer groups to get Garn-St. Germain passed so that they COULD call loans due. However, lenders have to keep their wealthiest depositors happy and, guess what, those are the same people who use land trusts. Voila! Land trusts are exempt — go figure!

    #23783
    Avatar of homesavers
    NULL
    Member

    That is why you have to stand on the Law as written. My point was a factor of interpretation. That is why Lawyers battle it out in the court room. You still have to fight in one way or another. If a letter or phone call works, great. Sometimes they do not work and you need some legal help.

    #23784
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    @homesavers wrote:

    That is why you have to stand on the Law as written. My point was a factor of interpretation. That is why Lawyers battle it out in the court room. You still have to fight in one way or another. If a letter or phone call works, great. Sometimes they do not work and you need some legal help.

    Great point, and that is exactly why you need to use NARS exclusively for all your documentation.

    This is one reason I have to laugh when I hear such lame excuses for not using the Full NARS Documentation Process as… “it costs too much”. So when the Big Bad Wolf (the Lenders Attorney/Trustee) comes a huffin and a puffin, you can feel comforted in the fact that your house is made of stone, via NARS. Do you think that for one minute that NARS would stand by and allow a lender to call a note due of a property held by one of it’s Trustees? NO, NO and HELL NO!

    Now I don’t speak for NARS or Bill but you can bet your @$$, NARS has got your backside.

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