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EHTrust/EHT Topics and Creative Real Estate Financing

Older (And Now Largely Impractical) Creative Financing Techniques (“Schemes”) Predating the ODWM EHTrust Transfer™

Webinar Ea. Sat.  9:00-10:00 AM Ca. Time www.fuze.me/228195897 (ID #22819587)

It is  of utmost importance to note here that the ODWM EHTrust™ was not designed to replace the benefits of Options, Equity Shares, Wraps and CFD’s explained below.  Instead, the objective of the EHTrust™ has been the  preservation all the benefits of those devices, without legal compromise and myriad other associated risks.

Simply stated, the “EHTrust” is a safer, more practical and legitimate (legal) means for conveying (or acquiring) the benefits of fee-simple real estate ownership, without the need for a real estate sale and purchase, ‘without need for creating a mortgage or the necessity for title-transfer from a property owner to an acquiring party, ‘without violation of the Garn-St. Germain (“due-on-sale”) Act and without compromise of the 2014 Dodd-Frank legislation..

The EHTrust(tm) works by effectively converting real property (realty) ownership to that of personalty (beneficiary interest in a beneficiary-directed personal property trust).  When an owner places its property into a title-holding third-party trusteeship (i.e., “gives” the property to a trusted and duly licensed third-party non-profit corporation)  and then leases the trust’s corpus (the property) to a legitimate co-beneficiary (remainder agent) versus selling it or creating a home loan for its purchase.

At the trust’s termination (‘and expiration of the coordinated lease term) the resident co-beneficiary-lessee either walks away, or may obtain a legitimate mortgage and buy the property at its then fair market value, less any amounts that maybe due thereto by the trustee: i.e. pertinent to any profit sharing agreements by parties at inception).


The Wrap-Around Mortgage

(aka: “All-Inclusive Mortgage”;
“All-Inclusive Trust Deed” or “AITD”)

A seller-financing device commonly known a “Wrap”, has, for some time, been a staple for secondary owner-carry real estate financing, having been employed for the purpose of facilitating the sale of a property to someone that may not have access to (‘or who may not care to pay) a full down-payment, and whom may not have the ability to (‘or have a desire to) qualify for a conventional mortgage loan.

In the Wrap, a property owner (seller) extends to the buyer a “blanket” mortgage, which “wraps around” all existing mortgages that are currently in force and secured by the property.

In other words, under a Wrap arrangement the seller takes a secured promissory note from the buyer for the entire amount currently due on all underlying mortgage financing, PLUS an additional amount that is to be paid (by the buyer) for acquisition of the remaining equity.

Historically the Wrap as a form of seller financing has had the effect of lowering barriers to ownership of real property for thousands who would otherwise have been unable own their own home.  The Wrap has also served to expedite the process of home purchase over a much shorter time.  ‘However, since the advent of the 2014 Dodd-Frank anti-seller-carry legislation (i.e., the Wall Street Mortgage Industry Reform Act), it would appear that the Wrap-Around  has gone the way of most other now outmoded and generally prohibited “creative” financing forms.

Downsides of the Wrap:

1. The Wrap clearly violates the alienation provision in the primary loan/s (the “due-on-sale clause”), subjecting the property to the possibility of foreclosure by the primary lender/s within 60 to 90 days of discovery.

2.  The Wrap does, for all practical purposes, constitute a direct violation of the 2014 federally instituted Dodd-Frank “Wall Street Reform and Consumer Protection Act” relative to seriously curtailing the practice of owner-carry financing of real estate (‘along with 650 rambling pages of new mortgage industry regulations).

3   The parties to a Wrap are always subject the adverse effects of any liens, lawsuits, marital disputes, probate actions initiate by, or involving, the other party

4. Any default in payments by the Wrap buyer necessitates the exorbitant cost of full foreclosure (whether judicial or non-judicial) and the wasted time and expense of unlawful detainer, ejectment, quiet title, etc.

5. Likewise, payment default by the seller on the underlying financing can result in foreclosure by the existing lender/s bringing about loss of the home that the buyer thought was his/hers.

6. A Wrap actually transfers the property’s title from seller to buyer, thereby rendering the seller helpless from that point forward relative to needing to undergo full litigation for foreclosure, unlawful detainer, ejectment and defense against all the “tricks” of foreclosure consultant attorneys: which tricks can prolonged the process almost indefinitely: i.e., ‘by the filing of demurrers to court actions and orders, TRO’s (Temporary Restraining Orders), the repeated filing of multiple bankruptcy starts…and then a formal request for jury trial and transfer of venue (i.e. to a higher court)…

IMPORTANT:  The above shortcomings are not at issue when the transfer is by the ODWM EHTrust™

The Lease Option.

A seemingly innocuous “creative financing” device in common use for years is the standard Lease Option, whereby a lease tenant purchases the right to acquire ownership at some future date at a price determined either by prevailing market conditions at the option strike date, or for some predetermined amount established by the parties at inception.

Once again, the disadvantages inherent in this arrangement (the Lease Option) are numerous and especially unnecessary when a superior safer alternative is available in the form of the ODWM EHTrust Transfer™ that very effectively mimics any/all the same benefits and advantages of the Lease Option, but without any of the disadvantages. I.e.:

1. The alienation provisions in the primary loan/s (the “due-on-sale clause”) is violated [See 12 USC 1701j-3 regarding any lease of more than three-years or any lease containing purchase option provisions]

2. The Lease Option is considered a form of seller-financing, which is, as we have said, in violation of the WSRCP (i.e., the 2014 Dodd-Frank Act).

3. Due to its effective conveyance of “equitable interest” in the property, the parties to a Lease Option, (‘although ostensibly holding only a contingent interest) are considered equitable owners and are, therefore, beyond the reach of simple eviction by way of having paid a sum up-front (option fee) or monthly (“rent credit”).

4. As is the case with other forms of seller-financing, the Lease Option subjects the parties to adverse effects brought about by the actions of either of them (Optionor or Optionee) relative to legal actions, liens, marital disputes, probate actions and the non-availability of ancillary administration following the death of a principals (i.e., “ancillary administration” = The administration of a decedent’s estate while disposing of property in a state other than the one in which he/she lived at the the time of death).

5. Any default in payment by the Optionee will likely necessitate full judicial foreclosure processes, in that the defaulting party will most likely have been well-coached by his/her “free (‘on contingency’)” attorney to use all the tactics and tricks available to him/her re. running up the expenses of the claimant to the point of exhaustion: thus forcing an “out of court” settlement.  The longer the melee lasts, the more free-rent the defaulting party receives, and the higher the settlement costs and the more money the attorney makes.

6. Re. the Optionee’s risk, any default in  the Optionor’s payment obligation can lead to foreclosure, loss of the home, the option fee and any rent credits.

IMPORTANT:  These shortcomings are simply not at issue when the transfer is by the ODWM EHTrust™

The Contract for Deed.

Containing virtually all of the same disadvantages of the previously mentioned seller-carry methods, the Contract for Deed (Land Sale Contract or “CFD”) is another now outdated means of transferring certain home ownership benefits to an acquiring party, wherein the seller (the “vendor”) agrees to pass the property’s deed to a contingent purchaser the (the “vendee”) at a time in the future when the currently existing financing can be retired (paid-off).

Once again this type of financing carries the same set of disadvantages and dangers as do those devices mentioned above…’but with the added disadvantage of the vendee’s being unable to claim income deductions for mortgage interest and property tax due to its not holding legal title [See IRC163(h)4(D)].  As practical or functional as has been the CFD in the past, Dodd-Frank legislation has curtailed its use as a seller-carry transfer device.   As mentioned in explanations of the previously mentioned seller-carry forms, the CFD violates any lender’s due-on-sale clause and subject one to the the always present prospect of imminent long and drawn-out litigation in the event of default.

The Equity Share.

In the standard Equity Share arrangement, two (or more) parties go on a property’s title as owners holding their interests as tenants in common (i.e., ‘with no right of survivorship, as opposed to joint ownership wherein one party surviving the other after death would own what the deceased party had. and would take-up where the deceased had left off).   The “standard” form of equity sharing most often entails two parties sharing an undivided 50:50 interest in the property, while agreeing that on some future date the property will be sold or refinanced by the resident party, with all profits being shared proportionately with each party’s respective percentages of ownership.

Once again, it must be pointed out that the Equity Share – in its traditional form carries ALL of the same downside and pitfalls inherent in any other “creative (owner-carry)” real estate financing device [See above].

HOWEVER…do note carefully that ANY of the desired benefits, features, nuances, advantages of the above listed outmoded financing devices can be accomplished safely, legally and most effectively with the ODWM EHTrust Transfer™.

It is so important to reiterate that through the use of the ODWM EHTrust™, the disadvantages of older “innovative” real estate transfer and financing methods are resolved.

For example, the EHTrust™ provides for:

1. Safe and legal owner-carries, wholly without violation or compromise of any lender’s alienation (“due-on-sale clause”) provisions, as protected under the US Code of Regulations Title 12 Section 1701j-3 (‘and inaccurately referenced in 12CFR591(vi), which CFR title is not, and has never been, enacted as law (which fact is clearly covered by the Office of the Law Revision Council, U.S. House of Representatives.

2. There is no compromise or violation of the 2014 Dodd-Frank Wall Street Reform and Consumer Protection Act (re. seller-financing/owner-carry restrictions) by the EHTrust Transfer™

3. By means of the EHTrust™ one’s real estate ownership is converted to ownership of personalty versus realty, and no “mortgage” is being created, assumed, transferred or assigned (though the benefits of having done remain, nonetheless).

4. The EHTrust™ carries no mandatory buy-out provision or bargain purchase price even when structured to emulate the objectives of a Lease Option (‘although the acquiring party can/will purchase the property at termination for an amount well under its Market Value (i.e., ‘this is to say that after receiving full consideration for the “Resident Beneficiary’s Contribution at inception,” and the stipulated share of net profits at termination, all such amounts are deducted from the purchase price).

IN CONCLUSION:  The objectives of ANY of the “creative financing” devices explained here can safely and legally be achieved through the  application of the proprietary Open Door Wealth Management, LLC, Equity Holding Trust Transfer (the ODWM EHTrust™)

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