Land Trust Assumable Loan?

Question

So perusing things, I cam across this gem:

Making Loans “Assumable”. A non-assumable loan can become effectively assumed by using a land trust. The seller transfers title into a land trust, with himself as beneficiary. This transfer does not trigger the due-on-sale clause of the mortgage. After the fact, he transfers his beneficial interest to you. This latter transaction does trigger the due-on-sale, but such transfer does not come to the attention of the lender because it is not recorded anywhere in public records. This effectively makes a non-assumable loan “assumable”. As you can see there are many creative and effective uses for the land trust, limited only by your imagination!

So is it really just that easy? :roll:

Account Closed · Answer

You should also consider if your title company will insure a property using a land trust. It's very easy to put a property INTO a trust since no insurance is needed. However, when you try to sell or refinance later many title companies are refusing to insure unless you unwind the trust and they can "back vest" to the original owner.

Robert Dobbs · Answer

Lenders have more to worry about in Las Vegas than "due-on-sale clause violations".

As long as this loan remains "current & performing";

...you have a better chance of "hitting the jackpot" at Caesars Palace, than having the lender accelerate an otherwise performing loan in good standing for a violation in the "due-on-sale clause".

Spending a few hundred dollars with a good attorney that specializes in these types of land contracts should be worth the money. (...try finding these types of lawyers who are affiliated with your local Las Vegas Real Estate Investment Club).

A lawyer of this type can create a new, or review and update your trust/sales-agreement, land contract, etc.

Here's a different twist:

How about a back-up agreement and a back-up deed?

Well, let's say an agreement is reached to transfer the home via some sort of owner financing.

How about a second signed agreement that states:

"Just in case, because of regulatory or other reasons, a "more traditional type of sale" is required to transfer said property. Both Seller and Buyer agree to create and sign a traditional purchase contract and a traditional deed, such as a "Warranty Deed", as a "back-up", just in case a more traditional sale is needed".

See if an attorney will help you "draft the language needed" and assist you in executing these "back-up" documents, and maybe "store them away for you both", just in case they are needed in the future?

So if there is any doubt about transferring title or "chain of title" issues because of "owner financing in the future, maybe these "back-up" DOCS will be "just what the doctor ordered"?

This paperwork (signed deed and agreement for sale, etc.) will not be for "public consumption", unless made public out of necessity.

Plus, you have a creative way of making this owner financing deal become "more of a regular deal" if needed in the future!

I'd like to hear from some attorneys out there, if there are problems about creating a "back-up agreement" that have the "ok of both Seller & Buyer"?

rd

Manny Cirino · Answer

If this latter transaction late triggers the due-on-sale then why use this?

I understand what Jon is saying this is referring to hiding subject to's. Assuming the loan means that the actual loan is transferred in your name, not just having control of the property.

Jon Holdman · Answer

Notice the word assumable is repeatedly quoted.  And the quote (from Bill Bronchick, I believe) says "This latter transaction does trigger the due-on-sale".  The land trust is a way of hiding the ownership.  There's no magic here.  The loan does not become truly assumable.  Its just harder for the lender to figure out the ownership has been transferred.

Andy M. · Answer

It's true, there are quite a few investors who use land trusts to do deals. People also use them to put a REO under contract and sell the contract to other investors because banks won't let you assign an REO. I have used trusts in the past and it works but haven't used them recently as I just use other methods to accomplish my needs. As for buying sub 2, trusts can work as described, but I just use an all inclusive trust deed and I have only had a loaned called due once. Lenders don't pull up title often.

Kevin Cardinale · Answer

Woah, I meant no offense and will stand for any offense over this.  That a person that processes payments in a bank makes or nearly makes minimum wage is not an insult.  I am pretty sure in a 25% unemployment rate state, minimum full-time work would be appreciated by many.

The problem is, and when I was a manager, this is how I felt, anyone that hires someone for minimum wage, as Mitch alluded to, is not terribly concerned by the skills and acumen of the worker.  If one of my employees, when I was a manager, messed up, and they did, I didn't even get upset, I would just send them home as "punishment". [ note that I did not dictate their salary at the time, the corporation did. and I felt they obviously needed that little paycheck, and did not get terribly upset for their mistakes ]

The point was that the banks, while a payment from a different source might be considered a constructive notice, have put in place systems [ computer / minimum wage worker ] that intentionally ignore it anyway.  Perhaps it's not that they pay attention and ignore it, but that they put the systems there to avoid receiving constructive notice.

I might be splitting hairs, but as Mr. Dobbs said, they have more important things to do than accelerate a loan, with a huge public inventory and an even larger shadow inventory of homes.

As a few of you said though, one should no rely on their ignorance as legal grounds to not protect oneself or the seller in case they choose to accelerate the loan.  I have just such luck.  [ noone was ever stopped on a stretch of road for going over 10 mph, yet i'm stopped for going over 1 mph.  I have such luck in almost anything I do. hence my over-analyzing everything. mind you i am "doing things".]

Thank you everyone for the input and especially Mr. Dobbs.

Mitch Kronowit · Answer

Perhaps. That simply proves the lenders aren't terribly concerned about looking for properties changing hands. If they were, it would be a rather small task to program that computer or train those "minimum wage people" to set off warning bells anytime the payer on a mortgage account didn't match the original name on the loan.

It's silly to think you're "pulling the wool" over the lender's eyes by hiding ownership transfer behind a trust while they're receiving monthly "notices" of the change anyways.

If you haven't been found, it's not necessarily because you're doing such a good job at hiding, it could be they're simply not looking that hard.

Manny Cirino · Answer

"Minimum wage people", wow that must be one the most ignorant things I've ever heard! You would be surprised to find out how many smart people are forced to different career options due to this economy. Just because someone is under paid does not make them incompetent.

In a land trust the primary owner is still attached to the property you just have all of the Right of Direction(similar to a Power of Attorney) so long story short, the payment still gets sent under the owners name.

Kevin Cardinale · Answer

to my knowledge, and from what I have had explicitly told to me by those who have done this, the payments are processed by computers and minimum wage people, neither of which pays attention to where and whom the payment is coming from.

Mitch Kronowit · Answer

Uh, when the lender begins receiving mortgage payments from the "new" owner, doesn't that bring it to their attention????   :idea:

Land Trust Assumable Loan?

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