How do I do this...?

Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes

The short sale lender wants to close by April 15th.

Let's say I use bridge funding, that means the C buyer would need to close around April 18th.

My title company has told me that a land trust is needed. Reason:

So the B buyer's name is on title and C's lender won't have an issue seeing a different name on title (therefore, they can start working on the financing immediately).

Is this correct? I've heard some conflicting information as well. I've heard that C's lender won't be interested in working on a deal like this if there's a land trust.

So that's option A...the land trust.

What's my other option? If I don't use a land trust, party A will be on title until April 15th.

If that's the case, how is it possible for C to close on April 18th?

Will C's lender be willing to work on the loan if they see a "contingent upon B obtaining said property" contingency in C's purchase contract?

Can we show C's lender the A-B contract to show that B is in the process of obtaining the property? And if we do that, isn't there a risk that C's lender sees that B is purchasing for X amount of dollars, and then C's lender will refuse to give C a loan for the purchase price of Y dollars because of the 50k difference?

What are my options? I keep hearing different things, and don't want to screw this up.

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Scott Hubbard

Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes

16y

Originally posted by H Mann:

My title company has told me that a land trust is needed. Reason:

So the B buyer's name is on title and C's lender won't have an issue seeing a different name on title (therefore, they can start working on the financing immediately).

Is this correct? I've heard some conflicting information as well. I've heard that C's lender won't be interested in working on a deal like this if there's a land trust.

Potential problems:
1. If your approval letter names a specific buyer, then using a land trust now will mean you will need to the A lender to accept the Land Trust and amend the approval letter.

2. Even though B buyer's name is in the land trust agreement, this does not necessarily mean they will still underwrite. I have experienced underwriter's unwilling to underwrite due to a Land Trust being the seller.

3. Most underwriter's will be suspicious of a Land Trust filed, transferred, and recorded within such a short time frame.

If your C buyer is using a mortgage broker or large institutional lender, chances are they will not be able to underwrite anything unless you close an hold for 30 days or more. They also may not underwrite a land trust at all. Wells Fargo, in January, published lending guidelines and underwriter's cannot fund a Land Trust without minimum seasoning of at least 120 days.

This means the interest in the property would have to be recorded for at least 120 days.

In conclusion, I disagree with your title company stating you need a land trust. Since you are already on the clock, I do not believe it will help you in this case. Additionally, it can create a whole new set of problems.

Originally posted by H Mann:

So that's option A...the land trust.

What's my other option? If I don't use a land trust, party A will be on title until April 15th.

If that's the case, how is it possible for C to close on April 18th?

1. If your spread allows, find a lender willing to float you for two or three weeks while Buyer C's underwrites. Close and record in late March. Make sure your C Buyer has a significant EMD. If your lender funds and C cannot close, then assign the EMD to go to lender.

2. Seek out a lender who underwrites, funds, and seasons loans in house (sometiems referred to as a warehouse funder). These lenders will require you to close and record, but that should only take a 4 or 5 days maximum. If takes some doing, but they do exist.

I have two smaller lenders I use who will fund as long as I close and record. In Arizona, this can be done on the same day. In California, it takes at least two.

I would level with the C buyer and explain your situation and that your experience tells you that some lenders do not want to be creative and suggest to him a lender of your choosing. Offer to pay for the appriasal, home warranty, or home inspection for his troubles.

3. Find a JV partner on the deal. I sometimes use a money partner (when his wife isn't complaining) to fund the loan. I have used HML's but this type of loan is not their bread and butter. HML's are really a long shot.

Originally posted by H Mann:

Will C's lender be willing to work on the loan if they see a "contingent upon B obtaining said property" contingency in C's purchase contract?

Again, you really need to keep in mind very few lenders can actually do these deals. The ones doing these deals are typically smaller in house lenders. I would ask the C buyer who their lender is. If it is big 5 or a local mortgage broker, chances are they will not fund this deal.

Originally posted by H Mann:

1. Determine who the C buyer's lender is. Make some calls to their office and ask to speak to a loan officer or processor. If you can get to an underwriter, even better. Explain your situation, the A to B then B to C. Do not get into particulars. Do not say double close or simultaneous close. Just explain that you will be on title for 2 or 3 days and you want to know if they will underwrite a loan without you being on title yet.

2. If it is a big five, a local broker, or they told you they cannot close, then your going to have to "level with the C buyer and tell them if they are willing to use your preapproved lender, you will assist them by paying for the appraisal, home inspection, moving costs. You can also offer to paint, carpet, or tile. Do not offer them points or closing costs as this is a RESPA violation.

Bottomline, a traditional RE transactions pins seller against buyer and agent against agent. For this to work, you need a cooperative between agents and especially between principals.

Your success depends on being able to keep your C buyer engaged in the transaction. And, much like a realife engagement between two people, you may need to get down on one knee, open up a velvet box and reveal that shiny trinket and dazzle them!

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Scott Hubbard
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Originally posted by H Mann:

My title company has told me that a land trust is needed. Reason:

So the B buyer's name is on title and C's lender won't have an issue seeing a different name on title (therefore, they can start working on the financing immediately).

Is this correct? I've heard some conflicting information as well. I've heard that C's lender won't be interested in working on a deal like this if there's a land trust.

Potential problems:
1. If your approval letter names a specific buyer, then using a land trust now will mean you will need to the A lender to accept the Land Trust and amend the approval letter.

2. Even though B buyer's name is in the land trust agreement, this does not necessarily mean they will still underwrite. I have experienced underwriter's unwilling to underwrite due to a Land Trust being the seller.

3. Most underwriter's will be suspicious of a Land Trust filed, transferred, and recorded within such a short time frame.

If your C buyer is using a mortgage broker or large institutional lender, chances are they will not be able to underwrite anything unless you close an hold for 30 days or more. They also may not underwrite a land trust at all. Wells Fargo, in January, published lending guidelines and underwriter's cannot fund a Land Trust without minimum seasoning of at least 120 days.

This means the interest in the property would have to be recorded for at least 120 days.

In conclusion, I disagree with your title company stating you need a land trust. Since you are already on the clock, I do not believe it will help you in this case. Additionally, it can create a whole new set of problems.

Originally posted by H Mann:

So that's option A...the land trust.

What's my other option? If I don't use a land trust, party A will be on title until April 15th.

If that's the case, how is it possible for C to close on April 18th?

1. If your spread allows, find a lender willing to float you for two or three weeks while Buyer C's underwrites. Close and record in late March. Make sure your C Buyer has a significant EMD. If your lender funds and C cannot close, then assign the EMD to go to lender.

2. Seek out a lender who underwrites, funds, and seasons loans in house (sometiems referred to as a warehouse funder). These lenders will require you to close and record, but that should only take a 4 or 5 days maximum. If takes some doing, but they do exist.

I have two smaller lenders I use who will fund as long as I close and record. In Arizona, this can be done on the same day. In California, it takes at least two.

I would level with the C buyer and explain your situation and that your experience tells you that some lenders do not want to be creative and suggest to him a lender of your choosing. Offer to pay for the appriasal, home warranty, or home inspection for his troubles.

3. Find a JV partner on the deal. I sometimes use a money partner (when his wife isn't complaining) to fund the loan. I have used HML's but this type of loan is not their bread and butter. HML's are really a long shot.

Originally posted by H Mann:
Will C's lender be willing to work on the loan if they see a "contingent upon B obtaining said property" contingency in C's purchase contract?

Again, you really need to keep in mind very few lenders can actually do these deals. The ones doing these deals are typically smaller in house lenders. I would ask the C buyer who their lender is. If it is big 5 or a local mortgage broker, chances are they will not fund this deal.

Originally posted by H Mann:
Can we show C's lender the A-B contract to show that B is in the process of obtaining the property? And if we do that, isn't there a risk that C's lender sees that B is purchasing for X amount of dollars, and then C's lender will refuse to give C a loan for the purchase price of Y dollars because of the 50k difference?

1. Determine who the C buyer's lender is. Make some calls to their office and ask to speak to a loan officer or processor. If you can get to an underwriter, even better. Explain your situation, the A to B then B to C. Do not get into particulars. Do not say double close or simultaneous close. Just explain that you will be on title for 2 or 3 days and you want to know if they will underwrite a loan without you being on title yet.

2. If it is a big five, a local broker, or they told you they cannot close, then your going to have to "level with the C buyer and tell them if they are willing to use your preapproved lender, you will assist them by paying for the appraisal, home inspection, moving costs. You can also offer to paint, carpet, or tile. Do not offer them points or closing costs as this is a RESPA violation.

Bottomline, a traditional RE transactions pins seller against buyer and agent against agent. For this to work, you need a cooperative between agents and especially between principals.

Your success depends on being able to keep your C buyer engaged in the transaction. And, much like a realife engagement between two people, you may need to get down on one knee, open up a velvet box and reveal that shiny trinket and dazzle them!

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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
Scott, thanks for all the information.

Now here's another question:

The title company has told me that, using the land trust, the BENEFICIARY should be a corporation.

If I don't use the Land Trust, what needs to be done in order for the beneficiary to be a corporation? Is it simply drafting and recording a document?

I'd much rather have this money go to a corporate account for tax purposes.
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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
Also:

"1. If your approval letter names a specific buyer, then using a land trust now will mean you will need to the A lender to accept the Land Trust and amend the approval letter."

I didn't quite understand that...

Can you explain please?
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Scott Hubbard
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Originally posted by H Mann:
Scott, thanks for all the information.

Now here's another question:

The title company has told me that, using the land trust, the BENEFICIARY should be a corporation.

If I don't use the Land Trust, what needs to be done in order for the beneficiary to be a corporation? Is it simply drafting and recording a document?

I'd much rather have this money go to a corporate account for tax purposes.

To clarify-
When you create a Trust, you name it, then after the trust is executed, the title gets transferred into the Trust's name.

For instance, let's say the property is titled to John Doe. You and John create a trust agreement and decide to name the trust "The Doe Trust". You have to then transfer the title to "The Doe Trust". This is when seasoning begins.

Now, once in a trust, you are now selling beneficial interest in the trust, not the actual title to the property. Think of the trust like a separate entity that encapsulates the ownership sort of like an LLC or corporation would own a business. One of the major differences is that the title is held by the trust, but the trust agreement is not part of the public record, so the beneficiaries are often hidden.

Your title company informed you that YOUR interest should be held by a corporation. And this is true. You should form a legal entity like a corp or an LLC to purchase and flip your properties.

Off Topic :To take it one-step further, you should create a parent company, usually a S-Corp or an LLC with an S-Corp filing status. I would create an LLC which is solely responsible for Flipping properties. The reason.... Flipping is a short-term transaction and capital gains is taxed at a higher rate for short-term investments. I am going to stop here because this is getting off topic and advise you to seek an accountant for further clarification.

Within a trust, the beneficial interest would go to your LLC or Corp. When you transfer your interest (B to C), the title company will cut a check to your LLC or Corp.

If your not using a trust, then you can use your LLC or Corp as the buyer in the sales contract instead of your personal name. After the B to C, the title company will cut a check to your LL or Corp. However, this will not help with seasoning issues since the title is still the Seller's name until you actually purchase the property.

Instead of a trust, you can have the seller create an LLC, transfer the title into the name of the LLC, before you begin negotiations of the short sale. Then, after the has agreed to sell the property, you can buy the LLC from the seller. That way, title remains in the name of the LLC and is seasoned. This is the only way to create a transferable interest without a trust.

The problems with the above are: Your C buyer's lender could actually consider seasoning the moment of ownership transfer in the LLC or Corp; and it is expensive to create a separate LLC for each short sale.
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Scott Hubbard
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Originally posted by H Mann:
Also:

"1. If your approval letter names a specific buyer, then using a land trust now will mean you will need to the A lender to accept the Land Trust and amend the approval letter."

I didn't quite understand that...

Can you explain please?

When the lender issues a an approval lender, it generally names the buyer listed on the sales contract. A title company will not allow you to close in a different name. Hence, the approval letter is buyer specific. If your approval letter does not name a buyer, then you can assign one unless the approval letter denotes it is non-assignable.
I recommend closing in the name of the buyer specified by the sales contract you submitted to the A lender. If you change the name of the buyer after the fact, you should inform the A lender the buyer has changed. If you do not inform the A lender of the change prior to sending the final HUD 1 pre-closing, they could call the title company a retract the approval.

So, you need to be careful when playing musical chairs with buyers. Contact your title company to see what your options are.
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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
Scott, the buyer on the A-B side remains the same.

Only the C buyer may change.
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Scott Hubbard
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Originally posted by H Mann:
Scott, the buyer on the A-B side remains the same.

Only the C buyer may change.

As I read your OP, I assumed you already received an approval letter from the A lender. Since your speaking hypothetically, and you would have previously set up your land trust, then the A to B would not change.
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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
I'm still confused.

I originally submitted buyer B's offer at 250k in October. Recently, I submitted an offer under the same name for 285k.

I'm expecting that approval letter any day now.

How does the land trust affect any of this? Whether or not it was required prior to, or after approval...what is the affect as long as the buyer is still the same?

I HAVE NO YET RECEIVED AN APPROVAL LETTER. ALSO, I HAVE NOT YET RECORDED THE LAND TRUST.
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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
Also, the title company rep who drafted the land trust...she is VERY CONFIDENT that she knows what she's doing. Her words:

"These are the only types of transactions that I do."

I trust what she's saying and am sure that she knows what she's doing. However, I read things on BP that make me thing more carefully about my stance.

W-T-F should I do?
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Scott Hubbard
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Are you prepaying the title company to draft the land trust?

Usually,they cost $350 plus another $125 to record. That, my friend is why they only do land trusts.
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Scott Hubbard
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Originally posted by H Mann:
I'm still confused.

I originally submitted buyer B's offer at 250k in October. Recently, I submitted an offer under the same name for 285k.

I'm expecting that approval letter any day now.

How does the land trust affect any of this? Whether or not it was required prior to, or after approval...what is the affect as long as the buyer is still the same?

I HAVE NO YET RECEIVED AN APPROVAL LETTER. ALSO, I HAVE NOT YET RECORDED THE LAND TRUST.

So it works like this -- the seller "Mr. Smith" will deed the property over into a trust we call "the smith family trust" The trust documents sets out who the trustee is not usually the buyer, but someone you trust to act as trustee and who the beneficiary of the trust is which will be the seller, Mr. Smith. Then there is a second document that is entitled "Assignment of beneficial interest" which is where Mr. Smith, assigns his rights to the trust (i.e. his right to the property) over to you or your llc. You would also record a deed transferring the property from Mr./Mrs. Smith to the Smith Family Trust.

So, if you have already submitted a sales contract to the A lender, listing the A Seller as John Smith, then John Smith is no longer the owner of record since you recorded a deed transferring the property to the Smith Family Trust.

Thus, you need to amend your sales contract to reflect the change to the B buyer.
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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
"The trust documents sets out who the trustee is not usually the buyer, but someone you trust to act as trustee and who the beneficiary of the trust is which will be the seller, Mr. Smith."

In this case, the buyer IS the trustee.

Here's the scenario:

In October, Buyer B writes an offer to Seller A.

In February, Buyer B writes a new offer to Seller A after the bank's counteroffer.

Right now, Buyer B is waiting for an approval letter from the bank.

Title company is telling me that to use a land trust which assigns Buyer B as the trustee or the 123 Street Family Trust.

That way, lender C can start working on the B-C side because they see B on title as trustee.

Beneficial interest currently remains with seller A, but will be transferred to XXX Corporation at some point.

So how is using a land trust going to affect the A-B transaction?

Is this what you're saying:

[/b]Once the land trust records, B will be the trustee. So how can B be purchasing the property from B?[b]

Is that what the problem is?

I don't know if I'm just dumb, or if this is actually very confusing.

BTW, the title company is not charging for the land trust.
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Jim Wineinger
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
The trustee of the Trust deed is not the same as the trustee (or beneficiary) of the Trust.

They are two separate things. I believe you are confusing the two as one.

Others will be better able to explain this to you than me but the trustee IS NOT the beneficiary.

The trustee holds title to the property for the benefit of the beneficiary.
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Scott Hubbard
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Jawsette is correct, the Trustee should be a third party with no interest in the property. Trustee should be someone the beneficiary has confidence in or "trusts".

Herein lies the dilemma of the land trust. Put B buyer as Trustee and submit the trust document to A Lender as part of the original short sale, then they are going to be concerned that it is not an Arm's length transaction, tell A Seller is in violation of the terms of the promissory note, or that Trust is in valid because the B buyer and the Trustee are the same . All of the above arguments I have had to deal with personally.

Is this legal? My attorney has written several letter's arguing it is legal mainly because these are not regulated entities and there is no case law challenging the validity of the transaction.

However, it is clearly gray because it can be argued you are forming the trust for the benefit of your corporation and accepting the trustee role is a conflict of interest becuase you have a fiduciary responsibility to the beneficiary (A Seller). Of course, it can also be argued that you are facilitating a
sale of a short sale and as long as the seller is not being harmed, you can claim, you are acting in the best interests of the beneficiary.

I disagree with your title companies assumption that the C buyer's lender will agree to underwrite the loan because your a trustee on the document. Clearly, any underwriter may question the fact you essentially formed a trust and are selling all within a six week period.

I know Wells Fargo, Bank of America, and others will not even look at underwriting with a land trust involved. I guess what I am trying to tell you is that it is still no slam dunk.

Are you using old school? Is the C buyer FHA? If they are conventional, which lender are they using?

In theory Land Trusts seem great, but they have equally as many problems as any other contract type. It boils down to the C buyer's lender whether the underwriter is comfortable with the transaction. If your title company has experience with using trusts with this particular lender, then go for it. If not, I would be concerned with this advice.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
I don't think having B as the trustee will have any effect at all on B's financing. Being the trustee doesn't give you any rights to the property at all. It certainly doesn't put B on title, which is what seems to be the desired result.
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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
Originally posted by jawsette:
The trustee of the Trust deed is not the same as the trustee (or beneficiary) of the Trust.

They are two separate things. I believe you are confusing the two as one.

Others will be better able to explain this to you than me but the trustee IS NOT the beneficiary.

The trustee holds title to the property for the benefit of the beneficiary.

I'm not confusing those two things at all. I understand that the trustee and beneficiary are two different parties. That's why I stated that B is the trustee, and an outside corporation is the beneficiary.
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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
Originally posted by Jon Holdman:
I don't think having B as the trustee will have any effect at all on B's financing.

??? Did you mean "C's financing?"
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Clifton Jones
Investor · Melbourne, FL · Member since 2008 · 90 posts · 39 votes
16y
Per your original statement, your title company claims that this property needs to be in a land trust in order for the "C" lender to be able to start underwriting the loan. This was what I got from your explanation, but this will crate a problem, not just because of the shady appearance of the land trust, but because of the problems this will create on the A-B side of the deal..

The problem you will have, and what everybody is trying to explain, is "B" is not currently on title. Since "A" is still on title, the lender for "C" can not start the underwriting process for the B-C contract (which is not really true, but that is another story).

Now, if you were to have the homeowner move the deed into a land trust, then the lender for "C" could POTENTIALLY start the underwriting, but this would cause problems in the A-B transaction, because the property has changed owners from "A" to the land trust. This would then make your contract null, since there was a new owner (moving a property into a trust is deemed a sale in some, if not all states, hence a new owner). This would cause the short sale to start over again, for most lenders.

POTENTIAL SOLUTION: Contact the lender for â€œCâ€ and explain the entire scenario, that you are purchasing the property via a short sale and then turning around and selling it to â€œCâ€. If you can provide the Acceptance Letter (with all prices removed), then that would also help show that this sale will go through, if they will underwrite.

If the lender for â€œCâ€ will still not underwrite, then explain this situation to â€œCâ€ and recommend a mortgage broker that he can use that will be able to underwrite while the property is still owned by â€œAâ€. Remember that â€œBâ€ has nothing to do with the issue in this transaction. The problem is you title company is stating the lender for â€œCâ€ can not start the underwriting on the B-C transaction while the property is still owned by â€œAâ€. This could just be your title company's belief, or they could have received this information from â€œCâ€'s lender. If the latter, then speak with â€œCâ€ and explain that his lender will not underwrite until you are on title and that this scenario will not work for you. You require them to be able to close on a certain date and that whoever they use will need to underwrite the loan before you are on title. You should explain the A-B, B-C scenario, so â€œCâ€ will understand why this is the case.

To break down your question to it's ultimate issue, you want to know how to get the â€œCâ€ lender to underwrite the loan for â€œCâ€. Forget the land trust, as it will cause more problems than it will resolve. If your title company has a problem with this, then find a new title company. Any title company who states that you must have this in a trust to make this deal work is either ignorant of this type of transaction, or they are attempting to persuade you to do something that is not in your interest, but to their benefit only (providing them with more money).
2 Reply
Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
"The problem is you title company is stating the lender for â€œCâ€ can not start the underwriting on the B-C transaction while the property is still owned by â€œAâ€."

Actually, it's not my title company that's saying that. It's BP members.
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Justin S.
Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
16y
Who said this?

So the B buyer's name is on title and C's lender won't have an issue seeing a different name on title (therefore, they can start working on the financing immediately).

Is this correct? I've heard some conflicting information as well. I've heard that C's lender won't be interested in working on a deal like this if there's a land trust.

This is exactly what Clifton's post answers.

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Herm M.Pro Member
OP
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
LOL damn.

I explained it wrong earlier.

The title company's reasoning for the trust is for seasoning reasons.

And I got my approval letter yesterday...
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Justin S.
Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
16y

Then a trust will not help you this late in the game. Find a lender that does not have seasoning requirements.
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