Using Trusts To Hide Ownership of A SubTo (Subject To) Purchase

[Ken M.]

A lot of people believe that buying a property in a Trust or transferring it into a Trust keeps a Due On Sale from being called.

Here are the facts they are missing.

If a lender sees that the person they have on record, the borrower, is not who is currently listed at the county as the owner, they can then look into who owns the property. That is very easy to do in today's world. In fact, a lender could do a mass cross reference of all their loans. They probably will do so in the right circumstances.

They will send a letter to the borrower. If the borrower says it's their trust, the lender asks for proof. If the borrower legally and properly put it into a trust, it shouldn't be a problem. If the letter doesn't get responded to, the lender will call the note due and start a foreclosure.

Lenders aren't stupid and they don't play games with their money. The property secures the loan. It's called "risk management". They do this all day long and have been to court many, many times. You haven't been, hopefully.

If the borrower says that's not their trust or they sold the property or says they don't know who owns the trust, the lender can call the note due. Or, If it becomes a legal case, under the rules of discovery, the owner of the trust has to be revealed.

If the buyer is successful in hiding his ownership, he won't get legal notices of lawsuits and bankruptcy and foreclosure and change of servicer. I would think those are pretty important notices to get. It affects ownership.

Never trust a SubTo seller (subject to an existing mortgage) to "cover" for you in the future. There is no benefit for them to lie for you. They no longer own the property, are jealous of your benefiting from their pain and now have a debt hanging around that prevents them from buying another home. Their previous mortgage is still there, because it doesn't get paid off in a SubTo transaction. Yes, it still shows up on their credit report.

And, no, most borrowers won't accept transferring the deed back to them to protect you. And if they do transfer the deed back, the smart ones know that you now no longer own the property. They own it again. And you can't make them deed it back to you once the lender isn't looking. There can be substantial transfer costs and taxes involved.

We're not even dealing with the issues of protected classes, emotional people, pre-foreclosures, elderly and minorities. Anyone that sees you've benefited from "their property" believes they are owed any benefit you've received. It does not matter that it is an irrational "feeling". Some attorney will take the case.

Explain to the Judge why you are attempting to get the property deeded back to you, after hiding ownership from a lender who has the property as security for a loan. That would be a fun one to watch.

At some point, if you do very many SubTo's, you will wind up in court on one of these. It could actually be the very first one you do. And remember, because it involves mortgages, you can be sued and prosecuted for up to 10 years (a very long time) after you buy the property. Just build the credibility, in advance, so the judge will side with you. Keep very good records. Hiding ownership doesn't build credibility, and frankly, there isn't any plausible reason to hide ownership.  Put some money aside for legal fees.

We teach to always use escrow, always record and always make that mortgage payment on time, along with the other things that make Subject To profitable.