Can you really sell a Trust?

Question

Recently, a very seasoned note investor mentioned they buy notes in a trust so they can sell the TRUST to a buyer, not the note. This way they avoid closing costs and other associated fees, etc. I was unable to clarify what they meant and/or how in the world they were doing that. I am in Arizona. Does anyone have any idea what they were talking about? How can you sell a trust?

Bob Malecki · Answer

I've been using personal property trusts for the past five years when acquiring mortgage notes with my IRA, and they are a great, low-cost entity for maintaining privacy since the assignment is recorded in the county where the property is located. Now, you can't technically sell the trust, but you can sell the beneficial interest in the trust. You would want to create a mortgage loan purchase agreement that specifies the transfer of the beneficial interest in the trust as part of the sale of the note. Once the funds are transferred then the trustee would execute an assignment of beneficial interest to the buyer or the buyer's entity. Since the note is still "owned" by the trust there would be no need to execute and assignment of mortgage and allonge. Eventually the buyer would probably want to replace the trustee with his or her own trustee and that is facilitated through a resignation of trustee procedure.

Bob Malecki · Answer

Just to be clear, I was providing info on how a trust can be transferred to a new party. For a note purchase I would just set up my own trust with my own trustee and have the seller provide the usual AOM and allonge so that everything is above board and chain of title is in tact. The only time I"ve used an assignment of beneficial interest is if my partner wanted to exit and I have him/her sign the assignment to make my entity be 100% beneficiary.

Bob Malecki · Answer

@Steve Morris a trust does not have "members" it has Beneficiaries and a trustee. The Assignment of Beneficial Interest would be executed to change the beneficiaries, essentially remove one and add another

Chris Seveney · Answer

@Andy MirzaQuestion I have about trusts is if you go to foreclose on a loan someone from the trust had to sign an affidavit in most states which then is public recordWouldn’t the whole point of being anonymous be lost at that time?I agree it seems complex for me as it appears you would need separate bank accounts etc. My book keeper would kill me

Andy Mirza · Answer

Buying a trust to buy a note sounds overly complicated to me. I understand the privacy concern but I would worry more about an entity that someone else created. As Chris pointed out, how do you know what the previous trustees or beneficiaries did prior to your ownership? I'm ok with regular route and having the assignment made out to a company that I controlled from the beginning. Not much cost to record an assignment. @Tony Coles One option for you to consider in your situation: If everyone knows each other well enough, you can form an LLC and pool your resources in that entity. Your relationships to each other and duties need to be clear. It can't be a situation where you are soliciting funds from strangers. It has to be a situation where you all have something to contribute and know what you're getting yourselves into.

Tony Coles · Answer

@Bob Malecki, thank you for your answers. it perfectly explains what the gentleman was talking about but he did use the term "selling" the trust and that is what threw me for a loop as I'd never heard that one before.This process is going to be new to me. my partner and I have had a handful of new investors, all with different types of money and we'd like to pool that money but legally don't know of a way to do that without violating some law or another. To be clear, One investor has Trad. IRA $, another Roth IRA $, another still has cash, Solo 401k, etc.Do we need to set up separate trust for each client? Some of them have very little to invest making it more difficult. Or a better question may be: how can we combine monies without having to become a security or breaking any other laws?

Chris Seveney · Answer

@Steve MorrisI am not an expert in trusts but a question I have is I view this similar to selling a business either existing assetsWhat if one of the prior beneficiaries/trustees etc whoever is managing the trust did something that potentially violated fdcpa and or something else. Is there indemnification language in transferring the trust ?

Steve Morris · Answer

Again, how does that change existing debt? Especially WRT the old members.

Steve Morris · Answer

How do you get the members in the trust off the existing debt? I understand selling an interest, but that means I'd get rid of some liabilities as a member of the trust.