learning Lease Option contracts

[kimesha]

hi everyone,
what paperwork/ contracts do i need to get the ball rollin on a lease option. i know i need a purchase agreement, option agreement, a lease agreement. anything else? oh yeah, an option consideration fee can be any fee we both agree on? i mean it could be 5$ if the seller agrees to it, right? :SM155:

[Jim FL]

Kimesha,
The paper work you will need is as follows:
1. A lease option agreement, to sign with the sellers.
2. A performance mortgage, to secure your lease option with the sellers.
3. A warranty deed to be held in escrow from your sellers, to you, for when you exercise, if the sellers are not around.........optional, but a good idea.
4. A lease for your sub-tenants, don't mention the option in this, it must stand alone.
5. A seperate option, for your buyers to sign...keep this completely seperate from the lease, so you may evict if/when the T/B'ers default.......many will, be prepared.
6. Application for your tenant buyers to complete so you can check their background, credit, criminal history, rent/eviction history, employment etc.

That should do the trick,
Jim FL

[Just Information]

WOW Jim great information.

Now what I'm going to tell you does not in any form or fashion discredit the valuable information that Jim has just shared. As most of the teachings on "LOP" Lease Option Purchase, courses fail to teach the points of law on this issue. Now with that said.

If you separate your option from a lease and this issue comes up in court the legal system will call into question the validity of the lease and the option and they will favor the option over the lease and dismiss your eviction action.

So at this point in most states, you will have to start a foreclosure proceeding.

Now understand most of your tenants will not take it this far.

In addition, keep in mind if this is called into question the legal system will see it as a forum of underhandedness.

I do not agree with how the courts view this but you have to understand the rules when you play the game.

Now if you combine the lease with the option you can not evict in most state and will have to do a foreclosure proceeding.

I know this just down right sucks but as I said, you have to understand the rules of the game.

Nevertheless, did you know there is a get around? Would you like to know what it is? Sure you would.

Before I tell you let's, see if any one knows!

Hint - Has something to do with a default clause! "AKA right to occupy"

Now the first person that get's the answer correct you will get my E-Book on

Creative Investing Using Contract For Deed’s

The Land Contract also known as a Contract for Deed or in some parts of the country, Installment Contract is designed as an agreement between the Seller and the Buyer for the purchase of real property in which the payment of all or a portion of the purchasing price is deferred. They can be created on or used on most types of property: Residential, Land Only, Mobile Home with Land, Commercial, and other Mixed Uses.

[Jim FL]

John,
I've been to court on evictions with T/B'ers, in Illinois, Florida, Indiana, Georgia, Arkansas, Missouri, and a few others I don't recall off hand.
In most, yes, we have had T/B'ers show up to court for an eviction hearing, and claim they should not pay rent, because they paid $xxxx in OPTION money in their option.
I simply have informed the judge that we are hear on an eviction due to a defaulted lease.
Should the tenants want to contest any issues with the OPTION agreement, which is seperate, they have the right, just as I did with the eviction, to file a suit, a seperate suit, to contest that contract.

NOT ONCE has a judge ever had an issue with that, and I've won 100% of my evictions when the tenant has defaulted on the lease.

Hence my stance on this issue.......I've used it with great success, and NOT once have I had to foreclose to get a T/B'er out of a house when they quit paying, or could not exercise their option and refused to move.

That's been my experience, and the reason why I often sell homes with a lease and seperate option, no matter how I buy them.

Take care,
Jim FL

[Dan Auito]

Rockin discussion gentlemen! Your are both worth your weight in gold! :thumbsup:

[Just Information]

Like I said Jim

Now what I'm going to tell you does not in any form or fashion discredit the valuable information that Jim has just shared. As most of the teachings on "LOP" Lease Option Purchase, courses fail to teach the points of law on this issue. Now with that said.

I do LOP the same way you do and yes have never had a problem, but is it not wise to show investors that risk can occur or would it be best to let them learn the hard way of investing - by trial & error?


Rubber, Inc. v. Jenkins, 570 P.2d 1317 (Colo. App. 1977)
Gower-Goheen Realty, Inc. v. Braun, 215 So.2d 499 (Fla. App.)
Kalinowski v. Interstate Motor Freight System, 69 Misc.2d 414, 330 N.Y.S.2d 256 (N.Y.)
Hannah v. Hannah, 21 N.C. App. 265, 204 S.E.2d 212 (N.C.)
Vernon v. Kennedy, 50 N.C. App. 302, 273 S.E.2d 31 (N.C.)
Ahmed v. Scott, 65 Ohio App.2d 271, 418 N.E.2d 406 (Ohio)
Butz v. Butz, 13 Ill. App.3d 341, 299 N.E.2d 782 (Ill.)
Lazarus v. Flournoy, 28 App. Div. 2d 685, 280 N.Y.S.2d 745 (N.Y.)
Tubbs v. Hendrickson, 88 Misc.2d 917, 390 N.Y.S.2d 791; (N.Y.)
Douglass v. Jones, 422 So.2d 352 (Fla. App. D5, 1982)
V.A.T. Collision Corp. v. 1783 84th Street Realty Corp., 449 N.Y.S.2d 260, (N.Y. 1982)
Grisham v. Lowery, 621 S.W.2d 745 (Tenn. App. 1981)
Nevala v. McKay, 583 P.2d 1065 (Mont. 1978)
Miller v. Meredith, 149 Mont. 125, 432 P.2d 595 (Mont.)
Spaulding v. Yovino-Young, 30 Cal.2d 138, 180 P.2d 691 (Cal. 1947)
Libin v. Peters, 118 Ind. App. 27, 75 N.E.2d 162 (Ind. 1947)
Wright v. Barclay, 151 Neb. 94, 36 N.W.2d 645 (Neb. 1949)
Now let's get on our bike's and debate! I love a good debate!:SM017:

[RosewoodTx]

Nevertheless, did you know there is a get around? Would you like to know what it is? Sure you would.

Before I tell you let's, see if any one knows!

Hint - Has something to do with a default clause! "AKA right to occupy"





Lease options are actually two separate agreements, the lease and the option. They do not have to both be present. Obviously you can lease a property without having an option to buy it, you do that all the time with your rental property.

So when you go about buying a property with an option, and want to take control of it to rent it out, you have to write both an option agreement and a lease agreement. It is important that you write them both separately. If you are the seller it is also important that in the option agreement you place a clause such as: "nothing in this agreement permits the optionee the right to occupy the property." If you don't put that provision in the option agreement and you try to evict someone with an option from the property for nonpayment of rent or some other offense, a judge could allow the optionee to stay because they have "equitable title" to the property and so as much right to occupy it as the seller.

By the same token the lease should not mention the fact that there is an option on the property. It should be a straight lease agreement that coincides with the beginning and ending dates of the option.

A use for the lease-option arrangement for buying or selling property is to allow you to sell or buy essentially on contract or using owner financing without triggering the "due on sale" clause in the mortgage. Since you have not actually "sold" or "bought" the property most mortgagees don't consider the use of an option to buy as something that means the lender has to call the loan. Rather it is an agreement that gives someone the right to buy the property at a future date.

[RosewoodTx]

I'm terribly curious! Did I find the right answer? http://smileys.smileycentral.com/cat/36/36_1_7.gif (http://www.smileycentral.com/?partner=ZSzeb001_ZNxdm824BBUS)


http://smileys.smileycentral.com/cat/36/36_3_9.gif (http://www.smileycentral.com/?partner=ZSzeb001_ZNxdm824BBUS)

[Just Information]

Girl now that was just too easy for you!:praise:

Can I just say you did not get it correct yet?:SM006:

I suppose not!:SM099:

Congratulations You Got It
:beerchug:
PM me for your access codes for the download.

[Jim FL]

John,
Well, after reading the entire thread, I have to say, my option agreement states very specifically that it does not give the optionee the right to occupy, or any equitable title or interest in the property.
However, I've never had a judge even look at it during an eviction case.

Not sure what to think of the list of cases you presented, don't have a place to look them up, and frankly, the time or inclination.
I am comfortable enough with my stance to advise and teach folks doing lease options to use the type of forms I use, in the way I use them, and know they'll be fine.

I get a kick out of going to court and meeting tenants with their attorney's and seeing the look on their faces when they first see me.
I don't dress in jeans and t-shirts for court, just slacks and a decent shirt, but my bald head, long somewhat gray goatee and tattoos often seem to make attny's think i'm an easy target and they can pull one over.
Then, when they spout garbage and I shoot them down, the look goes away and becomes one of, 'oops, he's right!'.
Should a judge here ever pick up on that idea, where an option contract is relevant to an eviction hearing, I'll simply refer them to several past cases in their own jurisdiction where it was ruled otherwise.
or my attny will anyway.....:-)

I'll leave the legal pro stuff to those who went to school for it......me, I'll use that same time to buy more houses and make more money.

I cannot, and won't give case law or precendents, what ever you guys call them, online, because that's not my gig.
Instead, I'll share what I have learned, yes, thru trial and error.
Are their risks with lease options and eviction cases going bad?
Sure, judges are people too, but not an issue that should prevent someone from making money in my opinion.

Anyway, enough of this, I can't and won't keep up with you on a law review, like I said, that's why I pay my lawyer, its his job...........I don't work that cheap. :-)

Take care,
Jim FL

[Just Information]

Nor have I had a judge question the point although I have only had around 20 or so eviction actions in 20 plus years.

Future RE investors need to know what can happen on the worst end of any deal so the risk can be calculated professionally.

As a member of west law, I get access to all the legal crap, but a google search should help one find a basic outline of the court cases listed.

Now I was looking for a good debate you just no fun this time!

[RosewoodTx]

:SM128:

Girl now that was just too easy for you!



http://smileys.smileycentral.com/cat/36/36_1_37.gif (http://www.smileycentral.com/?partner=ZSzeb001_ZNxdm824BBUS)
Well, I suppose if two hours researching every RE legal site I could find qualifies as easy, then yup it was just too easy!

http://smileys.smileycentral.com/cat/36/36_1_58.gif (http://www.smileycentral.com/?partner=ZSzeb001_ZNxdm824BBUS)
BTW, the e-book was not my motivation, I was totally in it for the challenge of the hunt, but I will graciously accept it and devour every bit of info it contains. Thanks for the bonus John!


http://smileys.smileycentral.com/cat/36/36_7_3.gif (http://www.smileycentral.com/?partner=ZSzeb001_ZNxdm824BBUS) Bring it on Big Guy!!

[Tony Putman]

Another great thread with lots of information. I am not sure what is meant by "Performance Mortgage". Can you help, please.:SM101: Thanks so much!

Tony

Tony, Randy the cash for notes Guru gives this definition for a performance mortgage:

A Performance Mortgage Is a "Private" Mortgage or Agreement between the Seller and a Third Party Intended to Secure Payment for "Performance" of a Specific Task or Service. The Arrangement Usually Consists of Two Documents, the First Being the Agreement, This Could Be a Lease Option or Consulting Fee Agreement:

The second part of the agreement would then be the performance mortgage to secure payment for the above stated services:



Contingent Consulting Fee Agreement



THIS AGREEMENT made and entered into this day Monday, March 28, 2005, by and between:

Seller(s)

And

Consultant

WHEREAS SELLER will transfer said Deed upon terms and conditions stated in executed CONTRACT OF SALE between:

SELLER(s) and BUYER(s):

NOW THEREFORE, for and in consideration of the value to be paid, mutual benefits derived, the Seller agrees to the following:

1. Seller agrees to pay (Name of Consultant) (Consultant) a fee equal to 2 percentage points of the sale price upon closing of above stated transaction.

2. Fee is to be paid to (Name of Consultant) at: (Address of Consultant) by Title Company/Attorney (closing agent), sent via priority overnight delivery (cost of delivery charged to seller) next business day.

3. Fee will be indicated on final HUD Statement, page two, line 1305 as "Consulting Fee to (Name of Consultant) (Consultant).

4. If transaction does not close, no fee is due.



_____________________________ _____________________________

Seller Consultant



_____________________________

Seller



PERFORMANCE RIDER TO

MORTGAGE OR DEED OF TRUST


Rider and addendum to SECURITY INSTRUMENT dated Monday, March 28, 2005

(Borrower/Investor Name) ("Obligor"), has executed a certain agreement dated Monday, March 28, 2005 (Agreement") under which Obligor is under an obligation to perform certain acts, promises and/or covenants to (Lender/Seller Name) (Obligee') on or before Friday, April 01, 2005


The attached Security Instrument (mortgage or deed of trust) secures to Obligee the performance of Obligor's promises, covenants and agreements under said Agreement. Wherever the words "grantor", "mortgagor", "trustor" or "borrower" appears in the attached Security Instrument, the "Obligor" shall be substituted therefore. Wherever the words "mortgage", beneficiary"' or "lender" appear in the attached Security Instrument, the word "Obligee" shall be substituted therefore.



__________________________________ ______________________________

Borrower/Obligor Borrower/Obligor

__________________________________

Lender/Obligee

State of ______________________)

) ss:

County of ____________________)

Sworn to and subscribe before me on this _________ day of _____________, 20______

By the following individuals _________________________________________

_________________________________

Notary Public

State of __________________________

Commission Expires ___________________ (SEAL)



notes@sio.midco.net Randy


While searching I also found this neat little ditty!
http://www.business.com/directory/real_estate_and_construction/finance_and_investments/mortgages/residential_lenders/us_states/ Dan

[Pasquini]

This discussion IS of great importance. I don't have a citation, but it I have been told by reliable sources that the lease option is the most highly litigated of all real estate transactions. Probably as a percentage of the number performed since the fee simple sales (and resultant lawsuits) would dwarf the number of lease options, but that does not change things. My personal experience indicates this level of risk to be true. In support of this Coldwell Banker prohibits their agents from representing parties in lease option transactions because of the number of lawsuits that were being generated as a result.

As a matter of personal preference I avoid lease option arrangements, but other folks have had great success with them. Bully for them.

[Jim FL]

In support of this Coldwell Banker prohibits their agents from representing parties in lease option transactions because of the number of lawsuits that were being generated as a result.


Pasquale,
No offense, but that last part, made me LAUGH my posterior off.

Sadly, this has been the mentality of MANY agents/brokers for years........"But our company says blah, blah, blah, so we cannot do this particular creative teachnique.........."

Just last week, an agent who lives near me solicited my business.
She asked about listing some of the houses I buy.
I said, 'sure, let's sit down, discuss what I need, and see if you fit.'
So, we met, talked about listing some houses with her, her fees etc, and then I asked her to run comps on two houses I was looking at to buy.
when I explained that I wanted to know the value, because I was buying sub2, IF I went ahead, she blew a gasket.............
Something about how her 'managing broker' told her, and other agents in the office to 'not get involved in anything shady, and that buying house by just getting them deeded to you, was illegal'.

The SAD part of the whole thing......she lost.
When we talked, I learned she was making about $25k/year BUSTING HER REAR, to sell houses for other people.
I could have easily doubled that for her, with just my listings.
So, she looses, and I close another deal Tuesday that I bought sub2, and will make over $30k in CASH.

But hey, 'coldwell banker says..............

Gimme a break!

[Pasquini]

No offense taken. Coldwell Banker I guess didn't say they couldn't now that I think about it. Just that their E&O insurance would not cover them if they did, and that essentially means there is no place for them at Coldwell Banker. Those folks are risk averse, and they view what we do as risky. So be it.

I personally am glad that most agents live in a little teeny tiny box known as traditional, fee simple real estate. Who needs the additional competition? I'm content being a big fish in a small pond. Hell, I'm even glad that most people that go to seminars and buy courses never do anything with the knowledge. At best, most of them hear 'no' once and that is all it takes. Nice that they can talk about things and they are experts, but deeds not words are what puts money in the bank.

The agent you talked to is doing better than most, I understand. Seems to me I saw a statistic that the avearage real estate agent makes $14,000 per year. Now I am active in the brokerages in Southern California, and I can tell you a lot of folks are making obscene amounts of money in this market, but that is only the cream of the crop that is.

So long as we provide solutions for people that otherwise have pain at whatever level we will be successful.

[Tony Putman]

Thanks Dan, Thanks Jim, Thanks JohnMichael, Thanks all, Thanks, Thanks. I will never tire of offering my thanks for all the great info here.

The performance mortgage you edited into my post Dan, sounds like it may get into a realtor's shorts :cussing: , and they might have an issue with it. Is it legal?

On the issue of completely seperating the Lease and Option, how do you handle rent credit to purchase? If a person defaults on the lease do they forfeit (i before e except after c, :SM006:) the rent credit? How do you word that and is it only mentioned in the Option?

Thanks for tollerating me folks :thumbsup:

[neodemes]

:icon_mega Let's breathe some life into this discussion. It seems to have lost steam.

The performance mortgage you edited into my post Dan, sounds like it may get into a realtor's shorts :cussing: , and they might have an issue with it. Is it legal?


Specifically, is it legal in Missouri? :SM032:

[DLinOrlando]

:icon_mega Let's breathe some life into this discussion. It seems to have lost steam.



Specifically, is it legal in Missouri? :SM032:


I would ask an attorney in Missouri that question!

[optionfl]

The performance mortgage you edited into my post Dan, sounds like it may get into a realtor's shorts , and they might have an issue with it. Is it legal?

what are you talking about? of course it legal

anything that gives you any interest in a property you can record a:

purchase contract
land contract
lease option or lease
trust deed
mortgage
promissory note
option contract
performance mortgage
memorandum
living trust
and on and on and on

later

[neodemes]

Laws are being passed that are designed to kill lease options. TX, NC, MD, probably more.

:SM094:

Check your local state regs.


what are you talking about? of course it legal

anything that gives you any interest in a property you can record a:

purchase contract
land contract
lease option or lease
trust deed
mortgage
promissory note
option contract
performance mortgage
memorandum
living trust
and on and on and on

later

[optionfl]

you quote:

Specifically, is it legal in Missouri? is it or is it not?

Check your local state regs. did you check your?

Laws are being passed that are designed to kill lease options. TX, NC, MD, probably more. you want more?

Originally posted by: CLAUDE DIAMOND

Hi Folks,

We call it creative real estate because there are so many ways of doing business and making money within the guidelines of the law.

Personal Comment : Isn't it interesting how the legislature never seems to restrict the entities that contribute the greatest amount of money and have the strongest lobby's. On the positive side Texas has done many of us investors a favor by eliminating the competition. While most will quit or question the political system the true investor will ALWAYS FIND A WAY.

The legislature may attempt to limit or restrict certain types of L/P transactions (due to abuses) but the fundamentals of contract law and good ol negotiation horse trading skills leave a hugh variety of legal alternatives.

Remember an option is nothing more than an assignable right and it can be structured in countless ways that comply with the law.

The simple solution to Texas (and other restrictive jurisdictions) is to either get a real estate license (simple to do and worth the effort/cost) or retain an attorney or Real estate broker/agent to facilitate the deal for you legally.

Another quick and legal idea is to use an assignable sales agreement with subject to and/or exculpatory clauses. You have control of the purchase/property and the right to sell it to a third party or do a double escrow. BTW ,Do all your deals within a corporate entity!

Want another solution ? How about a "Pure Option" Agreement.(option without a lease)

The list of solutions is endless and I intend to devote some articles and newsletters on my webpage to this serious subject.

Bottom line, There are always reasonable solutions when un-reasonable laws are passed. Texas or any other state cannot completly shut down creative real estate in a free market economy. Enjoy the challenge and the Art of the deal :-)

Success and Profits in all your Endeavors

Claude Diamond

and

Originally posted by: JAKE

That's Right! Nothing but opportunity. Remember this; An executory contract is a contract where both parties have an obligation to perform.

All pure option agreements are unilateral. Which means that the obligation to perform only rest with the optionor. All current legislation has to do with executory contracts.

In plain and simple terms. Leases are legal in all 50 states, and pure options are legal in all 50 states.

Remember this, you can't give monthly credits. Once you do you're given equitable interest in the property. Since you don't have fee Simple title, that would be illegal.

Here's just a few options for Investors in Texas:

You can use rolling options, increased payment options, continuing options, effort options and more. Heck, you could use decreased payment options if you want.

The only thing current legislation stops is, Executory Contracts. Last Point....

Remember the doctrine of equitable conversion. Many of the investors that were doing lease options (purchases) were breaching the doctrine. In other words, they were gaining an equitable interest in the property. A true option doesn't breach the doctrine until it's exercised. Period...

Nothing can stop a "Creative" Investor... <<<=== Nothing <<<===

later

[neodemes]

Claude Diamond (http://www.johntreed.com/Reedgururating.html#anchor523995) may not be the brightest penny in the piggy bank.

Whatever floats your boat. Go for it.

[optionfl]

neodemes, let get this fact straight.

someone ask if a performance mortgage and lease option legal in mo? you didn't answer, i said yes it legal

and then you quote:

Laws are being passed that are designed to kill lease options. TX, NC, MD, probably more.
Check your local state regs. it didn't kill it.

Lease Option Law Part 1 (TEXAS) - The Real Story
http://www.houstonrealnews.com/news/contentview.asp?c=170532
http://www.houstonrealnews.com/content/img/f170532/HB1823_7.pdf

Claude Diamond may not be the brightest penny in the piggy bank.
but hey! i'm not a great fan of john t reed but again it a freedom of speech.

good luck and latter

[AIR]

Pasquale,
No offense, but that last part, made me LAUGH my posterior off.

Sadly, this has been the mentality of MANY agents/brokers for years........"But our company says blah, blah, blah, so we cannot do this particular creative teachnique.........."

Just last week, an agent who lives near me solicited my business.
She asked about listing some of the houses I buy.
I said, 'sure, let's sit down, discuss what I need, and see if you fit.'
So, we met, talked about listing some houses with her, her fees etc, and then I asked her to run comps on two houses I was looking at to buy.
when I explained that I wanted to know the value, because I was buying sub2, IF I went ahead, she blew a gasket.............
Something about how her 'managing broker' told her, and other agents in the office to 'not get involved in anything shady, and that buying house by just getting them deeded to you, was illegal'.

The SAD part of the whole thing......she lost.
When we talked, I learned she was making about $25k/year BUSTING HER REAR, to sell houses for other people.
I could have easily doubled that for her, with just my listings.
So, she looses, and I close another deal Tuesday that I bought sub2, and will make over $30k in CASH.

But hey, 'coldwell banker says..............

Gimme a break!


what is a sub2???

[TommyOH]

Subject to the existing financing. Just like the chat the other night.

[Jim FL]

what is a sub2???

Sub2, is short slang, for 'subject to the existing financing'.
It's a method for acquiring real estate, creatively.

I'll give you a brief explanation, but first, keep in mind two points......that are OFTEN confused by most folks.

Ownership of Real Estate, (He who is on title), and who is on the mortgage (the barrower who took out the loan against the house), are NOT the same thing.
Most times, this is the same person, as the majority of folks who buy houses, do so using loans, in their own name.
However, after that, its possible for that person to sell their house, and leave the loan in place, unchanged.
So, its possible to buy a house, and have a loan on it, in someone else's name.

Here's the skinny.........


When you buy a property “subject to”, this is often a condition of some sort, a contingency. People buy properties “subject to” something all the time.

It is common for real estate purchase agreements drafted by real estate agents and brokers, on behalf of buyers who purchase their listed properties, to make offers “subject to” some contingency. Things like “subject to a home inspection,” “subject to securing suitable financing,” “subject to partner approval,” “subject to repairs being made by the seller,” “subject to appraisal”…you get the picture.



When I refer to buying “subject to,” I mean buying property with an existing loan in place and leaving it there while taking ownership but not taking on the personal liability of that underlying financing.

This is not to say that you are not becoming liable; you are, via a contractual relationship with the seller, as well as morally and ethically bound to perform.

This is a method I'm an intimately familiar, and honestly, use VERY often.

Think about this, no qualifying, no money down, no non-owner occupied higher interest rates, and small to non-existant closing costs, to buy a property.
Sounds cool huh?

That's what I, and many others do, all the time.

Another tool in the real estate investors transaction kit.

HTH,
Jim FL

[neodemes]

AIR

Jim knows his stuff and has a Sub2 course. You should consider getting it.

Best of success

Bruce

[Debbie]

Good to see you pop back in, Bruce!

Let us see you more often!

[landtrustwizard]

A caution. ALL subject 2 transactions are a violation of the DOSC. Subject 2 Financing (http://www.goarticles.com/cgi-bin/showa.cgi?C=142438).

:smiley5:

[Jim FL]

A caution. ALL subject 2 transactions are a violation of the DOSC. Subject 2 Financing (http://www.goarticles.com/cgi-bin/showa.cgi?C=142438).

:smiley5:

And of course, the scare tactic article posted, ends with a link or suggestion to check out a product you espouse and perhaps sell.

Funny stuff, just love Propoganda.

Dude, give it a rest.
I've been at this a LONG time, and frankly, your assertion that the 'land trust' you refer to is exempt from DOSC, is malarky.....along with MANY other claims made about the trust product/system you keep referring to.

By the way, most of us who do subject to deals on a regular basis, do use a land trust.......just not your version.

This is why I think of the Pac/Equity trust thingee folks as a cult.
Spouting the same mantra over and over again, as if repitition helps make them 'beleivers'.

Oh, here's an article for those who want to read up on subject to deals, and the due on sale clause, from someone credible.
http://legalwiz.com/freearticles/dueonsale.shtml

And, for a review of the 'land trust' system wiz keeps spouting propoganda about..........I'll cut/paste it below.......this is but ONE of many such things I've read over the years.

******************from another forum elsewhere*********

DISCLAIMER: The following review reflects the beliefs and opinions of
the author. Readers interested in utilizing the PACTrust system are
encouraged to perform their own investigations and ascertain for
themselves the level of practicality for the following recommendations.
SUBJECT: PACTrust Review (uncensored)
The PACTrust is one of many vehicles that use trusts to hold
properties. But it is one of the more complicated trusts around. If you
are interested in trusts, you only need the materials available from this
site. J.P. and Terry Vaughan, the owners of this site, have very rigorous
standards and only make the best of materials available to the readers
here. If a course or system is not available from this site, one may do
well to question why.
Some key points to remember are that when you get involved with the
PACTrust, you don’t have the deed. NARS does. This means you give
up quite a bit of control. Most serious investors believe that having
complete control of the deed is a far superior thing. Then you get to
make the rules.
When I say NARS, I mean to include all the affiliate entities. Not
necessarily NARS alone.
If you are still inclined to get involved with the PACTrust, I would
advise you to create a contract that must be executed before you shell
out any of your money for either the basic PACTrust materials or the
$2,500 network membership (current price at the time of this writing).
And that you make this contract, a deal-breaker.
These are some things that I, in my humble opinion, feel ought to be
included in the contract:
1. - If it should take any longer than 30 days to complete the
transaction in question, NARS will be responsible for paying the costs
of any delay. This includes direct costs and indirect costs, underlying
mortgage payments and any costs incurred for any related reason.
2. - If the contingency fund (monies collected from the resident
beneficiary in advance, equal to at least one months payment, to be
used in the event of a late pay or default by the resident beneficiary)
should be diminished for any reason, PAC Management would be
required to notify the investor within 5 business days by certified mail
(return receipt to be furnished if necessary, as proof that the notice
was timely). The penalty for failing to comply, would mandate that
PAC Management make the payment themselves, with no cost to the
investor, either now or at any time in the future.
3. - If any paperwork has to be returned to NARS for spelling
corrections or any other types of errors, NARS will pay whatever costs
that may be involved, including any ancillary costs. And this still must
be all be done within the 30 day time frame.

4. - A schedule of costs and fees, both routine and incidental, must be
disclosed to the investor before each transaction is begun. Non-
disclosure will result in the service being done at no cost. This
schedule of fees is to remain constant throughout the term of this
specific transaction. The only way for these fees to be increased is by
providing the updated fee schedule prior to a new transaction being
started, which would then apply to the then current transaction, only . .
. and only if the new terms are acceptable to the investor. An example
of an incidental fee might be the current cost of deed preparation. The
purpose of this disclosure and clause is to prevent future surprises.
5. - In the event NARS resigns as the trustee in a transaction, for any
reason, all monies paid by the investor for this entire transaction up to
that point, shall be refunded immediately. And any costs resulting
from NARS resigning as trustee shall be borne by NARS. For example,
if NARS resignation as trustee in a particular transaction results in a
substitute trustee being appointed who doesn’t meet the criteria
needed to be deemed by a court of law as a bonafide trust, NARS will
be responsible for all resulting costs (both direct and indirect),
including the reimbursement of any deductions taken that were
recaptured by the IRS, either currently or at any time in the future, as
long as the action taken specifically involves the subject transaction.
Or at least a $10,000 abandonment fee as some compensation, if such
a resignation occurs.

6. - If it is discovered that the county(s) or City where you are active
with the PACTrust, has a local law, ordinance or regulation that
requires landlords to be licensed, the investor has the option of
receiving a complete refund of all monies paid to NARS, and to
invalidate any agreement to utilize the PACTrust that the investor
might have agreed to, without penalty.
As an example of this one, one county in which there is an active
PACTrust has a local ordinance that requires landlords to be licensed.
They define “landlord” as the one receiving the monthly payments,
which under the PACTrust, is PAC Management. The position of NARS
seems to be that this is the investors responsibility, and they have
reportedly refused to obtain the necessary license. In my opinion, the
reason for this refusal is to limit the exposure to future liability.
However, be aware that failure to obtain a landlord license can result in
thousands of dollars in penalties for the investor, when the property is
eventually sold.
WARNING: It is recommended that all statements and promises made
by NARS, be reduced to writing in the form of a contract, including fee
schedules. This is the way I would recommend to effectively hold the
company accountable in the event of a dispute. The contract in
question should contain a clause that forces NARS to pay your
reasonable attorney fees and related costs, in the event they do not
prevail in any court proceedings.
Although my objections to the PACTrust method consist primarily of
the administration of the program, there is something to bear in mind
regarding the legality of this method. Again, this is my opinion.

We have been told on several occasions on this news group that this
PACTrust method has survived audit(s) by the Internal Revenue Service.
These statements, however, have not been substantiated, or at least
not to my satisfaction. Be that as it may, it was finally admitted that
the IRS had only scrutinized a “portion” of the method. There has been
no mention made (to the best of my knowledge) that the PACTrust
creator(s) is/are seeking a Aprivate letter ruling from the IRS, which
would provide a definitive answer.
The creator(s) purport to have great confidence that everything is
perfectly legal. However I will again point out that no “private letter
ruling” has been obtained (to the best of my knowledge), or apparently
sought.
It seems to me that such a ruling, if positive, “could” be a very nice
asset to have. It would be tantamount to “approval” of the PACTrust
method, by the IRS. And would certainly boost the business of NARS.
Allaying some doubts and the skepticism of many.
However, if the private letter ruling from the IRS turned out to be
negative, there could be disastrous ramifications for NARS, as well as
any investors participating in the PACTrust program. Previous tax
deductions could possibly be “recaptured”, and completed transactions
could be restored to the way they were, prior to the PACTrust
contamination. Who knows what the IRS could and would do, in this
event. They do have police powers, and can pretty much do as they
please.
One point to consider . . . are you willing to gamble that the result of
an intense scrutiny of the PACTrust system in its entirety (should one
ever be initiated) by the IRS, would prove to be “positive”? And do you
really want to be holding property in PACTrusts if such an examination
would result in a negative decision? (Perhaps “selling” income tax
write-offs would become a significant issue?).
Another question to ask yourself would be, is it possible to learn other
steps and methods that could be taken to minimize some of the
inherent risks that are present in this business . . . something that
could perhaps come very close to providing the same protections that
some would say are available with the PACTrust? With a fraction of the
costs? And time?
The PACTrust system seems to be attractive primarily to the brand new
beginners who don’t yet understand the consequences of the items
mentioned above, and won’t until it’s too late. There are exceptions,
of course . . . there are a few “pros” who choose to use the method in
a modified form, and most of them don’t use the services of the NARS
or PAC Management companies.
Hope this helps you make a decision, Brad Crouch

*********************

Also, so folks reading here don't think my opinions and take on this as just from me, or based on my own thoughts alone........feel free to surf on over to CREonline.com and search the archives from the last few years.
There were some pretty involved debates between Bill Bronchick, and Bill Gatten, and others.
Good reading, with view points from all sides.........allowing YOU to form your own opinion.

Anyway, Have a GREAT day!
Jim FL

[landtrustwizard]

Title 12, Chapter 13
§ 1701j–3. Preemption of due-on-sale prohibitions

(d) Exemption of specified transfers or dispositions With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—
(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property;

On my personal house in CA, I had it in a land trust and decided to move to AZ. I triple net leased it to my tenant and made him a beneficiary of the Trust using the EHT System. I converted my homeowner's insurance to landlord ins. and spoke with the lender (Countrywide) about what I was doing. He felt it was a DOSC violation and spoke to his legal staff. Turned out I was right and they were prohibited from calling the loan due. That was over two years ago. I am about to do it again now without worry. As to your whiner post, anybody can cry. For example, he talks about NARS being the Trustee. NARS IS NEVER THE TRUSTEE. They have been successfully writing these trusts since the 1980's without challenge and I'll be happy to refer you to realtors who do dozens of these transactions every year.

:SM040:

[Jim FL]

alrighty then, you win.
Feel better.

Seems that's the only answer to make you happy.

You must be right, and I know nothing, and should now worry about ALL my sub2 deals being called, right?..........unless I pay a fee and have you folks set them up in your system, with all the supositions, and claims that have YET to be backed up.

Gimme a break.

Bottom line, if it works for you, keep doing it, and we'll just agree to disagree.
Just PLEASE, stop ramming the system you use down our throats, and claiming its the end all, be all, cause it ain't.

Again, have a good day, and yes, I've read the garn law before, several times.

I still disagree that your system fits within the exceptions, and have in fact talked to many legal minds, both on and off the bench with regard to it.

When the seller leaves the loan in place, and moves out, they have relinquished occupancy rights, thus transferring those rights to your resident co-ben.
This was the intent of the law, according to those with which I spoke, all of which said something to the effect of, "why do all this, when you can just do (insert various ways to buy and leave the loan in place, each had a different idea, land contract, sub2 via regular trust assignment, and even a quit claim) and accomplish the same end goal, owning the property without getting a new loan?"

So, I'll let it lie for now, as long as you stop the mantra and quit trying to recruit for your system.

I'm done,
Jim FL

[landtrustwizard]

I'll be happy to explain. You said, "When the seller leaves the loan in place, and moves out, they have relinquished occupancy rights, thus transferring those rights to your resident co-ben". The seller retains ownership in the trust and the trust makes no reference to occupancy rights. That keeps it compliant with the law. The law provides the right for the seller to transfer occupancy rights. If the law was intended as you say, why then does it provide for the seller to be able to lease the property to a co-beneciary?

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

A lease is legal as long as it does not contain an option (lease options violate the DOSC), and is for less than three years. This is why my leases run 2 years, 11 mos, 29 days. I am not ramming this down anyone's throat or saying it's the only way to do things. If you want to be in violation of the DOSC and take your chances, that is your right. It's not a crime, but it does leave you exposed. I prefer to work within the confines of the law to get the most protection and the best return, not having to worry about or trust some bank to be good guys. Exemption from the DOSC provides that.

I understand you are defending a method you use and recommend, but I think it's important to keep everything friendly. It is amazing how subject 2 people freak out anytime I post anything about a land trust. I have never tried to recruit anyone -- I don't have to. For what? I USE this system solely as an investor, I don't sell it. Best of luck to you.

:smiley5: :smiley5:

[mike_mn]

A caution. ALL subject 2 transactions are a violation of the DOSC. Subject 2 Financing (http://www.goarticles.com/cgi-bin/showa.cgi?C=142438).

:smiley5:


I will add my 2 cents to the pile here.

I am a NARS member and do beleive that the PAC/NEHT Trust has its place in creative REI. Along with Bill Gatten, the creator of the system, he and I have agreed that you don't have to use it to be successful in REI. He believes it is the best and most legal and that is his perogitive.

Upon much time spent in reasearching the merits of many creative real estate transactions, I have found that being "the most legal" means absolutely nothing. There has been a case recently of a guy using a PAC/NEHT trust that was sued. He was told by most of the followers of the system and Bill himself that settling the case would be in his best interest, due to the cost of the litigation. It is most likely that lower court judges would NOT understand trust law enough to rule in favor of the NEHT trust. You would have to count on an appellat court to as they would be more likely to research more and rule in your favor(which is unknown, because as far as I know, none involving PAC/NEHT have gotten that far, if they have no one is sharing). All this costs money and time that most folks aren't willing to pony up.

Therefore in my opinion the legal protection issue with the PAC/NEHT trust is not why I think they have their place in REI. I feel the biggest benifit is the equity sharing aspect and the the ability to leave the seller on the hook especially when doing no/low equity deals. When buying sub2 conventionally, you generally assign 100% benefiical interest. When using the PAC/NEHT trust the seller always retains 10% beneficial interest and is made aware that at anytime if the payments become behind or the investor chooses not to perform, the seller will get the property back, generally with a lower balance on thier mortgage than before. This is important in the scenario that a no or low equity deal is done. Essentially the seller is a partner in the deal the whole time. Since there is no equity in the deal to take it over fully, leaving the seller on the hook is beneficial.

This is my opinion and not that of any other NARS affiliate or network member that I know of, but it is an opinion nonetheless.

Leases plus an option to purchase work just fine in MN if you draft them properly. We have plenty of court/eviction cases here to show that they work just fine. There are plenty of misguided folks that drafted them incorrectly as well and have lost court cases too...just know what you are doing or seek the help of someone with experiance in fighting with them in court.

The DOSC issue...silly really. The majority of the time that this is an issue is if payments are not being made, or the seller has been talking to the lender. In either case, it is very likely that you can either refi into your own name, or assume the loan to yourself or a newly created LLC with the help of the lender of the sub2 loan. Lenders don't want property on their books...especially in this market, when they are getting plenty of real foreclosures to deal with. The more secretive you are when/if the issue comes up, the less likely the lender will play ball with you...

[Jim Johnson]

For those what have been posting on this thread... I would ask for a response. I have been taking Sub 2 deal in this fashion... which no one else has mentioned... hmmmm

I loan the existing homeowner money... say $2000.00 (I create a recorded lien) Which they use to move and put a deposit on a apartment... or whatever. The loan is due in 90 days, first payment in 30 days. They default, I get a deed in Lu of foreclosure. Now I am a lender in the chain of title, with a deed in Lu. I contact the other lender or lenders... fax a copy of the deed and they now send me the payment coupons. It does not trigger the due on sale clause and I have never had a problem. Insurance is not a problem because I have the deed (recorded). No trust, no lease... what am I missing? I am a bank protecting my asset...

This said... I do not miss payments, I am never late etc...

OK... what say you experts?? Educate us....

[Jim FL]

Wiz,
It's hard to take someone serious with this pactrust stuff you keep JAMMING down folks throats, especially with that obama stuff as your avatar.

Try to leave politics out of REI discussions because it has no place. (and NO, I'll not tell you my political belief system, its not relevant.

So, let it be, your system is NOT the end all be all...........and perhaps there is a reason so many folks get worked up when you speak about your system............because of all the FALSE CLAIMS MADE ABOUT IT! (doesn't violate dosc, has stood up in court, has irs rulings given etc.........just to name a few FALSE things mentioned about it).

Is that clear enough?
No, don't answer, in fact, don't respond, leave it be, as will I.

Should this place become another mini-land-trustdot net or whatever it is, I'll surely leave.
No room in the church for non scientologist-type-thinking............er, non cult members.

Oh wait, that's right, not too many folks have asked about your system here, have they?
And yet, you keep coming on here claiming its better than other systems (it's not), and do so by leaving a links that lead to articles/posts, making other false claims.

A side note for others here..........
100% of the time I've heard about ANY loan being called due in the past and looked into it......THAT WAS NOT THE CASE.......there was another reason the loan was foreclosed, or attempted to be foreclosed.......and that was because the payments were not made, OR, the seller, got upset with the investor, and notified the lender of their 'sale'.

I looked into approx. 6 different cases, ALL of which were talked about/mentioned by people espousing the same system ol Garey here seem to love, and claiming, 'the sky is falling, all sub2 deals will be called due, look out, use our system, here's some examples'...........100% of which were again, malarky. (that's Irish for B.S. by the way).

So, once again Gary, STOP!

I'll not respond to you again, and do me a favor, when I am discussing subject to deals on this board, stay out of it, with your BS.

I'd hate to not help folks here, simply because you are clouding the water, but will leave if you continue, as I do have plenty of other things to attend to.

Folks here at MB, for the true skinny on the system Garey seems to espouse, can be found online from people who are not involved in it.
Check out the following as examples:

**********************
From the following thread, and I ENCOURAGE ALL TO READ THE ENTIRE THREAD here ===>http://www.creonline.com/wwwboard/messages/arc_2001//arc_55/55627.html

*******************************

The following is not for YOU Bill Gatten, it is for everyone else that isn't yet convinced the PAC Trust a disaster waiting to happen.
THE PAC TRUST CONCEPT
First, folks, the basics. From what Bill Gatten has stated in his website and postings here, the PAC Trust is essentially an arrangement wherein a seller creates a land trust (making Gatten's company trustee), and assigns a 90% interest in the trust to a third party, called the "resident co-beneficiary" (hereinafter "RCB"). According to Gatten, the "trust" leases the property to the RCB on a triple net lease (meaning the RCB pays taxes, insurance, maintenance, etc). The RCB has power of attorney from the 10% seller-non-resident-co-beneficiary (hereinafter "seller").
THE CLAIMS
Gatten claims that his PAC Trust doesn't trigger the due on sale, doesn't trigger re-assessment of the property for taxes (in California, at least), isn't a sale, protects the parties from creditor attachment of the trust property and, among other things, allows the RCB to deduct his "rent" payments are though it were mortgage interest.
THE LAW
Gatten spews forth sections of the Internal Revenue Code and Court cases that support his positions. To an untrained eye, it almost seems like he knows what he is talking about. Of course, once you read the law, you see he has no basis for his claims (I will provide links to all of the relevant cases and code so you can read it yourself).
1. THE DUE ON SALE MAY BE TRIGGERED
Let's start with the "due on sale" issue. Everyone knows that once you transfer title to real estate secured by a conventional mortgage, the lender has the right to call the loan due in 30 days. Under federal law, a lender may NOT call the loan due if you simply transfer title into a trust which you are and remain a beneficiary and "does not relate to a transfer in rights of occupancy." The law is called the "Garn-St.Germain Depositary Institutions Act, 12 U.S.C. 1701j-3(d).
Here is a link to the text of the Garn Act (read subsection “d”):
http://www4.law.cornell.edu/uscode/12/1701j-3.html.
Gatten claims that since the law says the borrower must remain “a” beneficiary (not “the” beneficiary), this implies a borrower can assign 90% of his interest in the trust and not trigger the due on sale. Not an original argument, but creative. Would this argument hold up in court if the lender called the loan due? I don’t know, AND NEITHER DOES BILL GATTEN. To further compound the issue, the Office of Thrift Supervision, which is the federal agency in charge of promulgating additional regulations on this issue, has taken the position that the borrower MUST live in the property. In other words, if the borrower transfers part of his trust interest to a third party and moves out, the due on sale MAY be enforced. I am doubtful as to whether the OTC’s position is enforceable, but there is one thing for CERTAIN: it will end up in a court battle costing the borrower thousands of dollars in attorney’s fees to fight it.
It’s not that I want to argue the law with Gatten; I just want people to be aware that the PACTrust has RISKS that are not disclosed by Gatten, but rather covered up in his advertising (his website www.landtrust.net (http://www.landtrust.net), states his PACTrust provides “OWNERSHIP through a quiet assumption of ANY LOAN, without due-on-sale violation.”).
2. THE PARTIES ARE NOT PROTECTED FROM CREDITORS
Gatten claims that the interests of the beneficiaries of the PACTrust that owns the property are protected from creditors. His website further states that the “PROPERTY SHIELDED from action in bankruptcy, marital dispute, law suits and probate.”
Bullsquash!
A bankruptcy can force the sale of a debtor’s property to satisfy his debts, including a beneficial interest in trust. The only trusts that protect one’s interest in bankruptcy are irrevocable “spendthrift” trusts (which a PACTrust is NOT). Don’t believe me? Read this recent federal bankruptcy court case:
http://www.vtb.uscourts.gov/opinions/published/9910321_35.pdf
Thus, if the seller in the PACTrust were to file for bankruptcy, his interest is subject to execution and sale.
Second, under state law, even Gatten’s own state of California, a creditor with a judgment may attach a beneficiary’s trust interest and force the sale of the property.
Cal Code of Civil Procedure Sec. 709.010 states, “The judgment debtor's interest in the trust may be applied to the satisfaction of the money judgment by such means as the court, in its discretion, determines are proper, including but not limited to imposition of a lien on or sale of the judgment debtor's interest, collection of trust income, and liquidation and transfer of trust property by the trustee.”
Here is the link: http://caselaw.lp.findlaw.com/cacodes/ccp/709.010-709.030.html
Once again, Gatten’s claims are clearly unfounded and unsupported by law.
3. THE PACTRUST IS A SALE, OR IT ISN’T; EITHER WAY, THERE IS TROUBLE.
Gatten claims the 90% transfer of the seller’s interest to the RCB is not a sale. Thus, he claims, the seller can claim ownership for tax purposes, including later qualifying this property for a 1031 exchange. Under “Belden” case, which Gatten cites for his argument, this is clearly not the case. In the Belden case, the court declared a buyer on a purchase agreement that was incomplete could claim deduction for his interest payments made before the completion of the sale.
Here is the text of the Belden case: http://www.creonline.com/legal/wwwboard7/messages/3949.html
Of course, if the buyer has an ownership interest, the seller does not. If the seller still owns it, the buyer does not. Whether you say the PACTrust is a sale or not, someone is going to have their deductions disallowed. You can’t have two people claiming “ownership” for income tax purposes on the same interest in the same property unless they are partners. If so, then someone is in big trouble for not filing partnership returns. Furthermore, you cannot “sell” your tax benefits as Gatten claims on his website. The IRS will determine who is the owner for tax purposes, not the taxpayer, and certainly not Bill Gatten.
Finally, Gatten’s company, if it is performing “closing services” is in big trouble if the PACTrust is a sale. The IRS assesses a $100 penalty on the closing agent for each closing that is performed without filing IRS form 1099s.
4. THE PACTRUST LIKELY DOES TRIGGER REASSESSMENT
Under California law (“Proposition 13”), a property that is sold or transferred must be re-assessed for property tax purposes. An exemption is provided if the owner transfers property into trust for his own benefit. Does assigning 90% of the interest to an unrelated third party trigger reassessment? Not according to Gatten! He claims the seller retains a 10% interest, which means the property is not sold for reassessment purposes. However, he also admits that the buyer has a power of attorney to vote the seller’s interest. Without going into a long dissertation of the California law and court cases, I would seriously doubt that the County would not say that a “transfer” has occurred.
For a complete discussion of the appropriate law and court cases, take a look at this website:
http://www.reish.com/practice_areas/TaxEstate/proptaxes.cfm
UNAUTHORIZED PRACTICE OF LAW
According to Gatten’s website, he claims that his company provides the following services:
* Preparation of All pertinent documentation
* Full legal review and endorsement
* Continuing client consultation and tele-conferencing
All of these activities would constitute the unauthorized practice of law by a layman without a license. Of course, Gatten will tell you that they hire an outside law firm to prepare the documents. In this case, who is the attorney representing? The Seller? The Buyer/ The Trust? Gatten? Clearly, there is a problem here.
Until recently shut down by the Attorney Generals of several states, many “financial services” companies were selling living trust packages to consumers. When threatened with criminal prosecution, these companies hired outside lawyers to prepare the documents. Of course, the documents were “rubber stamped” by the attorney and kept in the files of the financial services companies.
Here’s a few links to articles about this activity:
http://www.aafpe.org/juettner.html
http://www.calbar.org/2rel/3nr7/3nr9704a.htm
In Akron County Bar Association v. David M. Miller, 80 Ohio St.3d 6, ___ N.E.2d ___ (Oct. 8, 1997), a non-lawyer explained the benefits of a trust to consumer, which was then prepared by an attorney. He was charged with the unauthorized practice of law, even though he made the consumer sign a statement that no legal advice was given (similar to a statement found on Gatten’s own site!).
Here’s the link:
http://www.nobc.org/Nashville_Feb__98/cd19fe98/cd19fe98.html
Now, am I saying that Gatten is engaging in the unauthorized practice of law? Not necessarily. If Gatten simply introduces the idea and the parties seek independent counsel to advise them and prepare documents, then Gatten has no problem. However, I have not used Gatten’s company; maybe someone can post here their personal experience of how the transaction took place.
BOTTOM LINE
The PACTrust is an overblown, expensive and risky way to do a simple transaction: buying a property subject to an existing loan. The cheap and easy way to do it is to create a land trust, deed the property to the trust and assignment the beneficial interest to the buyer. Does this trigger the due on sale? Yes, it does. It this reported as a sale? Yes, it is. Can the seller, his ex-wife or his creditors come back later and make a claim to the property? No.
Gatten says that a person with a 4th Grade education could understand the PACTrust (ha!). The reality is, I get dozens of emails every week from people asking me questions about it. Most of these people are beginners and clearly have no understanding of the risks involved in Gatten’s scheme.
Hopefully, this post will result in a lot of small bruises on Bill Gatten from people poking him with a 10 foot pole. PS – This is all my opinion, so don’t even think of suing me for libel (besides, truth is an absolute defense).
***************************

Have a GREAT day MB folks, and you too Garey,
Jim FL

[landtrustwizard]

Gatten's company is NEVER the Trustee. All docs are prepared and reviewed by NARS legal staff. NARS was established in 1984 and its PACTrust program is approved as Continuing Education by the California Dept. of Real Estate. It has over 3500 members nationwide, many of whom are realtors and lenders. There have been three loans called due recently where lenders tried to exercise the DOSC with NARS members. They were WAMU and Countrywide and Bill Gatten's letter to them advising them that the property had been placed into an inter-vivos trust as provided for in Garn-St. Germain was all that was necessary to stop them in each case. Not once in over 20 years and thousands of trusts has there ever been a DOSC violation.

I strongly recommend that you avoid trusts at all costs because your post is so factually incorrect it would take hours to point out each error. In fact the whole analyis is incorrect, from the existence of a sale, to IRS treatment of settlor/RB, etc. Rather than try to educate on a subject you know nothing about, how about leaving that to the experts?

The only person jamming anything down people's throats is you. I give a simple response to someone else and you post your hysterical rantings. Let's avoid personal attacks and stick to the facts. I'll be happy to pass your post on to Bill, but hesitate to do so to help you avoid embarrassment when he takes you to task.

Enjoy your subject 2's, but please avoid addressing me personally. Thank you.

As for Obama, he makes all Repugs nervous because there is nobody on the scene that will be able to compete with him. Get used to it. If he runs, the Dems win.

[mike_mn]

For those what have been posting on this thread... I would ask for a response. I have been taking Sub 2 deal in this fashion... which no one else has mentioned... hmmmm

I loan the existing homeowner money... say $2000.00 (I create a recorded lien) Which they use to move and put a deposit on a apartment... or whatever. The loan is due in 90 days, first payment in 30 days. They default, I get a deed in Lu of foreclosure. Now I am a lender in the chain of title, with a deed in Lu. I contact the other lender or lenders... fax a copy of the deed and they now send me the payment coupons. It does not trigger the due on sale clause and I have never had a problem. Insurance is not a problem because I have the deed (recorded). No trust, no lease... what am I missing? I am a bank protecting my asset...

This said... I do not miss payments, I am never late etc...

OK... what say you experts?? Educate us....

From my understanding, technically a second, or in your case a third mortgage default with a deed in lieu does not remove the DOSC. It is at the lenders discretion for you to keep making payments on the loan. Your example I beleive is common and the reason why some that do sub2 dont use land trust to hide the deed transfer, because they get the lenders permission, which especially now is easy to get. Using the deed in lieu is a way to "legitimatize it" in your head, but it still just comes down to doing what works for you...It may or may not stand up to scrutiny if the first decided to exercise the DOSC...I doubt you would fight them if they called it, you would just either work with them to get a loan or refinance...right?

[mike_mn]

I would be really interested in the details of that case, like the court jurisdiction, case number, parties to the action, anything you've got.

We are gathering data for a study in this area and so far we have not found any appellate cases that deal with this area. Which is very strange but if even the proponent of the system is recommending settling rather than going for a favorable judgment then a whole new twist sets in.

BTW, I was under the impression that NARS said they would defend their trusts in court. I guess my impression was wrong.

Here is a link to where the info and dialog occured.
http://site.landtrust.net/board/viewtopic.php?t=2932

New York Court
http://portal.courts.state.ny.us/pls/portal30/CMS_DEV.RPT_FCAS_OPEN_index.show_parms
Index # 112850/2005

Proceedings haven't even started yet...we shall see what happens.

[landtrustwizard]

I'll try to find out more info on this, but as to defending the trusts in court, the Trustee holds legal title to the property and defends against any court actions as they must be filed against the Trustee, not the beneficiary. That's why I ALWAYS use a professional, non-profit corp as Trustee and not Aunt Mary.

This case seems to be more about some damages that are not gone into in detail that are covered by a NY Law and who has responsibility for them. The triple net lease places responsbility for maint and repairs on the Tenant who is also an Owner, and the issues appear to be related to that rather than the trust itself although many details appear to be left out.

[neodemes]

Good to see you pop back in, Bruce!

Let us see you more often!

:SM105:

[Debbie]

:SM105:

:xxrotflma
Good one Bruce!

[landtrustwizard]

Over 10.000 trusts over more than 20 years. Nobody has ever had a problem evicting anyone. This issue is over a NY law regarding damages and, unfortunately, if you hire an uniformed lawyer this could happen to anyone. Again, the issue is not the trust -- it's a NY law related to habitable premises. I've used the trust and been very successful with it as have over 3500 members including realtors and lenders. Thanks for your concern.

[landtrustwizard]

I don't know the parties and have been following the progress of this transaction on the forum as you have. However, the law is quite clear:

The Uniform Commercial Code, adopted by all 50 states, characterizes interest in an Illinois-type land trust as Personalty (Personal Property) vs. Realty (real estate). However, for federal income tax purposes, the beneficiary/ies of land trusts are treated as if they were in-fact owners of real estate. Because local laws view a land trust’s beneficiary interest as personal property rather than real property (except in Louisiana and Tennessee who treat such beneficiary interest as realty), it is UCC regulation (i.e., Article #9 ), rather than mortgage law, which governs the interest of the parties.


University of Illinois Law Review, Vol. 1988, p 68, FN#11 (Freyfogle, “Land Trusts and the Decline of Mortgage Law”)
Land Trusts for Privacy and Profit, Atty. Mark Warda, Galt Press, Clearwater Florida, (2002)


Unfortunately, not every judge is learned. In this particular case, the settlor is fully entitled under Garn-St. Germain to lease the property to a co-beneficiary. The Tenant is a co-beneficiary of the trust and owns no interest in the property so foreclosure is not an issue. There is no foreclosure in personal property. This case is not a standard landlord/tenant real estate transaction. It is a legal lease of real property held in trust and considered personal property under Federal law.



I'll give you an example: You own a home you no longer want to live in but it's got real potential and would make a good investment. One problem, you have an Owner Occupied loan and to have someone assume it would violate the DOSC. So, you place it into a land trust, deed title to your Trustee, and have a partner live in it and maintain it for the writeoffs and a share of future profits. That's a sound business deal.


The docs specifically say that if your partner defaults, he dismisses his share of the trust and vacates the property. Since he is a co-beneficiary he is also a co-owner. He's leasing the property from himself.



Like I said, over 10,000 trusts and over 20 years without a problem. It is what it is. The use of land trusts, although common for over 115 years, has always been a tool of the privileged and never made known to the general public. In many states they are very common, in NY where real estate law is bizarre and the use of attorneys required, anything can happen.


One question for you: Why are you so desperate to find something wrong with a system that has been proven for so long? What's your agenda? I'll be happy to refer you to a realtor who does 100 of these deals every year who would be happy to answer your questions. I'm just unsure of your motives as sarcasm seems to prevail.


Peace.



:smiley5::smiley5::smiley5:

[neodemes]

Does anyone here actually know anyone who took over financing and triggered the DOS clause?

[landtrustwizard]

Over the past couple of years we have had three NARS members who have had their lender attempt to call their loan due. In each case it was necessary to send a letter pointing out that the title had been transferred to a Trustee of an Illinois-type title-holding land trust which is protected under Federal law. In all cases, the lenders reversed their field and stopped. Two of the lenders were WAMU and Countrywide. I'm not sure of the third.

In my own case, when my wife sustained a severe injury, we were forced to give up our 3-acre place in California and moved to a smaller, more user-friendly home in AZ. My home was in a land trust and I NNN leased it to my tenant who became a co-beneficiary of my trust. My lender was Countrywide and I called them and advised them of what I was doing. I converted my homeowners insurance to landlord insurance. The loan officer told me that because I had an Owner Occupied loan I couldn't do this as it was a DOSC violation. He spoke with his legal dept. and then admitted that this transfer was legal. End of story.

I've heard of a few individual "subject to" cases in Colorado, Texas and Illinois but they are still very rare -- unlike in the '70's. There was a recent case in So. Carolina involving a land trust. A credit union invoked the DOSC on one of their members when they learned he had placed his property into a land trust. How did this happen? The greedy investor/buyer did not want to share any ownership with the seller and, instead of allowing him to remain a 10% beneficiary, he took full beneficial interest in the trust himself. THAT WAS THE VIOLATION. The law is very clear. The Lender MAY NOT exercise the DOSC if:

(8) a transfer into an inter vivos trust in which the borrower IS AND REMAINS a beneficiary and which does not relate to a transfer of rights of occupancy in the property;

Even worse, the guy named himself as Trustee -- A REAL BONEHEAD MOVE that invalidates the trust if challenged.

[landtrustwizard]

As a co-beneficiary of the trust (owner) he is technically leasing the property from himself and his partner. How can NY say he can't accept responsibility for maintenance and repairs as part of his lease when he owns the property and such duties are part of his responsibilities of ownership? The IRS agrees and allows him to write off the mtg interest and property taxes even though only leasing. NY will bump up against Federal law. That's why I said it's unfortunate he got a dumb judge.

[neodemes]

Everyone who does sub2 on a note with a DOSC triggers it and I used to see about 1% or less get called.

Perhaps I should have been more specific, i.e. "triggering" the DOS to the point where the loaned is called in. Not sure what you mean by 'everyone...triggers'.

[landtrustwizard]

The trust method is really very simple, but appears frightening to someone for the first time. It did to me. I've now used it many times without a problem. There are simpler ways but there is no way you have as much protection and privacy. The big difference is the trust converts your real property to personal property and your trust is governed by private property rules under the UCC, not mortgage law. Everything goes legally unrecorded after the initial transfer of title to the Trustee.

The reason we are writing so many trust transactions in Texas is the recent law limiting lease options. See: Texas Investors (http://user148333.websitewizard.com/texas-investors.html). Good luck to you.

[landtrustwizard]

I deal ONLY in co-beneficiary land trusts. Protection?

A creditor of a beneficiary in a co-beneficiary land trust may not attach the land or claim an interest in its corpus. (Such protection is similar in effect to holding a property in a limited partnership or multiple member limited liability company)
• Resnick, Bernard, “Is There Such a Thing As A California land trust?” See pg. 225, L.A. Bar Bulletin, April 1973
• Finnie v. Smith, 82 Cal. App. 707 (1927)
• IRC §1034; Rev. Rul. #66-159, 1966-1 C.B. 162
-----------------------------------------------------------------
Regarding ownership in the land trust, one’s beneficiary interest (being intangible personal property versus real property) provides a high degree of protection (though not absolute insurance) against a judgment creditor’s partitioning of one party’s interest from that of another: thereby forcing the sale of part of the property or liquidating it and dividing the proceeds. To best protect against such event, it is prudent for land trust participants to hold their respective beneficiary interests in a Limited Liability entity such as a Limited Partnership or a Limited Liability Company (LLC). In so doing, each beneficiary can then be free of concern about the accidental or untoward misdeeds of the other (i.e., dealings that could otherwise easily involve the property’s title by either party’s creditor’s claims, tax liens, bankruptcy, legal actions in marital disputes, probate, etc.).


“Since the interest of the beneficiaries under a land trust is personal property, and since the trust agreement expressly precludes the vesting of any legal or equitable right in a beneficiary, partition is not available.”


Henry W. Kenoe, Keno on Land Trust, IICLE, p 3-012 Sec. 3-9 (1989)
CA. Civ. Code §872.210
CA Probate Code §50
CA. Probate Code §133(i)(c)
CA. Civil Code §955.1
Wile, “Judicial Assistance in the Administration of California Trusts,” 1`4 Stan. L.Rev. 231, 245-250 (1962)
CA. Estate Administration, §§33.11 to 33.35 (Cont. Ed. of the Bar, 1959)
Aronson v. Olsen, 348 Ill. 26, 29, 180 N.E. 565, 566 (1932); Breen v. Breen, 411 Ill. 206, 210-12, (1952).
Probate Code §§11600 et. seq. & 2463;
================================================== =

There is one more item I would like to address and that is the protection inherent in doing a traditional subject to vs. a subject to within a land trust.

A land trust allows you to assume a loan without recourse, a traditional "Subject to" does not. Few investors realize that such an assumption is with recourse. Should the investor sell the property and the buyer assumes and then defaults on the loan, the investor (and anyone else who previously assumed the loan) may be held liable.

If a land trust is established to take title to the property and assume the loan, there is no recourse against the beneficiary. Additionally, the loan will not appear as a liability on the beneficiary's credit report.

A traditional "Subject to" acquisition, is a violation of the DOS Clause.

A traditional "Subject to" provides no privacy or asset protection. Because title is in your name, you are a target for lawsuits.

A traditional "Subject to" provides NO protection against liens and encumbrances.

A traditional "Subject to" comes with liability in case of default by the buyer.

A traditional "Subject to" comes with ever-increasing legislative scrutiny and is subject to varying laws from state to state.

End of my posts on this subject. I will continue to follow the NY case and report if I learn anything new on it.

[LeaseOptionKing]

Great thread. I have just a few comments to add. First, I would be cautious using that Consultant Agreement (page 2) and asking for a "percentage." It might raise some eyebrows if you are not licensed. Otherwise, it's a great idea (but I'd use a specific dollar amount, not a percentage of the sale price). Second, I have students doing Lease Options in Texas. It's not that difficult to circumvent the legislation. Lastly, if a T/B makes an equitable interest claim in most states (if you structure it properly) and you say nothing, the judge may have it go to a higher court. Then the judge will likely rule in your favor (if your Contracts are up to par), but the T/B will stay in your property for another month or so. But If you remind the judge that you are here to obtain a ruling on a breached Lease and that if the the TENANT wishes to bring up a supposed equitable interest claim, the TENANT can take you to court just as you've taken the TENANT to court over the Lease...the eviction will likely continue.

[Debbie]

Great thread. I have just a few comments to add. First, I would be cautious using that Consultant Agreement (page 2) and asking for a "percentage."

Are you referring to post #13?

[LeaseOptionKing]

Affirmative.

[ThreeRiversREI]

The paper work you will need is as follows:
1. A lease option agreement, to sign with the sellers.
2. A performance mortgage, to secure your lease option with the sellers.
3. A warranty deed to be held in escrow from your sellers, to you, for when you exercise, if the sellers are not around.........optional, but a good idea.
4. A lease for your sub-tenants, don't mention the option in this, it must stand alone.
5. A seperate option, for your buyers to sign...keep this completely seperate from the lease, so you may evict if/when the T/B'ers default.......many will, be prepared.
6. Application for your tenant buyers to complete so you can check their background, credit, criminal history, rent/eviction history, employment etc.

Jim, this is a longer list than I normally see for doing what I usually see referred to as a "sandwhich lease-option" but I think I understand most of it.

1. This is the combined document leasing the property from the owner AND stating the right (option) to buy the property in the future at (presumably) today's value. This is apparently drawn up as a single document to strengthen the investor's claim of "equitable interest" if the seller evicts as opposed to the split documents used for the tenant/buyer. (see 4 & 5 below)

2. "Performance Mortgage" I don't understand what this document is, nor what it's purpose is supposed to be. Can you please explain in 3 eBooks or less? :SM049:

3. Interesting idea to have the warranty deed signed now & put into escrow. Presumably the escrow instructions would call for any underlaying mortgage to be paid off, specify who pays what closing costs, etc. as for any standard closing. The only difference being that it is all on hold pending the investor exercising their option, with instructions to return the deed unrecorded to the seller at the end of the option period or some-such, correct?

4. Standard lease. Pick up from stationary store, local realty office, etc. Include any modifications particular to your circumstance and have reviewed by your attorney. The same document that would be used if this was a straight rental instead of a lease-option. Term not to exceed the lease-option term in #1 above.

5. Option Contract. In exchange for an up-front, non-refundable option fee, tenant-buyer has the right (option) to buy the property at some future date. (Presumably at a higher price than in #1 and for the same term as #4.) Do you allow rent credits (full or partial), and if so, how do you handle them vs. late payments, etc.

6. Standard application. Like #4 above, the same form that would be used if this was a straight rental instead of a lease-option.

As a separate issue, do you make a habit of reporting rent payments to credit bureaus? Or provide that as an option to help a t/b rebuild their credit through the regular reporting of their timely rent payments? Or report late payments? Balances owed after security deposits are applied? Other negative information?

[Dan Auito]

Here is a guy giving a spiel on why lease option is a good way to go, thought I would post it for others to consider using when hunting for prospects:


My name is Tim and I'm areal estate investor. If you're looking to sell your house fast, or even if you're just looking to unload all the management hassles of owning a rental property, then we need to talk. I am looking to buy more investment properties. I specialize in hard to sell homes. No equity? No problem! This is your chance to get a quick and easy solution to your real estate troubles.
You'll get: A fast closing - Even within 48 hours if needed! Instant debt relief - I can take over your payments right away! Freedom from maintenance hassles! A guaranteed written offer within 48 hours! Because I'm a private investor you'll save thousands of dollars in realtor's commissions.

SOME OF THE BENEFITS OF DOING A LEASE TO PURCHASE WITH ME:

Top sales price, even if demand is low: I am willing to pay a premium if we can come to terms.

Non-refundable option money: When I execute a lease purchase contract, you receive an non-refundable option deposit that is yours to keep should I default or decide not to buy.

Save thousands in fees: Since you are selling your home by owner, you will avoid paying a 5-10% realtor commission which quickly adds up to thousands of dollars. You will also save on advertising costs because your home will be sold a lot faster

Minimum risk: Because I'll be leasing to a tenant who will have a vested interest in your home, they'll act just like a homeowner would do and take good care of it.

No maintenance, no landlording headaches: Tenants have a vested interest (like a homeowner ) and feel a "pride of ownership" that will encourage on time payment, have them performing routine maintenance and make improvements to your home.

Tax shelter is held intact: Because you remain on the deed until the option is exercised, you maintain all of the tax benefits of ownership

Peace of mind: It is safer than conventional renting because of the quality of the tenants who have a vested interest in your home. It also means that someone is living on-site who will watch and guard your home against fire, theft, vandalism, etc.

No costly remodeling: If the terms are good, I'm interested in any property, in any shape!

Releif: If we come to terms, I can take over your monthly payments (principal, interest, tax, insurance and any association dues) and possibly any past due debts neccesary to aleive any "headaches" the property may be causing you! This way you can get on with your life without worry!!!

If you are interested, just email the answers to the following questions. The answers will tell me wether or not I can help in your situation.

HERE'S WHAT I NEED TO KNOW TO BE ABLE TO TELL IF I CAN HELP YOU OR NOT:
Are You "Motivated" to sell quickly (need to move quickly, facing foreclosure, owe back tax's, sick of renters, house has been on the market too long, etc.)?
Your Name
The Address Of The Property And The County It Is In
How Much You Owe On It
What Is Your Monthly Payment (Include any principal, interest, tax, insurance and association dues)
How Much Are You Seeking To Sell It For
How Soon Do You Need To Finalize The Deal If you can answer all of the preceeding questions and would consider yourself "MOTIVATED" to sell, then please email me at litevette@aol.com with the subject line" I WAN'T TO SELL MY HOME NOW!" If you are not yet motivated, please save my email in the event that we might talk in the future. THANK YOU!

[Jim FL]

ThreeRivers,
I'll try to respond to each, after quoting you so I can follow......................
Jim, this is a longer list than I normally see for doing what I usually see referred to as a "sandwhich lease-option" but I think I understand most of it.

REPLY:
This is basically a combination of things I've learned both from others in the past, and, from my own experiences, both good and bad, with lease options. I should make it clear however, that I will no longer sign a sandwich lease option. I'd rather own, and buying subject to, accomplishes the same end result for the sellers.........debt relief.

1. This is the combined document leasing the property from the owner AND stating the right (option) to buy the property in the future at (presumably) today's value. This is apparently drawn up as a single document to strengthen the investor's claim of "equitable interest" if the seller evicts as opposed to the split documents used for the tenant/buyer. (see 4 & 5 below)

REPLY: Yes, you pretty much nailed that one.
2. "Performance Mortgage" I don't understand what this document is, nor what it's purpose is supposed to be. Can you please explain in 3 eBooks or less?

REPLY:
The performance mortgage is exactly what it sound like. A mortgage recorded against the subject property, which states the basic outline of terms in the lease/option between the parties. (seller and you). Should one party default (the seller), you as the investor who holds this mortgage against the property, can foreclose and force the seller to comply. However, with the deed in escrow, this can usually be handled faster by just recording the deed. I have a sample performance mortgage document on my website that is FREE, if you'd like to review one for info. I have it linked on the page that used to be my discussion forum over at REmentors.com There is a banner on that page for the performance mortgage sample, and its clickable......takes you to the form.
3. Interesting idea to have the warranty deed signed now & put into escrow. Presumably the escrow instructions would call for any underlaying mortgage to be paid off, specify who pays what closing costs, etc. as for any standard closing. The only difference being that it is all on hold pending the investor exercising their option, with instructions to return the deed unrecorded to the seller at the end of the option period or some-such, correct?

REPLY:
You can, and probably should do so the way you describe. However, to be frank, most times, the 'deed held in escrow' simply means the seller signs a deed, and I hold it in my file for later use if needed. Usually not the case...........only did this once. (in that case, the seller was overseas, and over then we just recorded the deed, and one week later, closed with our buyers who were paying cash from a settlement.) When I did lease options, the sellers were never due any cash at close anyway, so recording the deed was only being done to get title transferred so we could close with an end buyer.
4. Standard lease. Pick up from stationary store, local realty office, etc. Include any modifications particular to your circumstance and have reviewed by your attorney. The same document that would be used if this was a straight rental instead of a lease-option. Term not to exceed the lease-option term in #1 above.
REPLY:
I personally would not use a standard lease from an office supply store or online. The agreement I use is really, well, someone else once called it this.......a 13 page exercise in tenant control. My lease covers everything, just in case.
5. Option Contract. In exchange for an up-front, non-refundable option fee, tenant-buyer has the right (option) to buy the property at some future date. (Presumably at a higher price than in #1 and for the same term as #4.) Do you allow rent credits (full or partial), and if so, how do you handle them vs. late payments, etc.

REPLY:
I do not give rent credits when I sell with a lease option. Here is why?
With some T/B'ers, they are able to get financing as a refi.........when that happens, we submit a letter showing payment history etc. Should we say charge $1000/month, and give the T/B'er $200/month in rent credit, the end lenders will look at the T/B'er as having paid $800/month, and it very well could hurt their chances of qualifying. At least, my mortgage brokers over the years have said so.
As for late payments, yes, we charge late fees. I also use a discounted rent set up, where if the rent is paid on or before the due date, the tenant gets a rent decrease/discount, and if not, they lose the discount, AND must pay some fees. The discount is given in exchange for the tenants taking care of minor maintenance and repairs.
6. Standard application. Like #4 above, the same form that would be used if this was a straight rental instead of a lease-option.

REPLY:
Again, here, I have my own application. Mine was designed to gather all info I need to check someone out thoroughly, AND, has a statement which allows me to check their credit throughout the term of the lease, as well as spells out option money terms etc.
As a separate issue, do you make a habit of reporting rent payments to credit bureaus? Or provide that as an option to help a t/b rebuild their credit through the regular reporting of their timely rent payments? Or report late payments? Balances owed after security deposits are applied? Other negative information?

REPLY:
I do not report to credit agencies. When a T/B'er goes to get a loan, we submit a letter to the lender, 'verification of rent/mortgage' and this outlines the payment history. Another benefit of the discount rent set up is that, say a tenant pays on the 2nd of the month every month. I am able to word the letter so that it says NO late payments were made, and no late fees were paid. However, most times, we just get a form from the lender/mortgage broker, and complete as they ask us to, with our numbers of course.
If a tenant defaults, they get evicted, and this is public record, plus, I report the default under their names to Mrlandlord.com and a few other places online, in the hope that a future landlord will see it and save some grief.

Anyway, there's my two cents, keep the change.........and remember, I DO NOT DO sandwich lease options any more. (why RENT/Control when you can OWN?)

Take care,
Jim FL

[Tantric Realty]

Hi Jim,

Do you not do Lease Options anymore because you are in a financial way that you don't "need" to? I only ask because it would seem to me that sellers would be more likely to lease in the instance they will not warrant the deed.

In my case I guess.. I would work with whatever deal puts money in the bank, only because I am pretty broke :) (not to worry though, I will see a better days)

Perhaps you only target foreclosures, thus sub2s are pretty easy to come by, I dunno... I am trying to line up marketing strategies with means to a deal (in my head of course, not quite ready to buy/sell/lease)

Thanks,
Scott

[Jim FL]

Hi Jim,

Do you not do Lease Options anymore because you are in a financial way that you don't "need" to? I only ask because it would seem to me that sellers would be more likely to lease in the instance they will not warrant the deed.

In my case I guess.. I would work with whatever deal puts money in the bank, only because I am pretty broke :) (not to worry though, I will see a better days)

Perhaps you only target foreclosures, thus sub2s are pretty easy to come by, I dunno... I am trying to line up marketing strategies with means to a deal (in my head of course, not quite ready to buy/sell/lease)

Thanks,
Scott


Scott,
The last line in my previous post, about not doing sandwich lease options anymore, because ownership beats mere control, is the total reason.

When a seller has a situation where a lease option would solve their problem, buying their house subject to would as well.
And, buying subject to, means TOTAL control for me, the buyer.
Why?
Because I OWN the house, and the seller is completely out of the picture.
At least, out of it, in a sense that they cannot control anything to do with title.

Sometimes, and this is rare, where a seller gets some equity from a house I buy from them, I'll use a note.
When I buy the property, I merely include a promissory note to the seller, payable upon resale, or refinance of the property.
Basically, 'let me buy your house now, and pay you later for your profit'.
Of course, this is only done when there is substantial profit to be made by me.......and to be frank, has been used on rehabs mostly, where the seller knows there is lots of equity, but that lots of work is needed to get to it.

Most I've paid a seller in such a way over recent years, was $10k, cash, when I had completed and resold a rehab.......where we netted over $70k at close......AFTER paying the seller the $10k.
Worked out well for all.


Now, if YOU approach the methods of subject to, versus lease option, thinking one method is 'easier', or 'better' for getting sellers to agree, then you will be right.

The key is your explanation of how your solution provides them with relief, and handling all objections BEFORE they arrise.
Something only time, education, and practice can make happen for you.

I'd say nine times out of ten, when I sign a subject to deal, the seller is on board before we even meet face to face.

One other point, because I like to sell many of the properties I buy, for immediate profit, retail, or, after holding for a short time, owning them, versus a lease option position, makes this easier.
Thanks in large part to title seasoning requirements from lenders, who ARE making their lender underwriting requirements more and more stringent, almost by the day.

My two cents, keep the change,
Jim FL

[Tantric Realty]

Thats a great approach now that you are established, I guess I am asking... would you have done it this way in the beginning of your REI career?

Do you turn deals down if they don't sub2, or do you have little to no resistance?


Thanks,
Scott

[AIR]

someone sent me all the paperwork needed for lease options before...I somehow erased it from my computer...IDIOT!!! I think it was Tommy that sent it???

[neodemes]

someone sent me all the paperwork needed for lease options before...I somehow erased it from my computer...IDIOT!!! I think it was Tommy that sent it???

:oops:

Did you check the recycle bin?

[AIR]

ANYONE OUT THERE???? I really want to learn lease options what should I do????

[Jim FL]

ANYONE OUT THERE???? I really want to learn lease options what should I do????


Aire,
Well, you can ask specific questions here, and someone who has actually done deals can answer and guide you.

As for paperwork, Dan has a ton of things listed here for download.

So, whatcha want to know?
Are you going to attempt sandwich lease options, or do you merely want to learn to sell your properties with them?

ask away...........

Jim FL

[AIR]

Jim,
thanks for the response. I have no idea what a sandwich lease option is... I want to learn lease options completely. I would like to read a book or course explaining lease options in great detail. I am thinking about offering it sooner or later on my current project.

[StepUp]

Sandwich lease option = You lease to purchase from seller then you lease to purchase to your tenant/buyer.

Course and website: Go to L2P.com. The site's all about lease to purchase and Jeff Beubien has a good course with forms.

In today's tighter 1st time home buyer loan market, lease to purchase as an exit strategy is that much more important. Good idea on exploring this option...

Eric

[Dan Auito]

I don't recommend much but this is one programm that is worth every penny: http://FlippingHomes.com/danrecommendswholesaling (http://flippinghomes.com/danrecommendswholesaling)

[AIR]

could anyone recommend a book on lease options, something that I could go pick up at the store???

[Jim FL]

Air,
I don't mean to offend, but I do have a question for ya.

Sure, we can recommend courses/books that teach lease options.

The thing is, most are available online.
I seem to recall previously a discussion about books and your aversion to getting something online.

So, I'll ask, what's the deal?

Now, because you are looking to sell houses with a lease, and option, and not use a 'sandwich lease option' method (wise move by the way)..........we can help.

I just don't understand the apparent aversion to online materials, especially since you are here online at MB's.

There are plenty of courses devoted to lease options out there.
Not all are good though.........because the method is so simple, LOTS of folks have attempted to write about them.................and often leave a ton of info out.
So, be careful what materials you buy, especially at the local book store.

The link from Dan above, I'm sure is good material, as Steve Cook does not offer anything but excellent info..........
However, I don't think it's what you are looking for, as it's more than a simple book or guide on one method.


Take care,
Jim FL

[Burke]

could anyone recommend a book on lease options, something that I could go pick up at the store???

I have read "Buy Low, Rent Smart, Sell High" by Scott Frank and Andy Heller and thought it was a good introductory book on lease options.

[Debbie]

Air,

Knowing you're in college, methinks you are too used to studying from a book hence a request a lease option type book.

How about studying from us and our recommendations? Some of us humans have actual experiences whereas books doesn't.

[AIR]

to be honest I just have something against buying a course. I just get the feeling I am being ripped off by the "get rich quick" types. What recommendations do you have for me on learning lease options? Is buying a course the only way to learn? I am trying not to be ignorant but am I wrong in thinking this way? I guess I shouldnt pass judgement since I have never used a course, what do they entail? How do they differ from a book.

Posting on this site and waiting for replies would take a very long time to learn lease options. Its not like we could sit down over a cup of joe and chat since most of us live far away. That is why I think having a book or CD explaining lease options is the best way to go.

[Debbie]

to be honest I just have something against buying a course. I just get the feeling I am being ripped off by the "get rich quick" types. What recommendations do you have for me on learning lease options? Is buying a course the only way to learn? I am trying not to be ignorant but am I wrong in thinking this way? I guess I shouldnt pass judgement since I have never used a course, what do they entail? How do they differ from a book.

Posting on this site and waiting for replies would take a very long time to learn lease options. Its not like we could sit down over a cup of joe and chat since most of us live far away. That is why I think having a book or CD explaining lease options is the best way to go.

Understandably.

I'll tell you what. Let me hunt down members who are experienced in lease options. I'll arrange for chat at the MB chat room very soon. How does that sound to you?

[Jim FL]

to be honest I just have something against buying a course. I just get the feeling I am being ripped off by the "get rich quick" types. What recommendations do you have for me on learning lease options? Is buying a course the only way to learn? I am trying not to be ignorant but am I wrong in thinking this way? I guess I shouldnt pass judgement since I have never used a course, what do they entail? How do they differ from a book.

Posting on this site and waiting for replies would take a very long time to learn lease options. Its not like we could sit down over a cup of joe and chat since most of us live far away. That is why I think having a book or CD explaining lease options is the best way to go.


Air,
You think buying a course would be a rip-off?
Education is expensive, for some............however, ingorance is WAY more expensive.

You can talk about lease options, or any method as much as you want to, and might even learn a tip or two.
The thing is, you will not have written reference materials to learn ALL the needed small details.

So, you very well may venture out, try something, thinking you know all that is needed, and feeling like 'whew, I didn't get wripped off'...........and then...........
One mistake, one missed detail..........and in the real world, lack of experience (a course does offer experience, they are written by folks that do, at least any materials we'd recommend).........

Anyway, shooting blind, you never know what kind of damage your gonna cause til it's too late.

I've sensed your aversion to courses for some time, and frankly, it's refreshing to see you come clean.
As an author myself, I probably should be offended by the comment you made, but I'm not.
Guess why?
Most of us who write courses, do so from our experience, to share........and if someone thinks I'm out to rip them off, in a 'get rich quick scheme', then frankly, it's their loss for being so closed minded.
I'm sure there are books out there that talk about lease options, probably even really cheap ones.......Amazon or Barnes and Noble can help ya out there.
Thing is, are those authors doing what they teach daily?
Was the book written this week, or will the author be able to update you and discuss things as time changes laws, markets, etc.

Also keep in mind, most of the folks sharing info with you here, for FREE, probably began with course materials, and added experience.

Anyway, good luck with the book thing...................



Deb,
A chat on L/O's?
That might give some info, and chats are always nice..........but, it's still not enough to send someone out into the world and work a business.
I know if I gave such a lecture/chat, the end would be, 'thanks for listening, hope the info helped, now get a course to fine tune and really nail down the info needed to do this correctly, and profitably.'

Just my two cents, keep the change,
Jim FL

[DougBenn]

Air,
You think buying a course would be a rip-off?
Education is expensive, for some............however, ingorance is WAY more expensive.

You can talk about lease options, or any method as much as you want to, and might even learn a tip or two.
The thing is, you will not have written reference materials to learn ALL the needed small details.

So, you very well may venture out, try something, thinking you know all that is needed, and feeling like 'whew, I didn't get wripped off'...........and then...........
One mistake, one missed detail..........and in the real world, lack of experience (a course does offer experience, they are written by folks that do, at least any materials we'd recommend).........

Anyway, shooting blind, you never know what kind of damage your gonna cause til it's too late.

I've sensed your aversion to courses for some time, and frankly, it's refreshing to see you come clean.
As an author myself, I probably should be offended by the comment you made, but I'm not.
Guess why?
Most of us who write courses, do so from our experience, to share........and if someone thinks I'm out to rip them off, in a 'get rich quick scheme', then frankly, it's their loss for being so closed minded.
I'm sure there are books out there that talk about lease options, probably even really cheap ones.......Amazon or Barnes and Noble can help ya out there.
Thing is, are those authors doing what they teach daily?
Was the book written this week, or will the author be able to update you and discuss things as time changes laws, markets, etc.

Also keep in mind, most of the folks sharing info with you here, for FREE, probably began with course materials, and added experience.

Anyway, good luck with the book thing...................



Deb,
A chat on L/O's?
That might give some info, and chats are always nice..........but, it's still not enough to send someone out into the world and work a business.
I know if I gave such a lecture/chat, the end would be, 'thanks for listening, hope the info helped, now get a course to fine tune and really nail down the info needed to do this correctly, and profitably.'

Just my two cents, keep the change,
Jim FL
JIm your course is very good. I am a recent purchaser of your course. You did not hold back any information. You are one of the few that do that

[AIR]

Jim,

I understand what your saying. But how does a course differ then a book? Most books I have read the author has experience in the field or they wouldn't be writing about it. If you could please recommend a course for me- if you know the price and where I can find it they would help. Your telling me the only way I can learn is by buying a course, right? I guess I will not know until I try one. So hit me...

Debbie,

A chat sounds incredible...

Guys look for a post later this evenning have a pretty interesting topic- but don't have the time to post up now. Thanks!

[AIR]

Bump Bump Bump

[AIR]

Any suggestions guys???:SM061:

[Burke]

Any suggestions guys???:SM061:

Did you already read the book I recommended?

[AIR]

I have been reading up on Lease Options a little and have a couple questions.




Although the lease payments may exceed market rent, the buyer is building a down payment and banking that the property will appreciate beyond the agreed upon purchase price. How is the buyer building a down payment? I would collect rent plus more to keep and then give back to them as a down payment?

Buyers generally make a small down payment, with little or no qualifying, making a lease purchase an attractive way to ease into the benefits of home ownership.This is only with seller financing??? Or would the premium they paid during the option be counted toward the down payment?

Buyers also receive a forced savings plan since part of the lease payment is credited toward the purchase price at the end of the lease option agreement.Once again I dont get it? Wouldnt you have to spell it out how much rent was and then the premium?

If the buyer defaults, sellers do not refund any portion of the lease payments nor the option money and may retain the right to sue for specific performance.
do you usually charge an upfront option price? Do you keep this money or do you hold it until they purchase it> How much do you usually charge? And how much extra per month do you charge

[Debbie]

I have been reading up on Lease Options a little and have a couple questions.




Although the lease payments may exceed market rent, the buyer is building a down payment and banking that the property will appreciate beyond the agreed upon purchase price. How is the buyer building a down payment? I would collect rent plus more to keep and then give back to them as a down payment?Here is an example. Normal rent would be $500/mo. With lease option, the tenant pays an additional $100.00/mo in which the owner receives a total of $600.00/mo. The lease option could be for 24 months. $100.00 times 24 months equals $2400.00 is what the buyer (aka tenant) built up a down payment. Owner puts the extra monthly $100.00 into special account for the down payment purpose.

Buyers generally make a small down payment, with little or no qualifying, making a lease purchase an attractive way to ease into the benefits of home ownership.This is only with seller financing??? Or would the premium they paid during the option be counted toward the down payment? It can be seller financing. It can be lease option. It's the owner's choice PRIOR to contract with the tenant/buyer. The contract must be specific.

Buyers also receive a forced savings plan since part of the lease payment is credited toward the purchase price at the end of the lease option agreement.Once again I dont get it? Wouldnt you have to spell it out how much rent was and then the premium?See my first response. The $100.00/mo for 24 months is the "forced savings plan" that the owner holds for the tenant/buyer.

If the buyer defaults, sellers do not refund any portion of the lease payments nor the option money and may retain the right to sue for specific performance.
do you usually charge an upfront option price? Do you keep this money or do you hold it until they purchase it> How much do you usually charge? And how much extra per month do you chargeIt would be smart to charge an upfront option price. In many cases, the option price is short of like a security deposit or cleaning deposit. If the tenant/buyer meets the criteria, you forward the option money towards down payment. If the tenant/buyer fail to meet the criteria, you keep the option price.

Any of my answers help? If not, let us know.

[Jim FL]

I have been reading up on Lease Options a little and have a couple questions.
Although the lease payments may exceed market rent, the buyer is building a down payment and banking that the property will appreciate beyond the agreed upon purchase price. How is the buyer building a down payment? I would collect rent plus more to keep and then give back to them as a down payment?Here is an example. Normal rent would be $500/mo. With lease option, the tenant pays an additional $100.00/mo in which the owner receives a total of $600.00/mo. The lease option could be for 24 months. $100.00 times 24 months equals $2400.00 is what the buyer (aka tenant) built up a down payment. Owner puts the extra monthly $100.00 into special account for the down payment purpose.


REPLY:
Ah, NO!
The idea behind 'rent credits', does NOT mean a landlord places a monthly alottment of cash into a 'special account'.
Nor does it mean the landlord charges rent, then an additional fee on top, and saved up for the tenants 'down payment'.

Rent credits are really simple.
Tenant/Buyer pays rent per month, whatever the amount.
Landlord/Seller, then agrees to apply a certain portion of on time rental payments, toward the purchase price.
So,the tenant pays $1k/month in rent, and on time, for 12 months, while the landlord/seller gives a $100/month rent credit, toward purchase price.
Assume the price is $140k, then take $100 month CREDIT (meaning, no account, just an amount to REDUCE the amount owed to BUY the house)
Whether or not this is looked at as 'down payment' or simply to reduce the purchase price, is really up to the lender who funds the buyer down the road.

No 'special account' or anything, just a simple addition and subtraction routine.
Pay rent on time, and a portion of the rent gets CREDITED toward purchase..........IF the tenant buyer purchases.
If not, there is not a cash lump sum or check to be given the tenant/buyer later.



Buyers generally make a small down payment, with little or no qualifying, making a lease purchase an attractive way to ease into the benefits of home ownership.This is only with seller financing??? Or would the premium they paid during the option be counted toward the down payment? It can be seller financing. It can be lease option. It's the owner's choice PRIOR to contract with the tenant/buyer. The contract must be specific.


REPLY:
No, in a lease option, lease purchase, whatever you want to call it, there is NOT a 'downpayment', or 'deposit'.
The money collected upfront by the landlord/seller is called 'option consideration', and it's non refundable.
This consideration locks in the purchase price for the buyer should they decide to buy.
It gives the buyer the exclusive right, but not obligation to buy, for a certain length of time and terms.
When/if the tenant buyer exercises and buyers, then the option money gets applied toward the purchase price.
Example: Price $140k, option money paid $5k, leaves $135k due to close/buy.

Next..................

Buyers also receive a forced savings plan since part of the lease payment is credited toward the purchase price at the end of the lease option agreement.Once again I dont get it? Wouldnt you have to spell it out how much rent was and then the premium?See my first response. The $100.00/mo for 24 months is the "forced savings plan" that the owner holds for the tenant/buyer.


REPLY:
No offense here guys, but wow, this is dead wrong.
There is no 'forced savings account', and the landlord is not setting up any banking for the buyer.
Rent is rent, is rent.
Sure, sometimes a landlord can charge higher than market rent with a lease option..........because along with the LEASE, the tenant has an OPTION to buy........and yes, some seller/landlords do give 'rent credits'................making it easier to charge premium rent.

Next:

If the buyer defaults, sellers do not refund any portion of the lease payments nor the option money and may retain the right to sue for specific performance.
do you usually charge an upfront option price? Do you keep this money or do you hold it until they purchase it> How much do you usually charge? And how much extra per month do you charge
It would be smart to charge an upfront option price. In many cases, the option price is short of like a security deposit or cleaning deposit. If the tenant/buyer meets the criteria, you forward the option money towards down payment. If the tenant/buyer fail to meet the criteria, you keep the option price.



REPLY:
NO! NO! NO!!
Option money, option consideration, ARE NOT like ANY kind of 'deposit'.
A 'deposit' implies it's refunable........and it's not.
OPTION money, or OPTION consideration, is what a buyer pays the seller, in order to lock in terms to buy property........basically, paying the seller to tie up the property, and take it off the open market.
Option money is non-refundable, and in most cases, simply gets applied toward the purchase price When/IF the buyer purchases, down the road.


Any of my answers help? If not, let us know.



Unfortunately, this post/thread was full of some assumptions, that are dead wrong, and yet, very common.

I'll paste a FAQ sheet below I give potential T/B'ers who look at my houses for sale.
I do NOT give rent credits, hence their lack of mention.
Perhaps this will help...................


**********************************
Introducing the Lease/Option

Also known as "Rent to own"


RENT TO OWN, What is it and how does it work?
Leasing with an option to purchase is an excellent method to move from renting a home to being an owner. It offers many advantages over the traditional methods of purchasing a home.
No large down payment required. Instead you pay an amount up-front called "option consideration". This amount, is generally small and, locks in the purchase price during the term and gives you the exclusive right to purchase the property. However, you are not required to purchase. If you exercise the option, the option consideration is applied to the purchase price. If you do not exercise the option, it is not refundable. This compensates the investor/owner for keeping the property off the market during the term and for locking in a purchase price, regardless of whether home values increase.
Rent payment history. On time payment of rent shows responsibility; This allows your rent money to be working for you, toward qualifying for a loan when you go to purchase the home.
Profit from any appreciation during the term. Your purchase price is locked in, and you could find yourself with several thousand in instant equity as soon as you purchase.
Time to check out the home and the neighborhood before buying. Maybe you are relocating and don't know much about where you are going to live. Now you can have all of the benefits of homeownership without the any of the risk of buying a house the conventional way.
No up-front loan qualification necessary. In addition, when you decide to exercise your option to purchase, we work with many different lenders, so we can work with you to help you obtain the best financing for the best terms. Allows time to save additional money for down payment if needed and, fix credit problems, etc.
No taxes to pay during your lease term! Quick move-in time. No lengthy waits to arrange closing. Look today, move in right away, usually within a week if you want.
********************************

[Debbie]

YIKES! Was I that wrong? I'll need to brush up my old data banks.....:SM121:

Jim, I'll read more carefully when time permits. Thanx for correcting my errors.

[Jim FL]

YIKES! Was I that wrong? I'll need to brush up my old data banks.....:SM121:

Jim, I'll read more carefully when time permits. Thanx for correcting my errors.


Debbie,
No Problem, glad you took it in the light under which it was offered.
I know I'm harsh sometimes, and don't mean to offend.
Usually, my posts, (even though they are long), are written while I do other things, so I try to just get info out there and forget about the presentation being all nice etc.

Don't sweat it...........if you ever decide to fill a property via a lease option, surely we here will make sure it is set up to your advantage.

Love this place.........

Take care,
Jim FL

[Debbie]

Debbie,
No Problem, glad you took it in the light under which it was offered.
I know I'm harsh sometimes, and don't mean to offend.
Usually, my posts, (even though they are long), are written while I do other things, so I try to just get info out there and forget about the presentation being all nice etc.

Don't sweat it...........if you ever decide to fill a property via a lease option, surely we here will make sure it is set up to your advantage.

Love this place.........

Take care,
Jim FL

You? Harsh? HA!

Seriously, I can take criticism anytime as long as it's explained. That's what I like about you. You took the time to explain why and how I was wrong as kindest as possible. I like being corrected when needed.

If you recall, a recent banned poster liked to poke fun and criticize without any explaination. Just a biiiiiiig smart mouth. That is what I DON'T like nor appreciate. :SM140:

When the time comes for me to do lease option stuff, believe me Jim, I'll be calling you.....

[AIR]

Jim is your course focused on lease options? I thought you focused primarily on sub2 deals...guess they're similar...

[Jim FL]

Jim is your course focused on lease options? I thought you focused primarily on sub2 deals...guess they're similar...


Air,
No, my course does not focus on lease options.
My course teaches my method for buying houses subject to the existing financing.
I do discuss selling houses via lease option, as that is one exit strategy for properties I buy.
Lease options are certainly not the only exit I employ, and others are covered in my materials as well.

I just happen to know a thing or two about more methods of creative investing than what my course teaches.

I've bought properties many different ways, from cash to just about every creative method you'll encounter, and some you won't.
I also exit properties many ways, but will be honest and say I prefer exits that produce profit over my cash investment, and kick off cash flow monthly.

Lease Options as an exit are nice, and do offer three potential profit centers, if done right.
So, I do sell with them often.

Feel free to ask about anything, if I can help, I will.

Take care,
Jim FL

[Ryan M]

Jim,

Having read several threads in which you offer sub2 and options advice (and have many members here recommending your program), I am interested in purchasing it. Does the program cover lease options as well, or is there another program you would recommend?