Posted by Bud Branstetter on July 23, 2001 at 22:00:24:
But be careful on how you do it. As long as you are not in Texas you should not have a problem legally. There are some archived posts at Landtrust.net on how to structure it. The advisability is a totally different question.
CAN “PACTRUST” HELP OWNER IN ARREARS? - Posted by Buddy
Posted by Buddy on July 23, 2001 at 19:56:56:
If an owner of a property that I am considering is in arrears on his payments by 2 months (I will bring him current) and he wants to stay in the property, how will using the PACTRUST affect him if he misses his payments again? Does the property automatically become mine, and I have to make up his back payments again? This is kind of a skinny deal so I do not want to have to keep bailing him out and not receive any benefit. The property is worth about $120 K with approx $110k owed on it and a payment just under 1000 a month. I do not want to put $2400 up front into this property and have to do the same thing a couple months down the road and end up having to find a new tenant/buyer while having now over $115k invested in the place. I know, I should just bring his loan current, get rid of him and find a new tenant/buyer at a + cashflow each month, with some money down. But, this guy is really trying to stay. What do you think?
Re: CAN - Posted by Bill Gatten
Posted by Bill Gatten on July 23, 2001 at 22:07:16:
Yes it can, but you’re still better off to just take the property and put someone else in.
To do a ?Foreclosure Bailout (I’m working on one now in California…where the Civ. Code makes such bailouts virtually impossible),? we suggest the following:
Here’s the way we do it:
Get an authorization to discuss the homeowner?s loan with the lender.
Verify that the lender will reinstate the loan, once it is brought current or a schedule is worked out (get something in writing)
Negotiate for forbearance, having them add the arrearages to the end of the loan. Explain that you are counseling with Mr. borrower, and that you are helping him restore his financial position, and that the forbearance will make it possible to get him out of debt and keep the loan current.
Then have the owner put the property into a land trust in his own name with him as the only beneficiary and grant the full legal and equitable title to whoever your choice of trustees may be.
Open a silent Escrow to hold any moneys and to effect the transfer of beneficiary interest to you.
Create your assignment of beneficiary interest and beneficiary agreement, giving you 50% beneficiary interest and the borrower 50% beneficiary interest.
Put the money in Escrow that it will take to bring the loan current.
Direct Escrow to pay out any necessary moneys.
Execute a lease agreement between the borrower and the trust (triple net, so that he can continue taking the tax write-offs).
Close the Escrow.
The Beneficiary Agreement will affirm that upon sale in five or ten years (3?) the property will be sold at Fair Market Value to anyone who wants it, but that the tenant beneficiary (the borrower) will have the first right of refusal to buy at the same price anyone else would pay, less the amount of moneys owed to him by the trust…i.e., any equity you allowed him to keep at inception and his 50% share in appreciation and principal reduction.
Note that the Beneficiary Agreement provides that if the co-beneficiary were in possession of the property and were to default, that default would constitute constructive notice to the non-defaulting party of the defaulting party?s intent to sell his interest in the trust to the non-defaulting beneficiaries (after having been evicted) at Fair Market Value as would be determined by an MAI appraisal (about $2,000) at the defaulting party?s expense and following payment of a $2,000 default fee: plus all missed payments and late charges. The agreement would further state that if such proof of more moneys owed was provided, that all such moneys would be paid to the defaulting party in the form of an unsecured promissory note.
Understand that nowhere is there a chance for your to take advantage of the borrower of record, as all purchases are at Fair Market Value; there is no collusion to defraud; their is no purchase option, bargain buy-out or predetermined purchase price…and the borrower has not given up any equity in a time of duress.
But…again…get the seller out if you can. They have a way of recovering in 2-3 years and insisting they were drunk and not in charge of their faculties when this was all put together. The PACTrust will avoid 90% of the noise, and protect against 100% of the claims of shenaniganosity.
Bill Gatten