Re: Yep - Posted by JohnBoy
Posted by JohnBoy on July 12, 2002 at 21:20:20:
Actually, I haven’t listened to his tapes at all. I do have his course but I haven’t read it yet.
In my opinion I don’t think the lease would have anything to do with anything. The law allows you to lease out your property as long as the lease is for less than 3 years and it does not contain an option to buy. So regardless of whether the property is leased by the seller where title remains in the seller’s personal name or whether the seller places his property into a land trust and leases out the property the next day should be irrelevant! What difference does it make if you lease out the property when its in your name or right after placing it into a land trust? As long as you remain a beneficiary of the trust you should be OK.
So if you own a property you live in and move out where you want to lease out the property that is OK and protected by federal law from violating the due-on-sale clause, but if you decide to exercise your right to place the property into a land trust and then lease it out that shouldn’t be OK just because you placed the property into a land trust??? That would not make any sense!
Here is what the clause says:
Sec. 591.5 Limitation on exercise of due-on-sale clauses.
(a) General. Except as provided in Sec. 591.4 © and (d)(4) of this
part, due-on-sale practices of Federal savings associations and other
lenders shall be governed exclusively by the Office’s regulations, in
preemption of and without regard to any limitations imposed by state law
on either their inclusion or exercise including, without limitation,
state law prohibitions against restraints on alienation, prohibitions
against penalties and forfeitures, equitable restrictions and state law
dealing with equitable transfers.
(b) Specific limitations. With respect to any loan on the security
of a home occupied or to be occupied by the borrower,
(1) A lender shall not (except with regard to a reverse mortgage)
exercise its option pursuant to a due-on-sale clause upon:
© A transfer resulting from a decree of dissolution of marriage,
legal separation agreement, or from an incidental property settlement
agreement by which the spouse becomes an owner of the property; or
(vi) A transfer into an inter vivos trust in which the borrower is
and remains the beneficiary and occupant of the property, UNLESS (key word here is UNLESS), as a
condition PRECEDENT to such transfer, the borrower refuses to provide
the lender with REASONABLE means acceptable to the lender by which the
lender will be assured of timely notice of any subsequent transfer of
the beneficial interest or change in occupancy.
There is PRECEDENT in this very law which clearly states:
(iv) The granting of a leasehold interest which has a term of three
years or less and which does not contain an option to purchase (that is,
either a lease of more than three years or a lease with an option to
purchase will allow the exercise of a due-on-sale clause);
So it would seem to me that you are protected by this very law by being allowed to lease out the property as long as the lease is for less than 3 years and does not contain an option to buy, REGARDLESS of whether you place the property into a trust or not!
The other interesting thing I read the way this law states where it says, " The granting of a leasehold interest which has a term of three years or less and which does not contain an option to purchase (that is,
either a lease of more than three years or a lease with an option to purchase will allow the exercise of a due-on-sale clause);
Notice it specifically says as long as the LEASE does not contain an option? Well we don’t have any OPTION in our leases when we do a L/O deal. The LEASE says nothing about an option. The OPTION is a SEPERATE agreement that is not within the LEASE itself! The law clearly says as long as the LEASE does not contain an option to buy. So it would seem to me by using seperate agreements you would not be violating this law since the LEASE itself, does not contain any option to buy. Only if the option was given in the actual lease agreement would it violate the DOSC under this law!
I’m not an accountant. But I do know for a fact that under a triple net lease the TENANT is responsible for paying the taxes and the IRS allows a TENANT to write off the taxes paid under a triple net lease. So using a triple net lease would not be classified as a sale! It’s only a LEASE, period! Now if you transferred the responsibility of paying the taxes and maintenance without using a triple net lease then that would be classified as a sale. It is because of the triple net lease as to why you can pass the burden of taxes and maintenance to the tenant that allows the tenant to deduct the taxes without being classified as a sale.
So the only issue I can see here is if there is anything wrong with using a triple net lease on residential property or not. A triple net lease on commercial property passes all the burden of taxes, insurance and maintenance to the TENANT and the tenant is allowed to deduct those expenses since they are the one paying them. The property cannot be classified a sale because of this. So the question is, does it matter if you are dealing with commercial property vs. residential property or not when using a triple net lease??? Apparently you can use a triple net lease when leasing residential property, so if that is the case then the same conditions should apply without having the lease classified as a sale when using a triple net lease!
Gatten posted the code above where the IRS allows this.