L/O, PACTRust and the All Famous Due on Sale Clause - Posted by Anthony Henry

Real Estate Investing
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Posted by Russ Sims on May 02, 2000 at 11:21:22:

Yes, a lease/option can trigger the DOS. But the lender probably won’t find out about the lease/option, since title is not being transfered, and if they do find out as a result of, say, notification from the insurance company that the loss payee has changed, they likely won’t care. Lenders do not want homes, especially if there’s not much equity in them. Lenders DO want performing loans so the chances of them enforcing the DOS are slim.

As far as which is better, a PACTrust or L/O, that issue has been debated on this board at length by minds greater than mine (a classic debate was between JPiper and Bill Gatten). You might search the archives for that…
Russ

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L/O, PACTRust and the All Famous Due on Sale Clause - Posted by Anthony Henry

Posted by Anthony Henry on May 02, 2000 at 09:22:10:

Well as usual everyday you learn something new. Ive been looking into the PACTrust entity and it seems to good to be true :). But Im still looking.

My Question is this while researching I came across this…Apparently it seems that all lease options, regardless of how they are structured do infact triger the due on sale clause, if it is written into the note. For all the experts out there is this really the case and if so, How come so many have been so succesful with the L/O technique?. On further introspection, this was what I came up with. It would seem that as long as the note is being paid on a timely manner the holder probably could care less. Is this the only reason?.

In the opinion of the experts which is best the L/O or a PACTRust

Anthony Henry

3

Re: L/O, PACTRust and the All Famous Due on Sale Clause - Posted by Bill Gatten

Posted by Bill Gatten on May 03, 2000 at 19:50:18:

Anthony,

I wasn’t going to step up to the plate this time. I thought I?d wait and just see what others had to say. However, I have to tell you that both the answers you got were excellent and made me want to jump in (so…what’s new?).

Trying to decide whether a PACTrust is better than a Lease Option is like trying to decide whether an armored car is better than a race car…it depends upon what your concerns are, and how safe you want to be. If the race would go just as fast with armor on it, the armored car might be the best bet. Or?if the armored car would be just as safe with a high speed engine in it, then the armored car wins again. Its when you have to decide what to leave behind to reach your own objectives that one?s value to YOU begins to outweigh the other.

The PACTrust is a device that allows for maximum protection of ALL parties in the transaction, not just the buyer or the seller. As many have said in reference to L/O?s, if you are the optionor don’t record the option; but if you are the optionee, then insist that it be recorded. We find that that kind of polarized objectivity is just not necessary with the PACTrust.

Another one is, if you are the buyer and you don’t care about the Due on Sale Clause, then don’t bring it up and don’t worry the seller about it…you’re the one who will be paying the bill. However, if you are the seller, beware of the optionee who doesn’t pay when he’s supposed to, because if you can’t make up his default while removing him the bank could move on their DOS Clause without needing to wait out the full foreclosure process and destroy our credit. We say…wouldn’t it be nice if the DOS were never an issue for either party in the first (you don?t pay you lose your house that?s it)?but otherwise its safe? And besides, iIt makes the deal so much easier to swallow for an otherwise reticent seller when he knows that he can keep the property in hi own trust and never have to give you the title until you pay off his loan (while you receive 100% of all benefits of ownership anyway).

All in all, Brian Mac, said it very well. The PACTrust is a legal shield for ANY objective in creative real estate financing; and it accommodates the end results of Leases, Tax Leases, Lease Options, Lease Purchases, Land Contracts, Equity Shares, Wraps, etc?.without undue compromise on anyone?s behalf.

The system was designed to allow anyone to do anything in creative real estate that they ever wanted to WITHOUT (?virtually? without) any of the negatives, the risks or the undue exposure. It very nicely allows for take-overs without down payments, credit qualifying, bank approval, fix-up, etc… Moreover, for acquiring marginal equity or over-encumbered properties (for nice profits) it is truly ideal.

How would a L/O without the PACTrust shield pass tax benefits to a tenant, in exchange for higher rents?

Bill Gatten

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Re: L/O, PACTRust and the All Famous Due on Sale Clause - Posted by Brian Mac

Posted by Brian Mac on May 02, 2000 at 14:13:23:

Anthony

Yes, as long as the payments are made etc., the mortgagee more than likely won’t do anything. However, a severe increase in interest rates, may give the mortgagees motivation to investigate their portfolio and look for notes they “could” accelerate.

Re. PACTrust: Bill has always preached the PACTrust is not an alternative to a creative structure but rather a safer way to do whatever kind of creative structure one may be trying to attempt. ie. It’s not instead of a L/O, it’s a safer way to “DO” the same results a L/O does…if that’s what you want.

Brian Mac