Land Trust & LLC Help - Posted by Jean Baptiste

Real Estate Investing
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Posted by Michael Morrongiello on August 25, 2009 at 13:07:52:

JB:
If this is the ONLY property in the LLC and title as such why can’t he simply sell you the LLC (which includes the property)?

What I believe you are saying however is that there is an existing loan against this property with a bank lender. The owner may have transferred title into an LLC of their or one that they created. So the property is not Free & Clear of debt.

A few questions to ponder:

  1. Is this his loan? or did he take over the property “subject to” the debt?

  2. What type of loan is it? Fixed, ARM, how much is owed, are escrows impounds being collected for Taxes and Insurance in addition to the Principal and interest?

  3. WHY does he feel he must deed the property into a Trust? (I assume a land trust)

  4. WHERE exactly is this property located?

  5. Are you buying to LIVE in the home or for investment?

  6. Will you be putting down any cash down payment towards the purchase?

  7. What are the discussed terms for the possible seller financing that the seller would offer you?

Depending on these above issues it may be very possible for this seller to sell to you the property and to also SELLER FINANCE the sale in a fashion where he can take back a wrap around type instrument.

Such a seller financed Wrap Around Loan DOES have liquidity value at some point down the road.

Continued best to your success;

Michael Morrongiello
Paper Practioner
www.sunvestinc.com
Author of the following home study courses;

Paper Into Cash - The Convertible Currency - How to Effectively Create Marketable Real Estate Notes
&
The Unity of Real Estate & “Paper” - Advanced techniques for both the acquisition and disposition of properties using Real Estate “paper”

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Land Trust & LLC Help - Posted by Jean Baptiste

Posted by Jean Baptiste on August 24, 2009 at 15:16:13:

Hi Folks,
This is the situation: The seller owns the property through a LLC, and current loan & insurance are under the LLC. The seller would like to put the property in a trust and sell using owner financing under a wrap. Is there another way to structure this transaction? Would it be easy selling the note owned by the trust after the transaction?
Thanks in advance for you help.
JB

3

Re: In Us We Trust! - Posted by David Butler

Posted by David Butler on August 27, 2009 at 20:43:50:

Hello Jean,

Michael has covered some of the same ground here, but I wanted to approach your question from a slightly different avenue.

The (Title-Holding)Land Trust is a powerful weapon, and can be a fabulous tool, when used correctly, and for the right objectives. And like other excellent methodologies, the THT is not a “golden hammer” - i.e. the absolute best solution for every situation.

So here, the first question would be, what are the objectives of the transaction? The second question would be, what is it exactly you are trying to accomplish by way of actually structuring the deal a particular way?

Closely related to the above would be the question of why you want to consider a trust, if you are simply looking at an wrapped note installment sale as part of your exit strategy? Other questions would be related to state the property is located in; what type of property it is, and the rate and terms of the existing financing?

Also be aware that as Michael pointed out, whether or not a trust is in the mix, a number of factors must be known to determine whether the note would be sellable now, six months from now, or a year or more from now. This issue would rely greatly on the terms of the property sale transaction, the Payor’s hard equity coming into the deal at the outset, and the Payor’s credit history.

And keep in mind that most buyers for a wrap will generally require that the underlying senior debt be paid off out of the proceeds from the sale of the wrap. So… if the underlying loan is attractive, that requirement would negate benefits of the existing financing. Likewise, depending on any tax issues in the the deal, including mortgage-over-basis or unsheltered capital gains tax, a sale of the wrap would trigger tax liabilities. Finally, if a Due-On-Sale clause is in the mix, a wrap would violate that clause if the property transfers.

That would be moot of course if the wrap was sold fairly quickly after the closing - but in today’s marketplace, that would likely be a very dicey proposition unless both the property, and the new Payor, present an extremely strong profile on several fronts.

The THT has a lot of moving parts, and a lot of strategic applications, but as Mike queried, what specific objectives are you specifically looking for utilizing a trust.

Hope that helps, but there definitely needs to be more deal particulars spelled out in determining best answers for you here. Best wishes for your success, and Many Happy Returns!

David P. Butler