Although we talk about trusts as though they are something like a legal box or bucket that we put things into, a trust is actually a relationship between someone, called the maker, who owns property and someone else, called the trustee, whom the maker wants to take care of his or her property. You make a trust by entering into an agreement with the trustee to manage the trust corpus on behalf of your end users, called beneficiaries.
Trusts are used for all kinds of things. Subject-to’s are one.
I switched to trusts because the transfer is a done deal once the trustee has control via trustee instructions, POA, performance mortgages, etc. We don’t have anyone to hunt anyone down as might be the case when docs are just sitting in escrow.
I haven’t done any l/o deal yet but I am preparing myself for the first deal. Here are what I have compiled from this web site some time ago. Please feel free to modify. My intention when dealing with a seller is to have them stick to this, if not I’ll walk…
Due deligence- Check seller credit, liens , motivation level etc.
First of all, NEVER, NEVER, NEVER, make payments to the seller. ALWAYS make the mortgage payment directly to the lender. Then send any difference to the seller if there is any. If a seller objects to this then set up a 3rd party escrow where you send the payment to them and they send the payment to the bank and any difference to the seller.
memorandum of option - Do I record this at courst house so it would clous the title and the seller cannot sell the prop. behind my back?
a warranty deed - sign a warranty deed to be held in escrow with written instructions
authorization to release loan information
performance mortgage that you can record against the property. Do I record this as well?
I wouldn?t be overly concerned with the Seller?s credit. Most of the folks we talk to are selling because they need the equity money for something else. A credit check will be a stumbling block with many sellers and act as an unwanted hindrance to your activities.
The authorization to release loan information is never recorded. It applies to the lender who is being given permission to release.
Memorandums of option are not failsafe. Some are ignored and insured over. The legal fees you?ll entail to fight the sale might exceed the value of the option. I gave them up twenty years ago. I?ve found it to be easier to use trusts instead of the long escrows that I utilized in earlier times.
Recall that recordings are first-in-time; first-in-line. When we hold a bunch of stuff in escrow it has to be backed up by something that is recorded. Assuming that the performance mortgage is securing the optionor?s compliance with your option agreement, recording this mortgage is a good idea. If you want some amount of privacy, do it within a trust.
I’d also suggest using Kaiser’s “best document” found in the articles.