Trust and seasoning - Posted by Mike Schmidt (IL)

Posted by JPiper on June 28, 2001 at 14:56:06:

At one time I had an account at Wells Fargo Bank out in S. California. I had been depositing a check made out to myself and another party in my bank account for about a year. I would simply sign the other name, and my own and deposit it in my account.

One day I took the month check in and a new teller looked at the check, and wouldn’t deposit it. They said they couldn’t confirm that the other party had signed, and they would only deposit it in an account that was in both names.

I was furious. I created a real stink…lots of loud talking to the branch manager, etc. I loudly asked why the bank didn’t have this type of vigilance over the real estate loans their officers had made to their buddies which led to the RTC crisis. LOL. That went over like a led balloon.

Finally, I stomped out of the bank, hopped in the car, went to a branch of Wells Fargo about 2 miles away. Deposited the check with no difficulty!

It’s all in how careless the teller is…and that depends on how busy she is. One thing I’ve discovered locally is that they check things closer in the drive-thru. I’d much prefer to go stand in a long line…and as you said give them a number of checks simultaneously. And whatever you do, don’t get a new teller.

JPiper

Trust and seasoning - Posted by Mike Schmidt (IL)

Posted by Mike Schmidt (IL) on June 24, 2001 at 20:45:48:

If you place a property into a trust with the address name for example, as the name of the trust, have benificial interest signed over to you but do record the deed listing the trust as owner, does this raise seasoning issues if you go to sell in a month or so?

Re: Trust and seasoning - Posted by Jim IL

Posted by Jim IL on June 24, 2001 at 22:21:01:

Mike,
I just read your post and Pipers response. I have dealt with this on a couple of occassions.
Like Jim, I will not lie, it just does not sit well with me.
So, I’ll tell you briefly about a couple that I sold like this.
Home #1; I took the home “subject to” using the land trust technique.
Had an offer to buy it conventional about 2 months later.
The lender on this one NEVER mentioned title seasoning, and that was good.

Home #2; Taken subject to, had a cash offer on it within 2 weeks. Lucky me, right?
NOPE!
The lender did have some concerns about title seasoning, and also requested to have us disclose who was the ben. int. in the trust. A new Illinois state law says we must tell them if they ask. I would have anyway though. So, we told them, and they “almost” did not do the loan.
The way we got around it was to have my attorney talk to the lender and explain “how?” we bought it and why?
He told them that we had made up the back payments on it, done some minor clean up/repairs, and then decided to sell it right away at FMV to get our money back out.
It was purchased at the lower price because the sellers could not stop foreclosure, and we could. The lender took 3 extra weeks in getting back to us, but finally decided to close. The buyers 20% down seemed to help ease there fears, along with the new comps we sent them, and the new appraisal done by there own appraiser.

Frankly, if you buy right, this will not be a problem, because if a lender makes noice, and your buyer cannot purchase then, you can just sell it on terms for a year or more, and get your profit out in total later. Some now of course.

Also, when someone comes to one of my homes to buy it, (When I FSBO it), I first see if they have talked to any lenders. If they like the home, have decent downpayment, then I refer them to my broker, who has lenders that are not concerned with seasoning.

No reason to lie to get a home sold, especially if you are offering a good deal, and bought right in the first place.

Have a great day,
Jim IL

P.S. Drop me an e-mail, I still have that one house left if you want it.

Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 24, 2001 at 22:02:35:

Mike:

It’s clear that if you didn’t deed the house into a trust, that you would have a title seasoning issue with many lenders. So the whole point of deeding to the trust is to “baffle” the lender.

How do you baffle a lender? You don’t show them the assignment. In other words, you lie about the nature of the situation.

Will you get away with it? Hard to say. Here’s a parallel situation. I own a house in my corporation. I’ve owned it there for over 12 months. I would now like to refi this house. No problem particularly except the lender wants the house deeded into my personal name. I have no problem with this either…except now I ask the lender…is there a seasoning issue?

Answer: they don’t know. It’s not covered in their guidelines…so it’s something they have to make a decision on. Chances are they will decide in my favor, but again, there is no guideline so they could decide either way. AND, they want PROOF that I am the owner of all of the shares of the corporation in order to know that the “corporate ownership” was similar to “personal ownership”.

Now back to your question. You deed to the trust. Now you tell the lender that the prior owner is still the owner/beneficiary…you don’t tell them the rest of the deal, that there was an assignment. You lie. So the first point is that the trust owns the house…the prior owner theoretically holds a beneficial interest in the trust. Therefore, seasoning IS an issue unless the lender decides after CHECKING out the trust that this ownership really isn’t much different than the individual ownership just prior. No guidelines…therefore, no certainty.

But the one thing you can be certain of…to make this deal fly with the lender will require you to lie. Don’t know about you Mike, but lying doesn’t sit well with me, either in myself or others. If I had to lie to make this business work, I would quit.

My suggestion to you is to figure out another way to accomplish whatever you’re attempting to accomplish.

JPiper

Re: Trust and seasoning - Posted by Houserookie

Posted by Houserookie on June 25, 2001 at 10:17:35:

Hi Jim,

What if you hadn’t sold the house, and lender questions original owner about current “beneficiary interest” in the property?

Would you lie then? Now let’s forget about the “in most cases” scenario and assume that in your case it did happen.

Is there a way to not lie, yet allows the investor to get paid at the closing upon refinancing or sale?

Re: Trust and seasoning - Posted by Jeff

Posted by Jeff on June 24, 2001 at 23:19:37:

Wouldn’t the whole buyer/financing issue be easily solved with owner financing and selling the note created at the closing table?

Jeff

Re: Trust and seasoning - Posted by Mike Schmidt (IL)

Posted by Mike Schmidt (IL) on June 24, 2001 at 22:41:22:

Not sure how this got turned into lying about the trust, I just wasn?t sure if it would be something a lender would raise a big stink about or not. I have read all the posts on seasoning but from what I recall they all had to do with rehabbing, then again you know what they say about the first thing to go as you get older…just dont remember what that was now??? =)

Reason I asked is because of what you just posted…that being if an offer to buy came after cleaning up the place could I sell it or would the seasoning be an issue. I would rather L/O to a TB because it has a nice monthly cash flow, then again being cashed out early and moving on to something else sounds good to =)

I will call you tomorrow, will be working from home.

Re: Trust and seasoning - Posted by Bill Gatten

Posted by Bill Gatten on June 25, 2001 at 22:42:58:

Jim, I try not to differ with you much, because you usually know of what you speak before you speak (as do I at least some of the time). However, I’m going to here.

Equating withholding information from an institutional lender as “lying” just isn’t cool. Haven’t you ever taken a property subject-to without telling the lender the whole story…letting them presume their borrower is still the owner of the property while you make the payments and profit from ownership? Come on, Jim. If you haven?t you know a few thousands friends who?ve done it a few thousand times.

We had a run on another aspect of this subject two weeks ago and you poo-poo’d the concept but admitted that it ?could? be just fine and dandy by the same token. The seller in Mike’s scenario could in fact place the property into his own trust and remain the beneficiary, appointing Mike Schimdt as the trustee. Then when Mike was to find a buyer, he could have the property purchased from the trust?without seasoning or double Escrow. As you so aptly pointed out though, I personally have never done this particular thing (as I’ve never needed to…?hate flipping). But in all candor, I wouldn’t hesitate to do it in a gnat’s heartbeat if the opportunity arose and I needed to find a way around the seasoning issue. And if it didn?t work for some as yet unexplained reason, how would I be any worse off for trying?.

Once MY property is placed into MY (fully authorized) living trust…the person I silently appoint as my remainder-agent or co-beneficiary, for sound asset protection purposes, is none of the bank’s business. Do you let your lender’s know who the heirs are in your will? It?s none of their business?until you die: and even then they have to abide by the laws relative to transfers of ownership.

Bill Gatten

P.S., Touché is spelled without a ?t? on the end.

Re: Trust and seasoning - Posted by JohnBoy

Posted by JohnBoy on June 25, 2001 at 09:20:08:

Jim,

Lets just suppose that you were to lie about it. How would you as the new beneficiary collect your money at the closing? Wouldn’t the REAL beneficiary have to be disclosed on the Hud-1 statement since he/she would be collecting the money left over from the sale? Wouldn’t that require the title company closing the sale to notify the lender of the change before releasing the lender’s funds? If this is correct, then wouldn’t it be dumb to lie about it since the truth would come out at the closing anyway and possibly result in killing the deal altogether?

Re: Trust and seasoning - Posted by Mike Schmidt (IL)

Posted by Mike Schmidt (IL) on June 24, 2001 at 22:46:44:

My intent was not to lie about it, just wasn?t sure how this is viewed by lenders. Most of the seasoning issue posts I recall seemed to be about rehabbing where a substantial difference in buy price vs. sell price after fixup where concerned. But I guess after reading your reply, seasoning issues can arise any time a transfer of ownership has taken place, period.

Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 25, 2001 at 01:41:31:

What makes you think there aren’t seasoning issues when selling a note?

JPiper

Re: Trust and seasoning - Posted by Houserookie

Posted by Houserookie on June 26, 2001 at 10:43:29:

“And if it didn?t work for some as yet unexplained reason, how would I be any worse off for trying?”

Well, you could be stuck with a house you don’t want, and need to sell. Some of our new investors can
barely keep the phones ringing, so I doubt holding
onto unsold property is a good idea.

Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 26, 2001 at 02:37:36:

Bill:

Since our original ?run-in? a few weeks ago my information on the subject has changed somewhat. Meanwhile, I notice your information remains ?mired? in a somewhat speculative status, one with which you still have no first-hand experience.

What changed for me is what I mentioned in my post. I want to refi a property located in my corporation for more than 12 months. My corporation has ample seasoning. The problem is the lender does not want to loan to my corporation. They want to loan to me. Fine, I have no problem with that. I will deed into my name?.BUT, my question to them is, ?Does that create a seasoning problem??

Long silence Bill. The problem is that it DOES create a seasoning issue. At the instant the property is deeded into my name from the corporation, ?I? have only owned the property for an instant, NOT over a year. The lender tells me that they don?t know what to say. This ?situation? is not covered in their guidelines. They huddle. The huddle stretches on for days. Even their own commonsense tells them they should have no problem with this scenario?however they ?know? that there is a seasoning issue. Commonsense tells them however that they should be able to get around it. Finally the underwriters make a decision?.IF we can verify the ownership of your corporation, and if that ownership matches the ?new? individual ownership, we will make an ?exception? to our seasoning policy.

An ?exception? Bill. In other words, a seasoning problem exists but we were able to ?work around? the problem. I will ?prove? through providing my articles of incorporation and registration information ?who? owns the corporation, that those parties will be the new borrowers (my wife and I). While a seasoning problem exists, they will accept this scenario. They didn?t have to. It was a situation not covered by their guidelines. They could have just as easily have rejected the situation. As ?dumb? as that might have been, it would have been consistent with their seasoning guidelines.

Now this trust situation. The situation is identical as far as the seasoning issue is concerned. The INSTANT the property is deeded to the trust, the new owner, the trust (or the trustee), has a seasoning issue. The trust has only owned the property for an instant. Period.

Notice Bill that we didn?t talk about who the beneficiary is?because it?s irrelevant. The owner of the property under this scenario has a title seasoning problem. Doesn?t matter at all who the beneficiary is, even if it?s the previous owner.

Now, will the lenders look past this little ?problem? to see if the beneficiary is the same as the previous owner, as you are undoubtedly going to claim??? Maybe Bill. I don?t know that for sure. They might. They don?t have to at all. And as wise as I know you are, I also know that you don?t know the answer to this one either. All that you know is exactly what I know?there is a seasoning problem UNLESS they are willing to look at who the beneficiary is in order to make an ?exception? to their policy.

Once they decide to take a look at the beneficiary in order to make an ?exception? to their seasoning policy, what YOU evidently are recommending here is to give them the Gatten shuffle. Give them the paperwork showing the beneficiary as the previous ownership, eventhough you possess an assignment of that beneficial interest.

You are being directly asked who the beneficiary is. This is not comparable at all to the DOS clause situation. Here the lender does not ask me who the beneficiary is at all. Nor do I send them any letters telling them who the beneficiary is. In my case, I simply change the ownership to the trust?I don?t send letters or further comment to the lender.

But here?s what?s important?.if I were directly asked ?who? the beneficiary is, I would not lie about it?.either in the DOS situation OR in the seasoning situation.

Now, I don?t know how you do this on a DOS basis. I assume that you don?t lie. But I can?t see how exactly you are going to prove to the lender in this seasoning thing HOW the ownership is the same as it was before deeding to the trust, unless you provide only part of the paperwork. That?s called lying.

Do I know people who lie to lenders? Of course I do. Done all the time. I just don?t recommend it nor do I do it.

Now you might be able to handle this somewhat differently. You might be able to do the assignment ?after? the sale has taken place, and after you have provided the lender the beneficiary information that they want. Skating a thin line?although I would personally not have a problem with that. However, this now puts you in jeopardy because if you wait until this time to do the assignment, you and I both know the assignment may not take place. You now take a risk?whatever that may be.

I would also point out that appointing multiple beneficiaries, etc as you do in the DOS situation does not work here on the seasoning issue. Multiple beneficiaries might be a wise estate planning tool?.but it presents an issue as related to seasoning, in that the ownership does not match the previous ownership. Perhaps you could make an argument with the lender that this ?ownership change? was only an estate planning move. Would that work? I don?t know?nor do you. It obviously remains a seasoning issue.

So where does that leave us? You have a seasoning problem the instant the property is deeded to a trust. Period. You may be able to work around this with the lender provided you can prove that the beneficiary of the trust is the same as the previous owner. You can only prove that by lying, or by waiting to do the assignment which sacrifices control.

In the original question here, the poster stated that he would own the property for a couple of months before sale. So in this case I presume you would not wait for a ?couple of months? to do an assignment, and therefore would be required to lie to the lender by presenting incomplete paperwork, paperwork lacking a silent assignment that you possess.

That?s how I see it anyway Bill. Enlighten me?.do you see it differently?

JPiper

Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 25, 2001 at 11:25:08:

My assumption would be that the HUD-1 would reflect the name of the current titleholder…the trust by it’s trustee. I see no reason that the beneficiary would appear anywhere on the HUD-1. The check would then be made out to the trust by it’s trustee.

JPiper

Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 25, 2001 at 01:34:19:

Just thought I’d clarify…I was not attempting to say that your intent would be to lie. I wouldn’t have the knowledge about you to make such a statement. Rather, I was commenting about the strategy itself…that one would have to lie to make it work…leave out the assignment part. I suppose I made my comments in part because this strategy has been suggested in the past on this newsgroup.

Depending on your situation thought there may be other ways out. It’s kind of like pool…you need to think about your next 5 shots to be a good pool shooter. Same thing here. You know there’s a seasoning issue…so knowing that you need to think about it well ahead of time.

With that…post the exact situation and perhaps someone will have a solution.

JPiper

Re: Trust and seasoning - Posted by Jeff

Posted by Jeff on June 25, 2001 at 08:23:50:

I have established relationships with people and companies who will do a simultaneous close (purchase the note at thw closing table), where no seasoning of the note is required.

Jeff

Re: Trust and seasoning - Posted by Bill Gatten

Posted by Bill Gatten on June 26, 2001 at 17:05:34:

I was tempted to refrain from getting any deeper into this dialogue. But the Newbies you’re referring to really should write the following in indelible ink in reverse on their foreheads and recite it every morning before school:

Never fly any higher than you’re afraid to fall. Never set up a scenario you can’t reverse instantly if things go wrong. Never enter anything without an exit strategy. When the power is on, never take your eye off the gauge or your hand off the circuit breaker.

Of course, you don’t want to be stuck with an unwanted property…that’s why I suggest what I do, rather than trying get around something. I don’t believe in flipping when you can make more money up front by doing other things, and still keep the property and all of its future income and profit…by not flipping…and by not needing to worry about such bureaucratic issues as how best to protect a bank against the horrible real estate investor.

Bill

Jim, you’re wrong, re. the objective case… - Posted by Bill Gatten

Posted by Bill Gatten on June 26, 2001 at 12:44:36:

(?my wife and I??). Jim, I?m sure it should be “my wife and ?me?.” One would be wont to employ the objective case re. the use of the objective personal pronoun ?me? in this instance…I do believe.

Next (on to less important matters). Your assertion that with the 'Trust vs. Seasoning? issue, there would have been a change of ownership…in essence that’s true: but do recall that transfer to a living trust for any legitimate purpose is not considered a ?change of ownership? relative to lending laws, whereas transfer to a corporation specifically is.

In my scenario, if the 3rd party trustee status bothers you, the seller could even be his own trustee, and do a subsequent silent Substitution of Trustee once the bank has been provided with any requested data re. the trust. Such a substitution could be done in Escrow so as to avoid any possibility of either party’s reneging.

Remember, Jim, changing, adding or deleting beneficiaries in a land trust is none of a new lender’s business, no matter how much they might wish it was (and don?t get the rights of the old lender mixed up with those of the new one (in re. 12CFR-561).

A person is not “lying” to anyone by re-arranging its Will, its insurance policies, or how the beneficiary interest in its living trust/s is/are apportioned.

Jim, you jumped on the fact that I “…have not done it personally,” like an emaciated duck on a wet rabbit pellet. What difference does that make all of a sudden? Go back over the past three years of Jim Piper posts and see how much first hand dealing was drawn upon for all that advice? And it doesn’t matter to me, anyway, because I know that you (generally) know what you’re talking about; and providing your own logic from other experiences is enough for me. Several of my English teachers in college had never written a book, much less having had one published, but they tot me reel good anyhow.

Now, here’s what I DO know from first-hand experience (myself being a Realtor®; having been the founder and owner (one of 20) of a bank (Westlake Thrift and Loan); having been the owner (1 of 2) of a mortgage company (B&B Southwestern Mortgage); owned a real estate company (Realteam Realty); and having written a couple books on the subject of land trusts and creative financing (‘No Down! No New Loan!,’ ‘Joint Ownership Marketing for the Real Estate Professional,’ and 'Making it BIG in Creative Real Estate Investing (my new one?watch for it in your local theater soon)":

A bank will never make a loan to a trust (virtually never); however, a bank will allow a buyer to buy from their borrower’s living (land) trust and pay them off.

A new bank will very willingly and without question finance a property being purchased from another bank’s borrower’s living (land) trust irrespective of who the beneficiary/ies is/are or how long the trust has been in existence. I assist in doing that very thing almost every day, and have never had to lie to anyone.

The new bank has a right to inquire about the nature of the trust, and to require a copy of it…they do not, however, have the right to inquire as to the structure or apportionment of the beneficiary interest in such a trust. The old lender can make such an inquiry because it?s security is at issue. However, it’s only concern must be that of assuring that the trust conforms to GSG and that their borrower is, and shall remain, “a” beneficiary in the trust.

Now, with all of that…do I honestly have to go out and do it myself to prove to you that what I assist others in doing every day (buying real estate from the trustees of land trusts without ever a single question about seasoning) is workable?

Jim…like I said: “OK YOU’RE RIGHT,” is Spelled… “D.A.M.N (SPACE) I. (SPACE) H.A.T.E. (SPACE) I.T. (SPACE) W.H.E.N. (SPACE) I.’.M. (SPACE) W.R.O.N.G.”

Still an ardent admirer,

Bill Gatten

P.S., “Mired in speculative status?” What the … is that? Maybe I’m just too humble, Jim…I HAVE done it (the trustee transfer thing) hundreds of times: just not for myself (yet). In one such case, the trustee had held title for a total of one (1) day when the property was purchased from it: there was no question about seasoning and there was no double-Escrow. And there was not a mote of concern about who the beneficiary/ies might be. Period!

Re: Trust and seasoning - Posted by JohnBoy

Posted by JohnBoy on June 26, 2001 at 08:49:53:

Jim,

Let me ask you something. If the lender asked to see the trust for the purpose of wanting to see who the beneficiary is (talking about the purpose of a DOS violation), you said you would not lie about it and tell them about the assignment agreement. If that is the case, then why even bother having the seller deed into a trust naming themself as the beneficiary, only to turn around and assign their beneficial interest over to you using a seperate agreement? Why not just have the seller deed into the trust and just name you as the beneficiary from the git go?

My understanding was the only reason for going through the silent assignment of beneficial interest was to hide the transfer from the lender. Meaning, if they asked to see the trust agreement (which my understanding is that you can tell them to jump in the lake because that’s private information that you don’t have to disclose to them) you can let them see it, but don’t show the assignment agreement.

Assuming a lender asked? We noticed you deeded the property into a trust, we want to see the trust agreement. If I complied (even though I wouldn’t have to) and showed the the trust agreement…which is all they asked to see…and I don’t show them or tell them about the assignment…am I lying to the lender OR am I just withholding additional information they didn’t ask about? Is “withholding” something the same as lying? They ask to see the trust agreement. I comply. I don’t offer up the assignment part. How is that lying unless they specifically ask if there has been any other assignments of the beneficial interest since the trust was formed?

Re: Trust and seasoning - Posted by David Alexander

Posted by David Alexander on June 27, 2001 at 14:59:24:

I never have the checks made payable to the trust or trustee… did it once and never repeated it since it was a pain at the bank… even with a POA they wanted me to open a new bank account in the trust name to cash the darn check.

So now I either go in myself, have the trustee go in or send the document saying the trustee resigned and a new one was appointed… ie… Me… and then have them wire whatever monies go where directly to bank accounts. (I have only had to do the last scenario once)

Crazy as it seems very few times, even when my name isnt on the paperwork as trustee do I have to do the resignation thing… most of time I come act like I know what’s supposed to happen and tell them where to send the money… they rarely question it.