Trust and seasoning - Posted by Mike Schmidt (IL)

Real Estate Investing
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Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 26, 2001 at 02:43:58:

Since you evidently are actively doing the note selling thing, it will come as no surprise to you that there are numerous companies and “people” who no longer will purchase notes with no seasoning. In fact, some of these are no longer in the note business at all.

Perhaps you relationships are continuing to do this…but if I were you I would not presume that this would continue. What I would presume is that eventually the situation would mirror what is present in the subprime lenders market. In this market you can do unseasoned deals on a case by case basis.

Further, my personal opinion is that even your note buyers will be unable to accomodate widespread unseasoned note purchases on a basis acceptable to the seller. But that’s speculation on my part.

JPiper

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Re: Trust and seasoning - Posted by Houserookie

Posted by Houserookie on June 26, 2001 at 20:31:16:

Hi Bill,

I brought up this issue since most new
investors are in this business for the quick cash.

I don’t know many people that start a RE business because they don’t need the cash.

“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 trategy. When the power is on, never take your eye off the gauge or your hand off the circuit breaker.”

Bill, you have used more “never” in that last paragraph than your entire book for your Pactrust
course.

Whatever happened to the Never say never in RE? Never set limits?

Subject to deals are not for everyone since landlording is not on every investor’s favorite list.

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Re: Jim, you’re wrong, - Posted by JPiper

Posted by JPiper on June 26, 2001 at 14:51:55:

Bill:

I really appreciate all of the education, but frankly this may have been one of the least directed posts I?ve seen you make.

First let?s dispense with your recital of all of your experience. None of it has anything to do with the ?title seasoning? issue. Why? It?s new on the scene Bill. Perhaps I should have said that as it applies to any of us, to include you and me, none of us ?know? exactly how these lenders are going to rule about the seasoning issue once it steps outside their fairly rigid guidelines. My point was that you don?t know exactly how the lenders will view the trust in terms of title seasoning. It?s clear that deeding to a trust does trigger the title seasoning issue. At that point it?s up to the lender as to what they want to do about it. You have no experience as I understand regarding how the lenders are going to view this?.if I?m wrong then please correct me. I have very little experience either with the trust versus title seasoning, except that I cited a current instance which is somewhat similar, and shows how the lender in that case viewed things regards title seasoning.

Bottomline is that no one particularly knows how a lender will view a trust. It?s clear however that deeding to the trust bring on the seasoning issue. The bank has a right to make any requirement they would like in terms of their underwriting guidelines Bill. I know that with all of your qualification you know this?but for some reason you seem to be trying to make the point that this basic right of a lender is somehow suspended when it comes to a trust.

You go on to make the point that all of my posts do not come from personal experience. Frankly here you lost me. Most, if not all of them, do Bill. But if you have something specific in mind, let me know.

But when it comes to title seasoning neither you nor I know exactly how a lender is going to view the title seasoning. Some lenders won?t care about title seasoning, but many if not most will. And the point is that deeding to a trust changes ownership. At that point the lender may 1) decline the loan 2) review whatever he feels is important to determine whether the ?essence? of seasoning exists and 3) make whatever requirements of you he may deem appropriate to do number 2.

I am pointing out what they required out of me in terms of a corporation. I?m pointing out how seriously they took the issue. A variety of viewpoints were sought before they made their decision, to include the head underwriter. But I now speculate that this may be the same type of thinking that takes place when confronted with a trust. Am I right? I don?t know for sure?.and neither do you Bill.

What I do know is that the ?trust solution? doesn?t appear viable to me personally. If you think it is, terrific. Please let me know when you or someone you know has actually used it with a lender who was concerned with title seasoning. I?d be interested in how it comes out.

I?d further be interested in how you intend to control this deal since I presume the seller is going to assign the beneficial interest AFTER your new buyer is found. So in the case of the original post, the property is deeded to a trust, with the owner the beneficial interest. Two months go by, with you as trustee, the owner as beneficial interest, while you fix the house, get it ready to market. Now you find a buyer, and you go to the owner and tell him ?OK, now is the time, assign the beneficial interest over to me?. Nice control Bill. Hope he goes along with you after you fixed and cleaned up the house.

Or, the alternative is that you do it just as you currently do it now. If the lender requests information you simply don?t tell him about the assignment since it?s not part of your basic trust documents. Call that what you will Bill. I call it a lie.

Hope that all clarifies.

JPiper

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Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 26, 2001 at 10:27:50:

JohnBoy:

Speaking of DOS, I said I would not lie if asked about the beneficiary. I didn’t say that I would tell them about the assignment. It’s important to note that I have not been asked who the beneficiary is in 10+ years of using land trusts.

The trust is private. Therefore, specifics about the trust are private as well. My first step if asked anything by a lender would be to stonewall. Therefore, if they wanted to take some type of action they would need to foreclose a current loan, based on a supposition of who the beneficiary might be. Keep in mind that if the beneficiary is the borrower then there is not a DOS violation.

As trustee I might be willing to provide certain information about the trust to the lender. However, I would not provide information regarding who the beneficiary is. And I would not show them the trust document. I would give them a separate document answering the questions that they may have that I agree to answer. I might also offer a copy of the front page of the trust if requested.

In any case, my first step with a lender is to balk. But again, I have never been asked about a beneficiary.

And now, for the question you asked. Why assign the beneficial interest to begin with? Because that’s how I learned to do it 10+ years ago. LOL. And probably I was told to do it that way so that I could show incomplete documents if necessary. I’m just not willing to do that personally. If you want to that’s up to you. If you were ever asked directly for the “original trust documents” then I think you could give them without the assignment. Haven’t been asked for that by a lender either.

The distinction in this post re: seasoning though is that you are going to be asked to prove who the beneficiary is. Big difference now if you only show the original trust documents without the assignment. Maybe I’m the only guy who sees this distinction.

JPiper

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Re: Trust and seasoning - Posted by houserookie

Posted by houserookie on June 26, 2001 at 10:10:54:

JohnBoy, what do think about deeding property into a limited partnership with investor as general partner and seller as limited partner.

Give seller 1% interest.

Is this possible?

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Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 27, 2001 at 18:09:13:

Two different subjects:

  1. I’d make sure the trust is on the HUD-1 as seller, otherwise it could be that the seasoning issue rares up.

  2. But as far as checks go, the title company should be able to make the check out however you want…they might want you to sign something as trustee authorizing that. (And you’re right, pain in the b*tt cashing checks without a checking account. Where I run into that sometimes is with the insurance.)

JPiper

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Huh? - Posted by Bill Gatten

Posted by Bill Gatten on June 26, 2001 at 20:54:12:

Whatever happened to the Never say never in RE? Never set limits?

There are lots of “nevers” in this business: where’d you ever get the idea there weren’t?

Never get screwed if you can help it
Never fly past the point of no return with half a fuel tank.
Never fly higher than you’re afraid to fall
Never pay more for anything than its worth to YOU
Never presume that because it’s not worth it to someone else, it’s not worth it to you.
Never be afraid to take a risk
Never confuse gambling with taking a risk
Never gamble more than you’re afriad to lose
Never fail to review, reassess and raise the limits you set for yourself
Never spit into the wind
Never fart into the fireplace

: Subject to deals are not for everyone since landlording is not on every investor’s favorite list.

Hey! If you were follower of mine, you’d know that I don’t ?landlord.? Hammers, paint brushes and lawn mowers simply do not fit these delicate artiste hands. That’s the whole point. I buy and hold and let someone else pay all the bills, handle all the maintenance and management?and fix things when they break in exchange for tax benefits and various other pieces of real estate ownership.

And that concept of buying and holding without ANY of the negatives of Landlording is what I teach and write about (?and eat and breath and dream about 24/7).

The only records I have to review regularly on my properties is how much I have coming in every month and how much future profit my little sweeties are storing up for me in my gummer years.

Bill Gatten

(And I swore I was finished with this thread)

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Re: Jim, you’re wrong, - Posted by Bill Gatten

Posted by Bill Gatten on June 26, 2001 at 16:51:31:

Jim,

You keep saying: “Correct me if I’m wrong,” but when I do so, you’re still right. Now that’s a bit disconcerting.

You also keep insisting that I have no experience along these lines…when I just told you I have dealt with dozens of loans taken out for purchases of real estate owned by a trustee of someone’s land trust, and the subject of “seasoning” has never come up or been questioned.

You indicate that the seasoning issue is something new. It is not. I was in the banking business years ago and it was an issue then, and a real problem for some folks who wanted to do gimmicky financing…it just wasn’t pursued as tenaciously as it is today. I specifically remember a guy who had the opportunity to pick up a property his landlord has just purchased at the end of a lease option…for 75 cents on the dollar. if only the bank would finance him. He was told that the seller would have to show payment seasoning for some period of time before another purchase-money loan could be made (that was 15-20 years ago).

In addition, Jim if you feel withholding information that is none of a lender’s business is a lie, then I know you have secured a more thickly padded chair in Heaven that I have. But, I would also suppose you have informed all of the lenders on your properties who the beneficiaries of you will are, and who the beneficiaries of your life insurance policy are. And if not, then how does that differ from failing to tell them who the remainder-agent or co-beneficiary in your living trust is?

Now…do I personally know exactly how a specific lender would react to finding out that another person was selected to be a co-beneficiary in a property owner’s trust, from which trust the property was being purchased? No. Moreover, neither do I know how a specific lender would react relative to the rental-debt to rental-income ratio when an applicant has placed its property into a PACTrust. However, I can tell you with absolutely certainty how I ?think? they would react, which supposition correlates 100% with how they always have reacted in 100% of those transaction with which I am acquainted. The same can be said of how the lenders have reacted to John Q. Buyer purchasing a property that is currently held in a living trust?100% of the time.

By the way, I mentioned my background only to let you know that I would be foolish to be making irresponsible claims and statements (?and that I perhaps have trouble keeping a job). And, too, so that others reading this would know that I?m not coming from less than what might be presumed to be a reasonably well-informed position?at least to some degree.

Bill

P.S., Don’t you ever smile anymore?

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Re: Trust and seasoning - Posted by JohnBoy

Posted by JohnBoy on June 26, 2001 at 10:22:15:

Yeah it’s possible, but you’re pretty much talking about the same thing as setting up a PACTrust arrangement. If you go that route you might as well use a PACTrust.

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Re: Trust and seasoning - Posted by JohnBoy

Posted by JohnBoy on June 27, 2001 at 22:00:35:

Jim,

Do you use a POA to collect these insurance checks? If so, wouldn’t a POA allow you to endorse the check by signing the policy holders name? If so, why couldn’t you just endorse the check over to yourself and then deposit it into your own account?

Sometimes when one of my kids get a check I will cash it for them through my business. They endorse it since it’s made out to them, then I endorse it for deposit only through my business account and deposit it. Never have a problem with it.

Now if I tried to cash it that would be a different story, but since I’m just depositing it into my account the bank never questions it. I can then draw the funds out the following day if I wanted to.

My point is, it doesn’t really matter who the check is made out to as long as it gets endorse. Then I endorse it with my business banking stamp under the endorser’s name and just deposit it into my account. It eliminates any hassles with the bank getting them cashed. Then I just wait a day and write a check against the account to take the money out.

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Re: Jim, you’re wrong, - Posted by JPiper

Posted by JPiper on June 26, 2001 at 17:41:17:

Bill:

I’d say it’s time to end this thread. In my opinion each of your posts produces less of value, and each of my posts simply repeats what I’ve already said.

Title seasoning IS new. I’ve not seen this issue even once before in my career. It is a restriction that has arisen to cope with some of the fraudulent forms of flipping going on around the country. The fact that you state that this is NOT new is simply incredulous in my eyes. Perhaps you should educate yourself by asking some active lenders about the topic.

Seasoning for the purpose of obtaining a loan based on appraisal is not a new subject. Title seasoning has become widespread over the last few years.

My personal opinion is that you are seriously lacking in information regarding this topic, and your recommendations would be recommendations that I would not take. My opinion is that your recommendations are poorly suited to deal with this issue for a “flipper”.

Again repeating myself, if you do this transaction just as you do your normal PacTrust type of transaction, you will be required to provide less than complete information at the request of the lender. If this is not lying then I don’t know what is. And this is significantly different than keeping the contents of your will private or the beneficiaries of an insurance policy. The lender is not asking you directly to prove who the beneficiary of your will or your insurance policy is. They may well be asking who the beneficiary of the trust is. If your choice is to say the seller, when he has already assigned his interest, that a lie. If your choice is to not assign prior to this question so that you can say otherwise, then you will be out of control of this transaction for the period of time involved. Again, this period was 2 months in the original post.

I’m equally amazed that you keep answering arguments that I have not made. I am well aware that a trust that holds property can sell it, that a lender can pay off the underlying loan etc. This really has zero to do with the topic of title seasoning. Evidently you do so little of this that you are unaware that lenders are now running chain of titles to discover how long a property has been owned, or asking for HUD-1’s for the same purpose.

JPiper

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Re: Trust and seasoning - Posted by JPiper

Posted by JPiper on June 27, 2001 at 23:57:52:

You may be interested to know that in my area, (and in S. California before this) that banks will not deposit a check that is made payable to party A, endorsed by party A to party B, and then deposited by party B…unless party A is standing there when the deposit is made and can verify their signature. Is that called a 2 party check? Or maybe a 3 party? I forget.

Now, before you tell me again that you do this all the time…me too. But when the teller actually bothers to look, they will disallow it. It’s one of those things that when you get caught you’ll be amazed. You’ll say…“But I’ve made this exact deposit for years”…and they’ll tell you that you weren’t supposed to according to their rules. Give your bank a call and run through the party A, party B scenario and ask them if you can deposit the check. My guess is they have a rule against it…and have simply been missing it.

As far as what I described above, the way the check comes is in the name of the trust. Sometimes the trustee name is there…sometimes it isn’t. You can’t really count of the insurance company to do it correctly. At any rate, a POA isn’t necessary because the trust already gives the authority to the trustee. The problem is that you have to sit down with a bank officer, go through the trust paperwork, show them where it says you can sign, perhaps provide other paperwork on the trustee itself, etc etc etc…and even then sometimes they still hate to cash that check! I think I have averaged about 1 hour per check cashed that is sent to a trust.

So far so good though…never had to have a trust open an account to cash…and never been turned down. Let’s just say I’ve always had to “earn” the money by spending the time.

JPiper

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Let’s Shift Gears a Bit… - Posted by JT - IN

Posted by JT - IN on June 27, 2001 at 21:01:50:

Jim:

I have not personally faced a problem to do with title seasoning, and I do quite a bit of “Retail Flipping”, whereby I have owned the property 6 months, or less. I am well aware that others are having this title seasoning problem, but to this point, have thought that TS was an issue for primarily B and C lenders. What I am surprised by here, is that you are being frisked over the TS issue. What I am curious about, is what type of lender are you experiencing this through? A Mtg Co., or Comm’l Bank? You did say that this was a refi? (However, unsure now that this banter has gone back and forth so much).

Please provide more info as to why you think that you are potentially experiencing this problem over TS. Is the financing that is offered so superior, that you wouldn’t automatically look elsewhere for funds, once presented this dilemma of TS? Very curious to better understand this, as I am sure it will be sooner rather than later, that I will have to “skin this cat”.

JT - IN

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Re: Trust and seasoning - Posted by JohnBoy

Posted by JohnBoy on June 28, 2001 at 24:39:20:

DANG!!!

You actually having a JOB, and at a bank to boot??? LOL

Ok, I understand where you’re coming from.

As far as cashing those 2 or 3 party checks go, I’ve done these in CA. all the time also. I used to cash lots of checks made out to me, my wife or one of my kids through the company I worked for. Wasn’t even my business. Done it for employees that had checks made out to them and I would cash them and deposit them into the company bank account.

Of course, here’s the catch as to why these always went through without a problem…when these checks are deposited they’re deposited with a lot of checks. The entire days worth of checks that came in from customers. So the tellers never sit and read the back of the checks or the front to see who they are made out to. I can see where trying to deposit just one or two checks could be a problem where they may catch it.

Next time you get one of these, take all the checks you collect from your tenants and slip that in with all the other checks. Go through the drive-thru and make the deposit. If you have several checks being deposited together as one deposit they probably won’t catch it. At least it might save you an hour of having to sit inside the bank and going over a bunch of paperwork!

It would probably help to have a bank stamp made up for that account where you just stamp the back of all the checks. Endorse that check and put your stamp right below it, then slip in the middle of the other checks. Usually the teller just sticks the pile of checks in their little slot and never looks at them.

It might be worth a try.

BTW, when ever I did go in to deposit a 2 party check like that into my own personal checking account when just depositing the check, they would take it, but then they would put a hold on the account for 10 days on that amount. When I deposit them with other checks where they didn’t catch it the account is credited right away.

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Re: Let’s Shift Gears a Bit… - Posted by JPiper

Posted by JPiper on June 28, 2001 at 24:22:19:

First a couple of definitions. Title seasoning is one type of seasoning…where the buyers lender won’t loan to your buyer unless you as the seller have owned the property over 12 months.

The other type of seasoning is for the purpose of cash-out refi where appraised value is used. This has been around forever…is typically 12 months.

The latter form of seasoning is quite common amongst all types of lenders. There might be a B/C lender periodically who would do something less than this. Every once in a while you hear from someone claiming they can do a “non-seasoned refi”. But most lenders are going to require 12 months seasoning prior to using appraised value.

Title seasoning on the other hand is widespread amongst B/C lenders. Up to now FHA hasn’t used it. However, I keep hearing rumors that they will. I hear other rumors that some individual lenders use seasoning eventhough FHA doesn’t require it. I hear conventional loans use seasoning. Most of this I can’t really verify one way or the other because most of my borrowers are B/C borrowers. I do recall that you were doing FHA, and that you have not experienced a problem up to now.

I would say that in my area (Missouri) there has been a gradually worsening trend in title seasoning for the last couple of years. From none, to some, to widespread with exceptions, to lenders requiring proof of time of ownership, to lenders running chain of title. Getting tough out there.

I was using a siutation involving a property in my corporation that I am refing as an example of the checking that may be done to determine seasoning. In my case though, the seasoning is not title seasoning. The seasoning is just the regular garden variety seasoning used to determine whether the appraised value or purchase price must be used. I’ve owned the property for over 12 months in a corporation. But the mortgage company requires me to deed to myself as an individual. So the issue of seasoning comes up. With property documentation though they will permit this deal because the owners of the corporation are my wife and I…the new title holders after we deed it to ourselves. Nothing new here…most lenders would require 12 months ownership, and might require proof of who the owners of the corp are to establish that 12 months.

I would say that right now the B/C world functions on exception as it pertains to title seasoning. The better the borrower, the better the property, the area, etc then the more apt the lender is to look the other way regarding title seasoning. The problem here is that it isn’t anything you can count on, and it’s not uniform.

Further, right now I just see the trend worsening, to include FHA and others.

What some lenders are doing is permitting inadequate title seasoning, but then only allowing the loan to be a % over the sellers cost of the property plus verifiable rehab. In other words, they don’t want you putting too much cash in your pocket. They will then expect the seller to carry to difference. The result here is some cash back out, but a large seller second. Not a good deal particularly but maybe better than not being able to sell at all.

My choice here is to hold the property to get the seasoning. But even with that I have my brushes with seasoning…such as I described regarding the corp. But again, this isn’t the title seasoning issue.

JPiper