David,
Check and see what the basis for the line of credit was. As long as it wasn’t based on the equity in the property that you are purchasing you should be fine. The reason is that a line of credit is a PERSONAL loan with the person taking out the line of credit responsible for it. The banks only recourse is to that individuals assets, and as I understand your post there is a trust taking title. So, he is no longer the owner nor a beneficiary so the bank with the line of credit won’t be able to go after this asset.
However, if your seller were to declare bankruptcy, the banks with a mortgage on the property may be able to come after the property even with a trust. They would have to get what is called a ‘charging order’, but they may be able to cause you some headaches along the way. Proceed with caution, and it’s always a good idea to discuss these transactions with an attorney who does these types of deals every day----which I don’t do!
I have a land contract in process to take title to a property with 3 mortgages: 135K, 27K, 28K. Only 2 are recorded. The 3rd is a line of credit with a private lender. My deal with the seller states that the purchase price is $173, the total of the first 2 mortgages, plus $10K cash to him. (I am not personally or corporately assuming the mortgages). He understands the third loan is his reponsibility to pay off. I intend to transfer title to a trust and assign beneficial interest to me.
Can lender for 3rd loan record a lien AFTER title has passed to the trust? (i.e., do they have any recourse to me or the property?) (it may appear to the world that the seller transferred title from himself to a trust, but it won’t be apparent that he is no longer the beneficiary of the trust).
Is there anything else I should do to make sure I cannot become liable for the third loan?