Legality Of Subject To
I have a mentor who has been wildly successful at buying and selling real estate. Here is the thing...
I told him how I am working on some subject to deals... He keeps telling me that there are people he knows who are going to jail for this... That it is illegal and deceptive to transfer property in a land trust intentionally using that device to hide it from the bank.
Who can I find more about the basis for the legality of doing subject to deals. Who can argue this for me...
Are there some things to be especially careful about when arranging a subject to deal in order to not get in trouble with the law?
Andy
4ndy,
Glad to meet you.
Your mentor has no clue what he is talking about. He knows people who are going to jail, well he is hanging around the wrong people they are not Subject To investors, more likely people who do his kind of intesting so be careful.
Take a look at this article by William Bronchick.
http://www.legalwiz.com/dueonsale.htm
Let your mentor read it, give him some education.
John $Cash$ Locke
It is not illegal if you strusture it properly! John $Cash$ Locke is the Subject-To expert. If you are going to do subject-to deals and don't want to worry about the legalities, then buy his course! It will be the best investment you will ever make because you get the added bonus of 24/7 email and his personal phone number to contact him directly if you have any questions. The course also provides you with the paperwork to properly structure a subject-to deal. People think it is illegal because they do not know how it works...
Tanya
p.s. The article John referred you to, "No Due On Sale Jail" was written by a real estate attorney, William Bronchick.[ Edited by tanya1215 on Date 02/26/2004 ]
You may want to consider an additional and/or replacement mentor...
I second the other comments, and would tell you that so long as you are completely disclosing what you're doing, in writing, and the seller is freely signing, there's absolutely nothing illegal about it.
This is an area where it does happen in some deals, after the seller has given you the deed, he then attacks you for fraud, or otherwise taking unfair advantage of him/her.
So I personally like to have a witness and notary whom I know, witness and acknowledge the deed, and I tell them ahead of time to please listen carefully so they can be prepared to back me up & testify if necessary that there was no fraud, no coercion, no duress, the seller was cogent & in his/her right mind so far as the witnesses could tell, etc.
Just be prepared for the snake who'll try to bite you, knowing exactly what he's doing. Can be anybody, either sex or age and just be ready for it.
The ones I've seen and know about are usually those who were fawning all over the salvor/buyer when the deal was struck, but now turn out to be very vicious indeed.
Great article I read long ago in some Bar Journal warned about clients like this...who were totally full of praise for the lawyers' great & wonderful service, etc., but who, before the end of the relationship, turned on their lawyer with a vengeance, giving him/her all kinds of heii & accusing him/her of all kinds of improprieties & criminal acts.
Happens in other trades & professions too. Friend of mine, a fine Pediatrics. Surgeon, went out of his way once to make a house call on a sick teenager, only to later be accused of molesting the child (mom was out of the room for about a minute) and was actually indicted & tried for child molestation, a felony!
He had to win that case in court, and one of his witnesses was the then Surgeon General of the USA, testifying as my friend's character.
So just be ready to defend yourself anytime, anyplace.
Your friend sounds really conservitive. On just about anything its a Judges call on what he rules legal and illegal. So on subject to most lawyers will close these deals for you. Some will not. Which raises the question which lawyer is correct? What you have to look at is the success investors have with what they utilize. Like I say if you want a law degree go to Harvard. I have never seen problems with either instrument . Not overcomable problems anyway
There is no law against subject-to.
The loan agreement might have a clause indicating that it can not be assigned or that the title can not be transferred.
If this is the case and the title is transferred then the lender can call the loan due.
There is a very large difference between something that is not legal and something that is a violation of an agreed contract. Civil vs. criminal law is one way to put it.
There is room for fraud when a land trust is used to hold title and then the buyer (beneficial owner of the trust) walks and never makes the payments. Oregon had a court case about this. The outcome was to shut down the two companies doing this. No criminal charges filed and the state attorney general indicated that there is nothing illegal wiht the use of land trusts when used correctly.
Fraud is criminal so be clear with the seller what you are doing (as has been noted by another person). You are not paying off the loan. You are agreeing to make payments for a period of time and only if you perform will you receive the full title.
John
Just to reaffirm what others are saying, I met with my RE attorney on Friday and discussed subject-to. He agreed that it is neither illegal or unethical. I think that everyone assumes that the dreaded "due on sale" clause is inevitable! But, who should you listen to? Someone like John Locke who has done hundreds of these deals and not had any problems, or someone who is speculating what will happen? I think everyone simply assumes that the banks will call the loan due, but the clause simply states that they CAN call the loan due, not will. There is a big difference.