Security Instrument For 1/2 Home Equity
Have a friend that needs help. My friend Mark owns his house with his girlfriend. They took out a home equity loan to help him invest in RE. The girlfriend is nerveous about the 100k loan. My feeling is that she generally trusts Mark and is happy to help him as it was not money that she would have used anyway, but she wants some kind of secrutiy instrument. Mark has several rental properties with good equity, has great credit, good assets.
Should he sign a promissary note for 50k, 100k? Should the girlfriend hold a second mortgage on one of his rental properties? I would htink that if she is getting a security instrument, then he should take out the full 100k and keep it in a seperate account. But what else? Can the lien on the paper meantion the home equity line?
I am stumped to help them.
Excuse my ignorance, but does your article refer to the original HELOC from Bank of America stays in place and is just an agreement between Mark and his girlfriend, or are you discussing getting a new loan? Mark has a very high debt to income (due to his rentals) and is not able to qualify for a line of credt. the line they have now is several years old. He has tried to get it increased, even though he has an extra 150k in equity and they will not increase it.
Loan is going to be an issue so I would blanket his properties with a deed of trust.
The reason for the Blanket deed is to give her added protection...
He could pull out the 100k and then deed the property to her... There for giving up his ownership rights to the residence completely. it appears as though there is enough equity...
another issue may be that the assets he is using to purchase additional properties is a percentage hers so she may look at obtaining an ownership interest in those properties as well..
[addsig]
Can you recommend some good books on this topic?
"Land Trusts for Privacy and Profit"-By Mark Warda
Avaliable at www.Amazon.com for $34.95
I use land trusts to hide the fact that ownership of the property has been transferred to me or my LLC. Hiding the transfer of ownership is good for not triggering DOSC, is good for seasoning and chain of title (reselling to an end buyer after owning for a short period of time).
I have three peices of paper.
One sets up the land trust. The fill in the blanks are the land trust name, the trustee, the beneficial interest, the legal description, and the notary and witnesses. I usually call my land trust the "John Smith residential land trust". John Smith is the previous owner. The benefical interest is John Smith and the trustee is my LLC. This document is not recorded.
Second peice of paper is a warranty deed to trustee. This deed the property to the trust. Esecntailly this puts the property into the trust. Once you do this the trustee has full powers over the property. This document, like all deeds, are recorded.
Third peice of paper is the assignment of benefical interest. This is where John Smith assigns over his beneficial interest to my LLC. This document is not recorded.
I know that having the same entity as trustee and benficial interest is not the best setup. I also know that a one person LLC is not ideal (although it is darn good for insurance). And that for asset protection you should have an entity that is not so easily traceble to myself. But darn it .... I could wait 5 years to get it done perfect or I could just get it done. No it is not a perfect model, but it is an easy to replicate model. I am willing to cut some corners off the perfect model for simplcity and ease of use.
Good job.
Da Wiz
Do you use a title company for any of this or do you just have everything signed, notarized, and file them at the court house?
What are my choices for trustee?
I just got my first yes on buying a property sub2 and can use any help out there.
[addsig]
I have my papers signed and notarized at the kitchen counter. Only the warranty deed to trustee is recorded. Sometimes I will not record the deed right away until I have a title search performed. My way of thinking is that if someone wants to give me a deed, I will take it now. Then if the title search comes back with too much money owed and I no longer want the house, I tear up the deed and tell the owner that they were either untruthful or unaware of how much was owed. If the title search comes back good, then I record the deed.
Can my LLC have beenficial interest and also be the trustee?
USING ONE’S OWN CORPORATION
Would create a merger of title, invalidating the trust, should it be challenged in court as not being a bona fide land trust (see N.C. A.G.O. vs Russell and Dianne Barberio 2005)
A privately or closely held corporation would not charge legitimate fees and therefore would not likely be seen by the courts as a bona fide holding company, whose business it is to hold titles in trusts and charge fees commensurate with industry standards.
One’s own corporation would not be seen by a co-beneficiary as a mutually trustworthy, and wholly unbiased third-party holding (“escrow”) entity. Such a bias would not be in the best interests of co-beneficiaries.
IMPORTANT: Using one’s own business entity would create a merger of title invalidating the land trust model.
When creating a simple single beneficiary land trust for just the purpose of shielding ownership from public view, one can legally name just about any one or any entity he/she would choose to function as a trustee. However, when more than one beneficiary (i.e., a trust involving other parties with disparate interests and objectives) is involved, there are severe drawbacks to using any entity other than a third-party, non-profit, corporate trustee.
Da Wiz
Quote:
On 2006-05-18 22:13, mtnwizard wrote:
USING ONE’S OWN CORPORATION
Would create a merger of title, invalidating the trust, should it be challenged in court as not being a bona fide land trust (see N.C. A.G.O. vs Russell and Dianne Barberio 2005)
A privately or closely held corporation would not charge legitimate fees and therefore would not likely be seen by the courts as a bona fide holding company, whose business it is to hold titles in trusts and charge fees commensurate with industry standards.
One’s own corporation would not be seen by a co-beneficiary as a mutually trustworthy, and wholly unbiased third-party holding (“escrow”) entity. Such a bias would not be in the best interests of co-beneficiaries.
IMPORTANT: Using one’s own business entity would create a merger of title invalidating the land trust model.
When creating a simple single beneficiary land trust for just the purpose of shielding ownership from public view, one can legally name just about any one or any entity he/she would choose to function as a trustee. However, when more than one beneficiary (i.e., a trust involving other parties with disparate interests and objectives) is involved, there are severe drawbacks to using any entity other than a third-party, non-profit, corporate trustee.
Da Wiz
So a close friend or business partner would be the better choice for a trustee. What about a spouse or a family member?
USING A FRIEND OR RELATIVE AS TRUSTEE
Risky and quite probable failure to honor privacy and anonymity, especially under threat of legal action.
An individual trustee’s failure to charge a fee would not support the land trust’s validity in court. The attempt to charge a fee would not be seen as adequate unless the party were a bonded entity.
An individual trustee’s death would embroil the property in his/her own bankruptcy, Probate and other personal legal actions.
An individual would most likely never be bondable as a trustee and would likely not have the resources to provide a completely separate, free and bonded collection and bill-paying service.
An individual would not be seen by the courts as a standard trustee, charging fees “commensurate with industry standards”: therefore severely impairing the integrity and structure of the land trust.
One’s own personal appointment would not be seen by a 2nd or 3rd co-beneficiary as a mutually trustworthy holding entity. Such likely bias obviously would not be in the best interests of any of the co-beneficiaries
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The selection of Trustee is the most important aspect of setting up the land trust properly. I ONL USE A Third Party Non-Profit Corporation, a professional non-profit entity specifically and solely engaged in the holding of titles in land trusts.
A reasonable trustee fee is charged, which is well in line with industry standards is charged, enabling the creation and funding of an un-paid 3rd-party collection & disbursement entity (a free bill paying service for the benefit of members).
Cannot die (re. Probate issues), and is well backed financially to allow for careful adherence to all laws. rules and regulations relative to reporting and maintenance of a consistently good standing with the state.
Fully bonded as a trustee for title holding, beneficiary directed, 3rd party trustee nominee title-holding land trusts.
Fully recognized as a bona fide holding institution by any court that would/might be challenging the integrity and structure of the land trust or holding to adherence to statute and or standards in states wherein land trusts per se are specifically legislated and authorized
Functions a fully unbiased and unassociated third-party title holder (“escrow-type)” holding entity.
Unless you select such a Trustee, in my opinion, you are not taking the ultimate steps to insure the security of your trust.
Da Wiz
Da Wiz,
Than you for spending the time and effort educating us on this topic, you certainely go above and beyond.
The trustee is always been the hang up for me when it comes to land trusts. I have no idea who I should approach and what i should pay for the service. If I am going create a trust for my deals, I want it bulletproof. guess I need to find a better attorney, because he is the one who talked me out of it.
So here I am in NC looking for a trustee, where do I begin?
CH2006:
Check with NARS www.LandTrust.net
The recommend their members use Equity Holdings Corp. as a 3rd Party Nonprofit Corp. Trustee.
Thanks, Derrick.
Da Wiz
How many court challenges do you think that there have been to land trusts? How many do you think have been invalidated do to having your own corporation as the trustee?
You need to weight the chance of this versus the cost and hassle of having a holding company as your trustee.
Owning a business is full of compromises and balancing of various factors to make the best decision. For me, I will take my chances on my land trusts getting challenged.
YW DOC!
Lets say you already had a trustee who is listed on the deed. Later on that trustee resigns, or the beneficiary replaces that trustee. The filed deed continues to list the old trustee. Do you record a new deed, or just keep it as is?
John, I have placed that disclaimer with my posts several times. I am not a lawyer. Any information I offer has been obtained or learned from my own experience, or my Trustee, Attorney, or directly from Bill Gatten.
Da "Not a Lawyer" Wiz
I salute you, Chris. What a sensible post!
Da Wiz
Well this ought to get interesting!
Jim
I will continue to cut and paste when a law is being quoted to insure accuracy. To say that only attorneys can express opinions is foolish since most attorneys know nothing about land trusts -- PERIOD. Attorneys have made this country a mess. Frankly, the luckiest man alive never met an attorney and I seldom trust much of what they say. I prefer to read the law itself.
Da Wiz
[quote]
On 2006-05-29 12:49, BoboTheKing wrote:
I enjoy the differing opinions as much as anyone, but the board hustling is way out of control.
[quote]
Bobo-
I have always understood "board hustling" to mean using the forum to try and sell a product. I have never seen Mtnwizard offer anything for sale...
Chris
well, I think i understand whats happening here... but looks like once you filled a change of deed, to a land trust it would bring immediate attention from the bank... I think the bank would be alerted right away would they not.... and would not the current owner have to explain that he was placing it in a land trust....
looks like this would set the bank to freaking out...
well, I like the sound of this.... please email me so i can get some forms and learn how to do this... morganfrmn at yahoo dot com....I had a friend who sold a house on a land contract... and the guy stopped paying and my friend tried to evict him... and he claimed "equitable interest" and it took 2 years to get him out... so he lived for free for 2 years at my pals expense....I am in Louisville kentucky