Trapped In A Land Trust Agrrement -Help Please...
I owned a home in Arizona and when getting out of a divorce I turned my house over to a "I buy houses" guy who is not a real estate agent. Essentially I turned my home over to him to get out of the house as fast as possible. Unfortunately, the house was put into a land trust, but I'm still financially responsible for it since the house is financed in my name. He leases to people with poor credit until they have a credit history and can refinance the house. After almost 5 years this hasn't happened and I'm stuck. The loan shows on my credit as a liability and now that I want to start investing in real estate I'm getting some pointed remarks about ditching the house. Also, the trust says that he is responsible for the mortgage payments, he's been late on a few, but I had more than one loan officer tell me that it's still my credit that takes the hit. One of them actually told me that the fact that he's responsible for the mortgage would probably not even help me in court. He did say that it was only his opinion, though. Does ANYONE know of a way to get out of a land trust when you're financing is being held hostage? I know that there is information that may be missing from this post, so if you need to know something specific to answer then please let me know. I don't want to spam the whole trust agreement to the forum. I threatened the guy with a lawyer, but he just laughed and said the contract was bullet proof. Any ideas???
Take your agreement to your lawyer.
Unfortunantly John is right. You are almost certainly going to have litigation to get out of this mess. Find a good attny in AZ. The good news is that the AZ real estate market has been pretty good for the last five years so the house is almost certainly worth more than you owe. May even be woth more than you owe plus what it is going to cost to unwind this transaction. The guys arrogance is a little annoying (show me a bulletproof contract and I'll show you a chancery lawsuit). Your attny can advise you on also pursuing a fraud action with the Attny General that may be enough stink to get this guy to stop playing around and finish the deal.
I concur with the others about getting a lawyer, though you may want to call the Attorney General first, since you may not be this guy's only victim. Generally in cases like this, courts look more favourably on the prey than the predator.
Most of us regulars on this board recognize that we're (finally!) seeing the dark underside of a Sub2 deal gone sour. Not bad, just sour. This is how it looks from the seller's side when the investor doesn't follow through. The seller is, essentially, trusting us to do the right thing from start to finish, and not abuse his/her credit in the process.
mjohnson, unfortunately, you ended up dealing with an overly opportunistic investor. Probably the reason this guy is delaying on his end is either 1) he's not a very responsible or effective investor, esp. when he's missing payments on your behalf, and/or 2) When his Lease-Option deals go bad, he gets a new buyer/lessor, pockets some more upfront money, plus gets a higher price each time. All the while his credit is not involved.
It's a nice gravy train for him. His attitude suggests he thinks, since he "helped" you out of your sticky situation 5 years back, you owe him this transgression. You don't. Document your damages, and nail him.
Man, I really can't believe you people.
First, a "poor, innocent investor" comes on here and cries that the "big, bad, attorney general" is coming down on them for "no apparent reason" and everyone jumps onboard proclaiming their undying support and/or help to fight the "injustice" of the legal system hounding the poor, innocent investor. All this without knowing the full facts and details about the transactions in question.
Now, some "poor, innocent seller" comes on board and cries (no offense meant mjohnsonaz74) that the "big, bad investor" has taken advantage of them, and the FIRST thing that you people come up with is to run to the state's AG office and file a complaint. Again, all without the full facts or details being presented. Man, that just frigging amazes me that you all, as supposed investors yourselves, would do such a thing.
mjohnsonaz74,
As I said, I don't know the full details and facts surrounding this transaction. More importantly, I am only getting one side to the story, and as you know, there is always two sides to a story and the truth usually lies somewhere inbetween.
That said, from what you've posted so far, this sounds like a fairly normal subject to transaction. Unfortunately for you, the investor may have been new, slack, or just lazy in his setup of your transaction as there should never be a late payment made on a subject to transaction. NOTE: were these actually considered late, or just not paid on time? To be considered late, they have to be more than 30 days past due.
Again, without knowing the full details of the transaction, I can only speculate on what did happen. However, I suspect that this investor followed the same basic script supplied with most subto courses, which is NOT to give you a specified time frame in which the loan will be refinanced out of your name.
On a related note, you posted this in another thread, "From the several loan officers I've talked to, paper makes no difference on a non-income generating property. Just because someone else is responsible for making payments on paper, they only care that you could still be legally responsible to make payments, hence it goes against your debt/income ratio"
I'm sorry to say, but you have been misinformed here. If you have the documents to prove that he is making the payments, then at the worst, it would be seen as a rental property, where 75-80% of the payment is considered income. In your case, that would mean that you would only be "debted" 20-25% of the old loan against your income. In most situations, this is not enough extra debt to kick you out of a new loan program. If it works the way you say above that it does, then it would be very hard for landlords/investors to get new financing after buying one or two properties.
Again, I don't know all the facts. Unfortunately, mjohnsonaz74, this sounds like a common problem with this type of investing. The seller (you) were probably thanking this investor profusely for the first year or two, because you got you out of a bad situation. Now, you are back on your feet, out of trouble, and want to be out of the deal because it no longer suits your needs. The investor is now a "Scum" because the deal didn't work out to your satisfaction, even though it has worked out the way that it was laid out. This may or may not be correct. I simply don't know, just presenting the way it looks.
Finally, there are other options available besides running to the AG. Do that if you want, but if the AG takes notice, it will hurt the honest, hardworking investors much worse than any of the "Scum" investors out there. If you are truly considering REI as a possible career, I would think that would matter to you.
First, you definitely need to seek legal counsel on the matter. Have the attorney review all of the documents/contracts to the deal just so you know exactly where you stand on the matter. Second, try to setup a meeting with the investor to discuss a re-negotiation of the deal. First on this is that you want him to setup an escrow account with a third party to make payments on your behalf (should have been done in the first place). There should be a minimum of two months worth of payments (including taxes/insurance/etc) in the escrow to cover any time in which there is no tenant making payments.
If you just want out, find out what you can offer to the investor to cash you out. Most likely it would be a reduced price. At this point, that may be your best option, even if you have to come out of pocket with some money.
Finally, depending on what your attorney says about the contracts, you may be able to take the investor to court for damages (your credit). This will definitely get the investor's attention and make them much more willing to listen to other options. And it doesn't require the AG getting involved. Much simplier and cleaner.
Roger
mjohnsonaz74,
Glad to meet you.
Well it looks like we need to get a rope and find a tree. Now even though we don't have all the facts it looks like this investor has been judged and condemed with out all the facts.
I am always amazed that a person and I am sure you have good intentions will post what happened from their perspective and most will take this as gospeI.
I for one have not reviewed the paperwork that you signed. After 5 years I am sure that you will be looking at the Arizona Statute of Limitations should you consider how far you can go pursuing this matter using an attorney.
If you would like me to review your paperwork "from a non legal advice standpoint" please send me copies of what you have and I will see what I can do to help you or what I would recommend.
John $Cash$ Locke
[addsig]
mjohnsonaz74,
.
Let me start by saying that if this investor is not paying the mortgage on time, then I don't have any love loss for them because that is just poor business, in my opinion. Anyone doing sub2's should never make late payments on the mortgages. All add, though, that there is a difference between "late" and "not on time" when it concerns your credit.
Now, lets review a few points from your last post. These are especially important if you plan on being an investor yourself.
the contract does NOT specify a refinance period
This is very important. Regardless of what the investor says/said, or you hoped would happen, when it comes down to it, what matters is what is in the contract. The contract should have been reviewed by your attorney before signing. The investor should have that written in the contract or better yet, told you something to that effect. Doesn't matter if he did or didn't, just shows the difference between an average and a good investor.
it was a stressfull time for me with a pending divorce and un-employed soon-to-be-ex
This was my main point in my first post. At that time, this was a good deal for YOU. You were probably extremely happy that this investor took this problem off your hands. I'll even guess that you called him, correct?
he expected the property to be re-financed within a couple of years.
He expected. Not promised, Not guaranteed. Not written in blood. Granted, a top-notch investor would probably be more active as to getting this gone, but according to the contract terms, he doesn't have to do so.
Now, this sounded like a win-win situation to me.
If it sounded like a win-win then, what has really changed that makes it not so win-win now? Because it didn't get refinanced in 2 years? The payments are still being made and you got/are still getting what was laid out in the contract, correct? Yes, the late payments would be an issue (again, if they are really being considered late and affecting your credit), but other than that, has anything really changed that was not disclosed before you signed the papers?
Since we're all trying to be respectable REI's don't you think that kind of gives the community a bad name? Also, it's the man's attitude that really tweaks me. His arrogance is, quite frankly, unprofessional.
I think that it gives HIM a bad name and yes, from what you've posted, he does seem unprofessional. Again, no offense intended, this is still just one side to the story. I'm pretty sure that he probably doesn't really think much of you at this point either
He's renting it for more than the monthly mortgage, therefore he's making a decent profit.
This was his intent in the first place, to make a profit. If the deal wasn't profitable, he wouldn't have taken it. Investors that get into unprofitable deals seldom last long.
the longer he waits to sell the more money he stands to make from equity
Again, this is the point of investing in real estate, to make money. This is where I think the real problem lies. Now that you are back on your feet, you're upset that the investor is making a profit on something that used to be yours. And because you feel you still have an attachment to the property (your name on the loan), you feel that you should be entitled to some (or all) of that profit.
I was mislead to believe that this would be a short term deal(i.e. less than two or three years)
Refer to the contract. That is where the terms of the deal are located. Again, think of what you actually committed to, someone else making payments on a loan that you could no longer afford to make. A loan that is in good standing and helping your credit. A loan which would have probably been foreclosed upon and ruined your credit if this investor didn't come along.
I can't even claim the interest on my taxes even though the loans in my name since I'm not making the payments
Have you had this verified by your tax professional?
I'm not sure I understand what you mean by cash out?
I mean, what will it take to either get you off the loan or have him deed the property back to you. You do want one of the other, correct? If so, you need to find out what it will take for that to happen.
What I said about the debt/income ratio is true. All you have to do is present the broker/loan officer with your documents proving that you sold the house. In fact, if the deal was closed properly, some lenders would consider it a complete wash. However, if you can't afford the $100-200 it would take for an attorney to review this with you, I don't think it is a good time to be looking for a new mortgage, but that's just my opinion.
Again, my not trying to upset or offend you with any of my comments. I'm just trying to break this down into it's pieces and maybe show you a little of what it looks like from the other side of the fence (the investor's point of view).
I hope everything works out.
Roger
What about calling your mortgage company that has the loan on the property and tell them the property has been sold.
See if they will call in the loan, using their due on sale clause in the mortgage. Let the investor know you are going to do this if you don't have resolution in 90 days.
I would say you need to do whatever it takes to the get the mortgage out of your name.
I have done and still do many "Subject to" deals that put property into a Land Trust. If this person never came out and told you it would be only a few years, you then believed what you wanted to hear. If he has never been more than 30 days late on the mortgage then it doesn't hurt your credit. Quite the opposite is true. He is actually helping to build your credit if this is so. Case in point, I took over a house "Subject to" to a couple getting a divorce who both moved out of state. I tried to sell within the first few years, but my buyers just couldn't qualify. 3 1\2 years later, I got a call from both of them at different times, they both put me on with their mortgage brokers and after I explained the situation to them (the brokers), I sent them a letter and copies, the couple, now divorced, was able to each qualify for a house themselves, because I helped rebuild both their credits. If you show paperwork that you "sold" the house and find the right mortgage broker, you could get 100% against your debt-to-income ratio. Look into it and don't complain too much, you put yourself into this and were happy to be bailed out at the time.
Quote:
On 2004-10-20 03:10, mjohnsonaz74 wrote:
I would like to thank all of you for giving me such sincere and thought out replies. First, I know that this is a difficult scenario to discuss without ALL of the pertinent details and I understand rajwarrior's concern that I'm just upset becuase the deal didn't go my way. To counter that, let me just say that the contract does NOT specify a refinance period. That was dumb of me to sign a contract without the forsight to specify a termination date, but again, it was a stressfull time for me with a pending divorce and un-employed soon-to-be-ex. Now, the issue I have is that when I spoke to the man, he told me what his plan was(again very forthcoming with his intentions)and that he expected the property to be re-financed within a couple of years. Now, this sounded like a win-win situation to me. I got out of a house I could no longer afford, and he aquired an easy property to rent until sold to an eligible buyer. HOWEVER, it's been 5 years... I trusted his "professional" estimate of how long it would take to sell the property. Since we're all trying to be respectable REI's don't you think that kind of gives the community a bad name? Also, it's the man's attitude that really tweaks me. His arrogance is, quite frankly, unprofessional. There is no room to re-negotiate with him as I have NO interest, zero percent say, in the property in question. There is no benefit for him to sell the house. He's renting it for more than the monthly mortgage, therefore he's making a decent profit. Not to mention that the properties brand new(I'm the first owner)so his maintenance bills are around zero. Lastly, the longer he waits to sell the more money he stands to make from equity. Again, I have no problem with a land trust agreement, but surely rajwarrior you must understand that this is a gross misrepresentation of my original deal. I was mislead to believe that this would be a short term deal(i.e. less than two or three years), now I'm in a potential lifetime commitment. You posted in your message:
Quote:
"First on this is that you want him to setup an escrow account with a third party to make payments on your behalf (should have been done in the first place). There should be a minimum of two months worth of payments (including taxes/insurance/etc) in the escrow to cover any time in which there is no tenant making payments.
If you just want out, find out what you can offer to the investor to cash you out. Most likely it would be a reduced price. At this point, that may be your best option, even if you have to come out of pocket with some money. "
I'm not sure I understand what you mean by cash out? I have nothing to cash out as I don't have any interest in the property. I can't even claim the interest on my taxes even though the loans in my name since I'm not making the payments. The man has no interest in re-negotiating, I have tried on many occasions to get him to refinance. Especially with the lower interest rates. The current loan is at 8.5% on a VA loan. Surely he would want to refinance to increase his profit margin! I just don't understand what he's trying to do and when I ask him it's always the same story. He had a good potential buyer, but for some reason when it comes time to put a contract together, the buyer suddenly moves off somewhere else.
Once again, I appreciate all the replies. I think I do need to hire an attorney, but I was hoping to find something here that I could use first. I can't afford an attorney at the moment, but I hope that what rajwarrior said is true about the debt/income ratio. I only know what I was told by three loan officers. Of course, they probably don't deal with these kind of issues on a day to day basis and are therefore not qualified to help me. On further reflection, I think they may have been lazy because I remember hearing something about claiming it as a rental, but was told by one that since I don't receive the money that it doesn't count. Perhaps they didn't know and didn't want to bother looking it up for me. I'll have to research this point further...
John Locke, I'll send you a copy of my trust when I can get a clean copy of it. The copy I have was faxed to me from him and it would'nt be pretty to try to scan it as it's hard enough to read alreaady. When I get a clean copy mailed to me, I'll gladly forward it to you to peruse at your conveniance. Thank you all for listening to a newbie. You've given me some solid advice and I feel better having read your posts.
<font size=-1>[ Edited by mjohnsonaz74 on Date 10/20/2004 ]</font>
To dnvrkid,
This probably won't work because if he was a knowledgable investor he would have had her sign a letter that basically states that he is not responsible for payments and she may not know. Second, if she does that and they call the loan due, it's still in her name. She still loses.
Lee,
Glad to meet you.
If Grandma is 60 or over here is where to start for the help you need.
http://www.seniorlegalhotline.org/
John $Cash$ Locke
[addsig]
HI,
John - thank you for the link. I have saved it and forwarded it to my grandmothers email.
ED, The house was paid off in full years ago. it's free, but not clear - if you count the leins.
My "grandfather" didn't have a will, he suffered from parkinsons for a long time before he dies and never got around to it - when he was in the right mind to do so.
He has no children who would want to claim the house, so i think she would be in the clear as far as that goes.
Since my grandmother's sole income is social security, she doesn't think she can get a loan nor pay one off. Us family members could help her pay it though we might not be consistent.
She also can't afford an attorney. She barely gets by each month with what she gets from social security ($700) Is there a way to do it ourselves? (what decree do we ask for?)
She is 73 and lives in Los Angels County, CA.
Thanks so much (both of you) for your help. hope this additional infomation helps too.
Lee
Lee,
What is the fair market value of the house? What other liens are there besides the tax liens? Are the liens in the amount of $8000 or is this just what she owes and some of this is a lien against the property?
Hi Ed,
The FMV of her house is about $200,000 but she has about a half acre of property so they say the whole thing is worth about $500,000.
Her husband had debts that were not paid, so they attached (supposedly) liens on the house. I don't remember where to go to find out the details about the liens except to a title company, but she swears they are there.
Thanks for your continued interest!!
Lee
Hi Ed,
This is as good a lesson as any that it is important to have a will, I hope you have yours setup.
You can look up the lein information with a simple title report, or if LA County recorders office allows, you may be able to search all recorded leins by the property address there for free.
Definitely work with an attourney from some of the senior advocate groups. Unfortunately, an elderly woman in despare with a half million in assets may be a prime target for some.
They will be able to straighten out the deed issues on the house, search all recorded leins against the property, and recommend a best course of action.
If you do need to pull some home equity to pay the debts and the payment becomes too much for grandma and you to make reqularly, you may want to look into a reverse mortgage on some of the remaining equity in the house. This allows grandma to receive monthly payments from the bank drawn against her home equity.
Good luck with this!
Grandma definitely needs to talk with an attorney, and quick. Last I checked, California was a community property state, no? Effectively, then even if Grandpa didn't have a will, as long as there wasn't a prenup or something like that, it should've gone straight to grandma anyway, no???
Caveat - I'm no lawyer... <grin>
-Jeff
Lee,
With the equity that you are talking about, some solution should not be terribly difficult. You might to see how the deed is and if Grandma's name is on the deed. The issue brought up by jblackwell is a good one concerning community property. Even if the property was in Grandpa's name she could have acquired community interest if she ever made a payment. If not, Grandma should be able to get a Distribution Decree from the county.
One of the former owners of a preforeclosure I just sold had a mother that died without having a will. He got just such a decree that placed title in his name (he had the help of a probate attorney).
It seems that there are two steps in solving the problem. The first is getting title to Grandma. Then she will have control of plenty of equity to solve the tax problem.
Regards,
Ed
Lee,
1. Refer to above posts for actions to take immediately.
2. Reach out to AARP (as above), and Grandma's County Dept. of Aging for balanced assistance if you can't figure what to do or find the right attorney asap.
3. If you think there is any chance of loosing the property to the tax bills in 2.5 mos., get any type of loan process started so that you are prepared to get those payments made IF the county will not work with the process. I would NOT worry about the payments or interest rate, but I would not want to accept closing costs or prepayment penalties. Well, first things first.
4. Next, your Grandma can consider getting a Reverse Mortgage w/AARP's help to improve her standard of living.
www.reversemortgage.org
I agree with you, ceinvest. If the grandma is a church goer, she can call her church and get help. St. Vicnet De Paul refered us (we are mortgage broker) a poor woman who was being foreclosed on. They were going to lend her money, if nothing would work, but they wanted to try to see, if we could refinace her mortgage. Because of her situation had been so bad for so long(she had hard money/forclosure bailout loan already), we could not do anything for her. But because we know this hard money lender well, we talked them into agreeing to work with her, and not foreclosed on her. If you ask, you shall receive.
Oh, one other thing. Los Angeles county will almost certainly have some proceedure for removing the property from the tax sale for people in your grandmothers situation. The last thing they want is television pictures of little old ladies being evicted for not paying their taxes. Yes, the taxes will have to be paid someday but if you go talk to the right people that day may not be as soon as you think.
JBlackwell is right, and the house may already be the lady's even with no probate, if they were married when it was purchased.
Don't know or remember CA law on this, but under most CP laws the surviving spouse is the owner without formal probate in a number of situations.
Note to all: Every Bar Association and Law School has some kind of free legal aid program to help the indigent and incompetent.
Call your closest law school and bar association office and they'll get you in contact with that Free Legal Aid office so your GM can get some good but free legal help to sort this thing out.
Lawyers may be portrayed as evil Silas Marners on steroids, but I can tell you from firsthand knowledge, lots of things like this (and much more complex too) have good lawyers working lots of days and hours for no compensation except personal satisfaction.
When GM does clear up the title, she could either get a reverse mortgage or sell the house, reserving a life estate so she could live there and enjoy it for rest of her life...either would provide her income now while preserving her right to stay there.
i'm in a similar boat. thanks for all the advice guys! -- Phil
Lee,
You said "The FMV of her house is about $200,000 but she has about a half acre of property so they say the whole thing is worth about $500,000."
Does do mean that there is a separate lot? If so, this can also be a source of cash generation.
Alas, errata uncovered: In my first reply here I referred to lawyers being viewed as evil Silas Marners...when I meant Simor Legree.
Two completely different people, and old S. Marner had no evil about him as I now recall with more clarity...while Simon Legree had few, if any, virtues.
Lee,
If I understand your post correctly, your grandmother owns a property that is free and clear except for the $8000 owed in taxes. I am no expert but let me tell you what I would do if this was my grandmother:
1) Order a professional appraisal on the property immediately.
2) Pay the back taxes.
3) Assuming that the house is in ok condition, throw between $5k and $10k at it for repairs to make it perfect. Since grandmother doesn't have any money, I would pay this out of pocket.
4) Put the house on the market 5% below the appraisal with a realtor known as "high producer" in the area and ensure he/she will aggressively market the property.
5) At the close of escrow, instruct the closing agent to issue a separate check to you for the cash you put up for taxes/repairs (or just have grandmother pay you back).
6) At this point, grandmother will have between $350k and $450k depending on what the property sells for. I would put this in a brokerage account such as Wachovia Securities or Charles Schwab and invest in low risk Stocks/Bonds/REITs (historical returns between 8% and 14%). Instruct them to send her a check every month.
7) Put grandmother in one of those "luxury resort style living" communities. Income from #6 should cover this expense. Not sure if she is entitled to Social Security if she has that income coming in.
Just my thoughts.
Mark.
I hate to ask the hard questions. How long does grandma think she will stay in the house? How much are the taxes? There are companies that will buy the taxes, and charge intrest. If you find the right company they might buy the tax burden and wait for grams to live out the rest of her days at the house. When the house is sold they will get their money with intrest. I would love to have that kind of investment secured by real estate. Very low impact from the investors point of veiw, and grandma gets to use some equity while she is still able to reside in the home. Nobody gets hurt. In illinois, tax liens take president over all others, so depending on the tax rate and the equity, who cares about the rest of the liens.
Just a thought.
Jansen