Using Trusts To Wholesale
I attended a seminar over the weekend and now am very confused. The topic was doing short sales with the intention of wholesaling them. The speaker said that she did the short sale in a trust in her name as trustee. This is done so that the bank thinks they are selling to the same person who negotiated the short sale with them (on behalf of the homeowner). In order to then wholesale or assign the property she either assigned the contract or assigned beneficial interest to her rehabber/buyer. How is this done? If she assigns the purchase contact doesn't the bank know? If she assigns beneficial interest, is ishe always trustee? Hope someone out there can clarify!!!! Thanks!!!! Jana 
The trustee on the trust has sole power to do whatever they want with the property. The trustee can change the beneficiary at anytime. Once you have the short sale completeled you then get a buyer at that time the property is sold from the original owner but the trustee has equity interest in the property. The sales contract isn't assigned a new one is drawn up. Usually by this time the mortgage payments are caught up. The bank gets their money, the trustee gets their money and the buyer gets the house.
It is done are the time, the trusts keeps the chain of title in the original owner's name so any type of financing can be done.
Lori
[addsig]
Tinman:
Have you ever done a shortsale in your life? How are you going to draw up a new contract when the bank has approved the purchase price already and
approved the HUD-1 showing no money going to the original seller.
The goal of a shortsale is not to catch up back payments? The goal is to buy the property from the bank at a discount on the original note.
Jana, the way the lady is wholesaling in a trust is simple. She is showing the bank a purchase contract of the:
123 Main St. Trust, John Doe Trustee.
You see Jana, the bank is going to see
that the person who is negotiating is the
trustee on the trust they set up. However they are not going to see who the beneficiary is... So once the deal is accepted, they name the new buyer as the "Beneficiary" on the trust which is
revokable giving the "Beneficiary" full power to change the "Trustee" via an
"Amendment To Trust". Or like you mentioned, they can close the deal and
then assign their beneficial interest as
"Beneficiary" to the wholesale buyer and the wholesale buyer can name a new "Trustee".
Best Riches,
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."[ Edited by JeffreyAdam on Date 03/19/2004 ]
Lets step back a bit. A Land Trust in the classic sense is composed of three parties when used as a Trust Deed securing a note. We use these in place of Mortgages in Calif and in some other states as well. That is the classic example
Now suppose you are in a short sale and you want the bank to be happy and warm. You present a Land Trust and you have a named Trustee and also a Beneficiary. You the friendly dealer with the bank on behalf of the property owner are the named Trustee. All well and good as long as you have complete, repeat the magic word, complete control of the trust.
You are going to then name your ultimate buyer as the Beneficiary. The bank deals with you, the sale goes and you as Trustee then name the new owner as Bene and god loves everybody.
Sometimes. You must remember that the Trustee can be replaced at any time by instruction of the Beneficiary. This trust is for the benefit of the named Beneficiary, and sometimes, when a dispute arises, the Trustee is Substituted in by a new Trustee and that is only done on direction of the Bene.
Thats the slip point. If you are dealing with a bank and the Loss Mitigator or the Vice President trying to get ahead who interjects into the REO department, boom up goes the deal. Has happened. So you must proceed with great care.
This is why I very seldom use this method. I just lay it all out on the table. I use an escrow and a title co. who holds the title open and bills single policy while I move the new "qualified buyer " into title having qualified him for loan and filed a Statement on his Behalf with the Title company. I stay in constant contact with the Loss Mitigator and they know my only purpose was to gain a commission on the sale of the property .
Everybody loves everybody, everybody sees a simple transaction just the way the Banks like it.
Is this helpful or am I oversimplyfing?
Cheers. Lucius 8-) 8-)
Dear Jeffrey Adams and Lufos,
[ Edited by jquinliv on Date 03/19/2004 ]
Thank you so much for your answers and clarification!!!! I can't tell you both how much it means to me. I was getting discouraged and feeling too stupid to proceed. If you don't mind, just a couple other questions?
Why was the person teaching the seminar referring to having the end buyer/rehabber signing a purchase contract? Is this done when using a trust and assigning beneficial interest?
Also, does the trustee have any liability? I mean, will the end buyer automatically replace me a trustee? And if he/she doesn't replace me as trustee, what is my position, responsibility and liability?
And last: Lufos, how do I have "complete control" of the trust? Am I both trustee and beneficiary until I assign it to my end buyer? Does this assignment take place a closing? Is there then a double closing and two sets of closing costs? Also, I did not understand the paragraph regarding the slip point. Why would a short sale go from loss mitigation to REO department? If it hasn't even gone to auction and a deal has been worked out, why would REO get involved? Isn't it true that the bank would prefer to work out the short sale over having to own real estate?
Thanks so much you guys...I really appreciate your help!!!!!!!!
Lori,
Can you please explain this part a bit more. It wasn't really clear enough:
"Once you have the short sale completeled you then get a buyer at that time the property is sold from the original owner but the trustee has equity interest in the property."
Why was the person teaching the seminar referring to having the end buyer/rehabber signing a purchase contract? Is this done when using a trust and assigning beneficial interest?
Ans- Exactly. Once she draws up her
amendment to assign beneficial interest
to her new buyer, she draws up a
contract to explain the details of the trans
action to be put in the file. You see,
when the new buyer goes to sell the
property later on down the road, the
title company will ask for "Trust Certification" documents to be signed
and may ask for copies of all the trust
paperwork. Or quite possibly she is having the new buyer sign the purchase contract prior to close as the "Beneficiary" and putting the new buyer on the trust as the "Beneficiary" and then the new buyer names a new "Trustee" via an "Amendment To Trust" after the transaction has closed. I am sure what the specifics of the transaction are, so dont quote me. There
are a couple different ways to do it. Another way would be to use an LLC.
Also, does the trustee have any liability? I mean, will the end buyer automatically replace me a trustee? And if he/she doesn't replace me as trustee, what is my position, responsibility and liability?
Ans- The end buyer will release you
as the "Trustee" via an "Amendment to
Trust". She is probably using a revocable land trust that gives all the
power to the Beneficiary. Once she does her amendment naming the new
"Trustee" you are history.
Best Riches,
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."
[ Edited by JeffreyAdam on Date 03/19/2004 ][ Edited by JeffreyAdam on Date 03/19/2004 ]
After reading everyone's posts I think she was teaching this to get around the issue of ownership and the issue of flipping properties. That is an easy legal way to get around that aspect of flipping. Keeping the owner of record on title without out having control.
The part I do not get is the first close. If you are taking the property into The Smith Family Trust how does the trustee sign the HUD? The proper way would be to sign - Brenda Jones, Trustee of The Smith Family Trust. Which must appear a bit strange to the lender that you just negotiated the SS with. Peggy Smith sold the property to The Smith Family Trust???? I guess you could get away with sigining - Brenda Jones, Trustee - since it is not a legal document.
Brenda
Quote:
On 2004-03-19 17:40, bgrossnickle wrote:
The part I do not get is the first close. If you are taking the property into The Smith Family Trust how does the trustee sign the HUD? The proper way would be to sign - Brenda Jones, Trustee of The Smith Family Trust. Which must appear a bit strange to the lender that you just negotiated the SS with. Peggy Smith sold the property to The Smith Family Trust???? I guess you could get away with sigining - Brenda Jones, Trustee - since it is not a legal document.
Brenda
In this type of deal the first part is usually done like this: the new owner takes over the mortgage payments, has the owner sign title over into the trust, then trust sells the property, the mortgage from the original owner is paid. There is never a HUD for the first transfer. I was first made aware of this when I was working with people in NY and NJ. This method made financing alot easier.
That is great IAMBack, but guess what,
it will not work with a short sale!
Best Riches,
Jeffrey Adam
[addsig]
Quote:
On 2004-03-19 18:36, JeffreyAdam wrote:
That is great IAMBack, but guess what,
it will not work with a short sale!
Best Riches,
Jeffrey Adam
Actually it will if you pay the mortgage in full with cash or if you refinance the mortgage. You could also assume the mortgage and get the payoff in writing good for a certain number of days. This would require a very experienced financial mortgage consultant. The bank never sees the new loan unless you negotiated wrong or don't close in time.
We are talking about wholesaling Shortsales. I have never heard of a bank that would give you a huge discount and
then let you assume the loan at that discount price. In terms of paying cash,
and then flipping, there are not a lot of wholesale buyers that have that much cash on hand to payoff mortgage and pay you a fee as well. Besides, I feel that a sharp Title Agent will catch on that it is a flip after they see the difference in the payoff amount versus the original loan amount. I agree it will work on a
"subject to" deal though if you know what you are doing and know how to execute the trust the you set up. You have to be careful though because when you do finally sell the property the Title Company is going to ask for a Trust Certification and possibly even want to see your trust.
Best Riches,
Jeffrey Adam
Best Riches,
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."
[ Edited by JeffreyAdam on Date 03/19/2004 ]
[ Edited by JeffreyAdam on Date 03/19/2004 ][ Edited by JeffreyAdam on Date 03/19/2004 ]