Q: What happens if I put a resident beneficiary in the property and they look good at first but stop making payments after a few months or a year?
A: They are evicted with the funds in the Contingency Fund at the time of default. AS tenants in the trust-owned property, they have no right to claim an equity interest in the property (a tactic often used to stall eviction and force lengthy an expensive foreclosure process). A resident beneficiary in an EHTrust™ is merely a tenant leasing the trust property, who has agreed that any contract violation will bring about immediate eviction. The eviction action itself serves as constructive notice of the defaulting party’s intent to sell their interest in the trust a value they will have to prove by MAI appraisal, if they would disagree with purchase price offered to them. Should they in fact go to the expense of proving they are in fact owed more than the offer, it is agreed that such verified sum is to be paid to them in the form of an unsecured promissory note to honored only when the property sells at the trust’s termination (‘assuming net proceeds at that time are sufficient to cover the amount of the note).
Q: What happens if I set up an EHTrust™ with a “seller” who decides to terminate our agreement before the trust’s scheduled termination date?
A: In the EHTrust™, the property is owned (both legal and equitable tile ownership) by the nominated trustee, who will not yield to any beneficiary’s direction unless all parties are in full accord and submit a mutual letter of direction calling for termination and reconveyance of title.
Q: What I choose to terminate the trust early?
A: Again, a Notice of Direction to Terminate and Reconvey by all parties would have to be expressly delivered to the trustee, directing any such action. If any beneficiary would refuse to sign such direction, the contract would remain in full force until its scheduled termination.
Q: Who is responsible for maintenance of, and repairs to, the property during the course of a co-beneficiary EHTrust™ transaction?
A: In order to receive income tax benefits, the IRS requires that the tax payer prove having a contractual obligation to make all principal and interest payments and to cover all of the “burdens of homeownership” including the effort and expense of all maintenance and repairs to the property [ IRC 163(h)4(D)]. Do note, however, that because the resident beneficiary is under the terms of a lease (‘of a property owned by a trust), local landlord laws can be enforced in some US counties (i.e., some New York and Pennsylvania counties for example) with regard to major repairs in cases where the resident can prove having less than adequate funds for complying with safety ordinances. In worse case, under such a circumstance the trust’s beneficiaries could be deemed jointly responsible relative their respective percentages of ownership of the trust’s beneficiary interest.
Q: Why do your materials indicate that one can acquire real estate without a loan, a down payment or any particular credit requirements?
A: That’s because it is generally the owner of the property under consideration who makes those determinations, not a lender. In other words, one might decide that someone with perfect credit would only post a single payment in the Contingency Fund, whereas someone with marginal, weak or no credit could be called upon to place the equivalent or 3 or 4 (…or 10) payments in the refundable Contingency Fund, in order to cover unexpected exigencies should they occur. Cash can buy-off a lot of bad credit under the right circumstances, especially when eviction and unlawful detainer problems needn’t be anticipated.
Q: If I collect, say 3 or 4 or more advance payments from a resident beneficiary in my transaction, am I able to spend that money for my own purposes?
A: The Contingency Fund held by the Trustee is always under the direction and mutual control of the beneficiaries, and can only be drawn upon by a beneficiary upon mutual agreement by parties. However, if in the beginning it is agreed by all parties that all or a portion of the Contingency fund can be drawn upon by a particular beneficiary (assuming its refund-ability at termination remains intact, then the parties can so agree. If the property appreciates and the loan is paid down sufficiently such refund can come from the proceeds of sale. If, however, such profits are not forthcoming, the party having drawn upon the fund is subject for lawsuit for recovery of the money.
Q: What kinds of properties lend themselves to this type of seller-assisted financing?
A: First off, anyone owning real estate of any kind (residential, commercial, industrial, farm land, mixed-use, a building site, etc.) would be well-advised to hold its ownership in a title-holding (land) trust for asset protection purposes (i.e., one beneficiary, one trustee and fully anonymous ownership with lawsuit shielding without public notice of the asset’s true beneficiary-interest owner). It is only when one ads a second or third beneficiary with the right to possession that the transaction would be referred-to as an EHTrust®. And, again, any seller-assisted financing of any type of property can be best protected and serviced by use of the EHTrust™ concept.
Q: My attorney says he/she has never heard of an EHTrust™ and advices that I use another conveyance device for my owner-financing.
A: This merely means that your attorney is one of thousands of legal professional who has never had the opportunity or sufficient interest in the subject to research the concept and its myriad benefits and advantages for anyone acquiring real estate on a seller-financing or seller assisted basis. If the attorney refuses to consider the concept and learn about it, we might recommend going elsewhere. However, if you attorney balks at the EHTrust™ you might ask what alternative he/she cold provide that would afford you all of the same safety, legality and buyer and investor protection. Some question to ask in such a scenario might be:
- Doesn’t what you are suggesting violate a lender’s due-on-sale clause?
- Is my tenant buyer deprived of a claim of equity if I ever need to evict him/her and regain full ownership of the property
- Is my tenant buyer motivated to pay higher payments because of my ability to pass on my income tax write-off to them?
- In what you are suggesting, can I give the tenant-buyer all of my tax deductions (prop. Tax and insurance) with a title transfer?
- If my tenant-buyer gets into legal trouble, can his creditor liens attach to the property (i.e., ‘his ownership interest or option)?
- In the event of a default by the tenant-buyer, can I be assured of having the party out of the property and all my interest in it returned to me in 45 to 60 days?
- Has there ever been a legal failure with the system you are suggestions (never has there been such failure with the EHTrust™)
- Have you studied the many nuances of the 500 year-old a 3rd-party trustee, ‘co-beneficiary, beneficiary-directed, title-holding, inter vivos Illinois-type nominee grantor’s land trust
- Are you aware that one’s vesting his property’s title into an inter vivos trust does’ not violate any lender’s due-on-sale (alienation) admonitions?
- Are you aware that Title 12 of the Code of Federal Regulations (specifically sec. 591-vi) is not law and has never been so enacted (Re. US House of Representatives Law Revision Counsel as per 12CFR Sec 1), and that it is Title 12 of the US Code that prevails in this regard (i.e., 12USC1701j3)
Q: What is the best way to approach a seller prospect with this concept?
A: Merely ask if he/she would consider selling on a Contingency Sale basis, wherein the existing mortgage would be kept in place for a few years, until the property would be re-financed or sold, with the current loan being retired and all of today’s equity (if any) being returned to the seller at that time. The manner in which the transaction will be structured is not important until there is an agreement with regard to the Seller-Carry concept.
Q: Is there a way to guarantee a ROI?
A: No. One’s return on investment is entirely dependent upon market conditions at the time of disposition relative those at the time of acquisition. Determining profit in advance on any fluctuating investment return potential is a dangerous practice and never encouraged. For one to estimate a return on investment would require speculating on what the real estate marketing will do and what the money market will do over the term of the transaction.
Q: How does the trust protect my investment?
A: The EHTrust™ is a contractual agreement between parties which protects their interests by holding the ownership of the property in a licensed, bonded, non-profit corporate entity for the term of the agreement. In so much as the property’s ownership is so held neither party can bring about any action that would (could) jeopardize the other party’s title interest. As well, the combination of the documents comprising the EHTrust™ Transfer calls for stringent corrective and punitive action in the event of any default or abridgement of either party’s contractual obligations.
Q: Upon sale of the property at the trust’s termination, how does the EHTrust work with regard to a IRS Section 1031 tax-deferred exchange.
A: See IRR 92-105, wherein the IRS indicates that a “land trust” beneficiary with the obligations of home ownership will be treated as a homeowner for all income tax purposes. This means that a beneficiary interest holder in a title-holding (Illinois-type) land trust can indeed exchange his/her ownership for real property of any type within the section 1031 guidelines. Unlike exchanging out of a corporation, LLC or partnership, there is no Continuity of Transfer issue to have to contend with (i.e., when one must exchange an LLC only for another LLC, or a corporation only for another corporation, etc.)
Q: Can I use the trust to wrap an existing mortgage?
A: Yes. That is essentially the purpose for virtually all EHTrust™ transactions. I.e., all monthly obligations are paid to a (free) collection service, which disburses all collected funds to the designated payees: the mortgage lien holders, the property taxing agency, the insurance companies, and any other regularly recurring monthly payment recipient.
Q: What legal history can you share in regard to the DOS and dealing with lenders?
A: As per the Garn-St. Germaine Act (the Depository Institutions Regulations of Act of 1982), placement of a property of less than five (5) units is not a violation of any lender’s “due-on-sale” caveat, in that title is merely being vested in a trustee under the full direction and control of the borrower for the sole benefit of superior asset shielding…for both the borrower and for the lender’s best interest as well.
Q: As a Hard Money Lender, why should I consider the EHTrust?
A: A little known fact is that taking a beneficiary interest in a title holding trust is far safer, and affords a much easier foreclosure than does a mortgage or trust deed foreclosure, in that in order to foreclose on a land trust beneficiary interest, one merely needs to repossess personalty vs. foreclosing on realty. This is to say that beneficiary interest in a real estate trust, like stock in a corporation, is not real estate (it is personal estate). Therefore, a lender’s security interest can be perfected with a simple UCC1 filing with the Secretary of State. Then upon default by the payor, commanding the relinquished security is a matter of a quick repossession without a long and arduous (and expensive) foreclosure process.
Q: Can I sell my beneficial interest similar to discounting a note?
A: Absolutely! When a paper-buyer realizes the advantages over standard note-buying he/she will know that such an investment much more secure and predictable than ordinary paper buying.
Q: Can I use my Roth IRA money to invest into EHTrust™ properties?
A: Yes. One must be certain, however, to avoid any “self-dealing” and assure that no money from any part of the transaction is ever touched by you until the account is terminated.
Q: As a ground partner investor, can I receive monthly cash flow to pay for my services?
A: As a “ground partner” in an EHTrust™ transaction, you are expected to do certain pre-assigned tasks that an out-of-town finder or cash investor would not be able to accomplish in-person. In that regard, the extent of services required would be evaluated prior to your entering the transaction, and in some cases a negotiated monthly payment to you would certainly be justified.
Q: As a realtor, can I be paid my standard commission?
A: Yes, and then some. Realtors® typically charge their full commission plus an administrative fee for structuring the seller-carry EHTRust (generally 0.5% to 1%)…the verbiage is included in the addendum to the purchase offer form that we provide.
In many cases the Realtor® will offer to either carry some or all of his/her commission on a monthly payment basis, or on a deferred payment basis. Or…one could opt to forgo the commission, all or in part, in favor of becoming a co-beneficiary in the EHTrust™, in order to participate in future profits upon the disposition of the property at the end of the trust term.
Q: As a Realtor®, what disclosures do I need to include?
A: Any attorney, account or Realtor® if becoming a principal in a transaction must, by law, acknowledge their agency relationship and advise the client of their unreliably as an agent seek to serve their own best interests, and strongly suggest assuredly that the client seek independent professional agency representation
As well, any time a Realtor® would be representing both sides of any real estate related transaction, a standard dual agency disclosure is called-for.
Q: As a realtor, can I be an investor instead of using my license? If yes, how would this work?
A: Unless prohibited in writing by your broker, you could be an investor in any endeavor you would choose, including real estate transactions. However, it should be carefully noted that most brokerage contracts prohibit self-dealing in any capacity relative to the sale, purchase or other involvement in the practice of real estate investing or consulting.
Q: Do you have an attorney that can speak with my attorney to better explain the EHTrust system?
A: Yes. We are represented by in-house counsel.