Can A Parent Or Sibbling Do A Subject To Deal
Hi All,
I am trying to help this young couple that is getting a divorce, and house just went into foreclosure, by trying to do a sub to on the house.
What to my surprise I find out yesterday, that one of my own children is about to face foreclosure. I need to know Can A Parent or Sibbling Do a Subject To Deal.
I figure with all the knowledge I have learned here about subject to deals, I need to try to help them as much as I can. I am just a little upset with them , that they have waited till they are at this point to let me know about this.
If you know if I might be able to try a subject to for them , please let me know. I would like to get started before this goes too far.
I only have a set amount of dollars to invest into a subject to deal, and with two of them on my plate , I might have to flip one to another investor. If a sibbling can do one, mabe one of my other children can do one.
Thanks For Your Help !
_________________
"Problems Are Solutions Dressed In Work Clothes "
[ Edited by rbjj on Date 04/19/2006 ]
BUMP !!!!!!
Chris,
The trust is NEVER used to transfer occupancy rights. Once I place my property into a land trust you must remember it is now PERSONAL PROPERTY. It is an asset and requires proper asset management. THAT is the intent. I have the right to have someone live in the property, manage it for me and share future profits with me. The Law specifically allows a co-beneficiary to lease the property without compromising the DOSC. There is no need to hide anything.
I am not an attorney but here are the legal citations:
• Pub. “Using California Trusts, Planning, Implementing Administering and Terminating,” Cont. Ed. of the Bar, CA. ©1991 Regents - U of Ca.
• Barnet Resnick, “Is There Such a Thing as a California land trust?” LA Bar Bul. 4/73, pp 216-228 Bentley Mooney Jr., Esq., Preserving your Wealth [68-112];
• H. Kenoe on land trusts, etc
• La Sala v. Am. S&L, 5 Cal. 3d 864, 489 P.2d 1113, Cal.App. 91 Cal Rptr. 238; 97 Cal. Rptr. 849 (LA No. 29851 Supreme Ct. of CA)
• Coast Bank v. Minderhout, 61 Cal. 2d 311, 317 [38 Cal. Rptr. 505, 392 P.2d 265] 12 USCA §1701-j-3
Da Wiz[ Edited by mtnwizard on Date 04/18/2006 ]
John Locke has already pointed out numerous things wrong with this, from defrauding the lender to practicing law without a license. The IRS has ruled that transfer into a Trust is a sale for tax purposes, so yes, it is a transfer of ownership. The courts do not recognize a Trust in TN and LA. And the DOSC is an alligator with no teeth. What more do you need to know?
[addsig]
Mtnwizard,
I agree with you 100%. My mom lives in Louisiana in a house that once belonged to my grandparents, which has been in a trust since 1924.
TN and LA courts can pierce a Trust, so would you explain how they can grant asset protection in LA and TN?
[addsig]
u forgot ur smiley face wiz
Read my lips: THERE IS NO SALE! There is an inter vivos revocable trust and a 3-year lease (actually 2 yrs. 11 month and 29 days to comply with the DOSC) without an option to buy. No DOSC violation. Seller converts to landlord insurance. The lender is notified but cannot invoke the DOSC because the transaction is exempt by Federal law sponsored by the banks. No hiding anything, just sound asset management. Better deal for the seller than a straight sale. His asset continues to benefit him. Have a great day.
Da Wiz[ Edited by mtnwizard on Date 04/18/2006 ]
I have put my farm in Hawaii into a trust for my kids- the IRS did not consider it a sale.
MtnWizard, you have mentioned several times the 3 year trigger for a DOSC. Can you explain?
Thank you everyone for informing me and keeping things fairly civil. I plan on looking into each claim made.
Chris
Yes, Chris. Thanks for confirming what I have said all along about Land trusts and the IRS. This is what the law (Garn-St.Germain) says (I have shortened it to include only the info you need):
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender MAY NOT exercise its option pursuant to a due-on-sale clause upon—
(4) the granting of a leasehold interest of THREE YEARS OR LESS not containing an option to purchase; THIS IS WHY MY LEASE RUNS 2 YRS., 11 MONTHS, 29 DAYS, AND DOES NOT CONTAIN AN OPTION TO PURCHASE, ONLY A FIRST RIGHT OF REFUSAL TO PURCHASE AT FMV AT THE END OF THE LEASE PERIOD.
(Note: ALL Lease Options are a violation of the DOSC, as are subject to transactions.)
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; (THE TRUST ITSELF MAKES NO REFERENCE TO OCCUPANCY RIGHTS)
Good luck, Chris.
Da Wiz
[ Edited by mtnwizard on Date 04/19/2006 ]
Mtnwizard,
Does an unexercised straight option violate the DOSC?
King,
Land trusts have been in use since 1891 and the reason most people use them has nothing to do with the DOSC. It has to do with asset protection and privacy issues. Fear has nothing to do with it and exemption from the DOSC is just a nice benefit. I place my properties in trust including my own house for sound asset management as well as protection against liens and encumbrances as well as probate avoidance.
Da Wiz
LeaseOptionKing,
Trusts provide many, many others benefits other than avoiding the DOSC.
Example:
Anytime I acquire real estate subject to…………I have the owner transfer it directly to a land trust wherein he for a fee assigns me 90% beneficial interest with an option to acquire his 10% interest.
Next I record the option contract in the county where the underlying real estate owned by the trust is located, along with a performance trust deed which secures my interest.
Additionally, since I never take legal or equitable title to any real estate which is real property and only beneficial interest in the trust which is personal property, the real estate and the income it generates never shows up on my tax return, only the trust and its income which in any case would be exactly the sam.
Finally, the benefit is that since the trust is intangible personal property, unlike real estate it may be amortized over 15 years instead depreciated over 27.5 years. It is a great tax shelter and there is no recapture.
LeaseOptionKing,
I agree that the Option Contract does become a bilateral agreement once exercised and if not exercised, provided the Option Contract dictates so, the consideration (Option Fee paid to the Optionor) may be nonrefundable, because the Optionee paid for something (The Option) and received it.
However in applying “The Doctrine of Substance Over Form”, if the consideration (Option Fee Paid to the Optionor for entering into the Option Contract) is credited towards the purchase price of the property, said consideration (Option Fee Paid to the Optionor for entering into the Option Contract) will not benefit the Optionor and is nothing other than a deposit held by the Optionor which inures to the benefit of the Buyer in the form of his partial acquisition cost.
In which case the Optionor would have received no consideration (Option Fee Paid to the Optionor for entering into the Option Contract) and could simply refund the deposit to avoid the sale of his property.
Ichabod,
I think what Mtnwizard is trying to say is, that when he ACQUIRES houses subject to existing financing, he does so by requiring the sellers of those houses transfer them into land trusts , whereby they subsequently assign him 90% beneficial interest therein.
In which case, there is no sale of the house (real property).
LeaseOptionKing,
Since there are four essential elements for a valid contract:
1. Capacity to Contract-meaning all parties must be at least 18 years old (unless of course he or she is emancipated), and must also be legally competent,
2. Mutual Consent- all parties must consent to the terms of the contract,
3. Consideration- something of value must be exchanged between the parties (an Option Fee in exchange for an Option etc.,)
and
4. Lawful Purpose- meaning the contracts purpose must not be illegal,
How is it possible for an Option Contract to be valid if one ( The Optionee) gives or pays ZERO in consideration for the Option?
I agree that consideration does not have to be cash. It can be anything of value that the Optionee agrees to give that the Optionor is willing to accept.
However, can you explain to me how it’s possible for an Option Contract to be valid if the Optionee only gives the Optionor monetary consideration for the Option, and then later has the Optionor credit it towards the purchase price of property?
LeaseOptionKing,
It has been a pleasure chatting with you.
Darryle-Ca
The pleasure has been all mine. I have been looking at different Options, and all so far have made the consideration apply toward price if exercised. Where did you get yours?
[addsig]
I found some that have it apply towards a down payment (where the amount required as total down is listed also).
[addsig]
I have seen the same thing here in California.
Well, mtnwizard, no one has said anything to convince me that a trust will not shelter you from the DOSC. Is it necessary? Perhaps not. Is it safer? So it would seem. Is it a good idea? You would have to balance the cost of the trust against the risk you face if a DOSC is invoked. If you know you can get a loan in 30 days anyway if you need to, then who cares. If not, I would say the trust is the way to go; assuming that you plan on having it refinanced before three years are up in any case.
I thank you all for this interesting discussion, and respect your viewpoints. I have taken a lot away from this, and for that I am greatful. I hope this diversity of opinions and approaches can thrive on this forum- that is what makes it so useful. Besides, I just bet 40 bucks on it, subscribing- so PM me and make it worth it!
Thanks again,
Chris
Thanks, Chris. I also enjoyed it.
Da Wiz
NO, NO, YES, and YES.
[addsig]
LeaseOptionKing,
What Is a non-exclusive Option? [ Edited by Darryle-CA on Date 04/21/2006 ]
LeaseOptionKing,
I understand clearly that since your Options provide for non-monetary consideration, contained in a detailed consideration statement, that you create valid contracts, which are the basis for entering into the Purchase and Sale agreements.
However, in the event that you exclusively paid monetary consideration and exercised your Options, would a transfer of the Optionors consideration to YOU in the form of credits toward the purchase prices, strip them of THEIR monetary consideration which are the basis for them entering into the Purchase and Sale agreements.
I would say no, because these are two separate agreements. The Purchase and Sale may reflect the terms and numbers of the Option, but the two are still independent agreements. I could simply exercise my Option and have it go to closing as a bilateral agreement if I wanted to (if I paid exclusive monetary consideration).
[addsig]
Are you getting tired of me yet?
I never tire of intellectual conversation that others may benefit from.
[addsig]
LeaseOptionKing,
In an earlier post I asked,
Would it be correct to say that an Option does not have to be supported by consideration and that the Optionee does not have to give the Optionor anything in exchange for the Option right?
You answered no.
After carefully analyzing my question, I disagree with your answer.
In example, what if
“I Darryle-Ca promised and gave you LeaseOptionKing the right and Option to buy my house for 100k on Christmas Day.”
In the above example your Option would be valid, wouldn’t be supported by any consideration and no contract would have been formed.
Also prior to Christmas Day I could revoke your Option. However provided I’ve done nothing, on Christmas Day, you could exercise your Option and a unilateral contract would be formed. Your act of exercising your Option would become the consideration for my promise of selling you my house.
Subsequently, a bilateral contract would be formed by the Purchase and Sale agreement.
Tell me what you think.
That would be like you giving me an Option to grant me an Option. An Option to Option. Not legally supported and unenforceable should you breach.
[addsig]
By the way - I have not yet done this yet. I have worked though it and am waitinfg for my first escrow check. Send the POA to the lender and get them to change the address on the account to your address. The lender will then send you the check, but the lender will only make the check out to the original morgagor. You will then have to deposit the check into your account. Sign for them on the back. You should sign your name (scribble it) and then ", POA". It will help if you have a good relationship with your bank.