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™Regarding Income-Tax Benefits Re. the ©Equity Holding Corp. Trust Transfer System™

Interestingly, ‘due to Equity Holding Corp’s length time in business, we’ve been subjected to more than a few proverbial “rodeos,” and have learned a lot about what our early naysayers used to pull out of their equally proverbial lawyer-hats in order to refute our (quite valid) claims: ‘most often in order to switch a client to something they knew more about, and for which they could rack up billing hours…’and… in so doing avoid the unprofitable trip to the law library or a few hours of (‘unpaid but honest) web research.

An Early example of who was right and who was in error is the Belden Case below.

Belden is essentially an unsuccessful charge by the IRS, which at first glance may appear less than remarkable for our own purposes, in that the Equity Holding Transfer™ is not involved.  Although, due to the subject matter of the case  (i.e., a lease-purchase arrangement), the claimant was initially refused his income-tax deduction for property taxes and loan interest under the Qualified Property rules of IRC §163.  However, the final decision in this case presented an early break-through for us and the EHTransfer™ relative to whether or not a property that was vested in, and leased from, a land trust trustee would be deemed a Qualified Property under §163 if challenged.

The case dealt with a simple lease-purchase arrangement wherein the tenants, Mr. Belden and his wife, were contracted to buy the property outright at a future time, and during the interim to make all mortgage payments and cover all expenses of ownership until the agreed-upon time of purchase.  Belden presumed that his tax deduction benefits were supported by IRS Code §163 and its various subsets, including §163(h()4(D), which we refer-to frequently in the promotion of the Equity Holding Trust Transfer™.

In reviewing the case (which is digested to save you some time), ‘note that the initial refusal by the IRS to honor Mr. Belden’s claim of deductibility was based on the fact that the tax payer’s name was not on the property’s deed of title (‘ergo no proof of ownership), and neither was his name on the property’s mortgage (‘ergo no proof of any contractual mortgage obligation).

IRC §163 (h)4(D): Special Rules For Estates And Trusts 

For purposes of determining whether any interest paid or accrued by the owner of an estate or trust is qualified residence interest; and any residence held by such estate or trust shall be treated as a qualified residence of such estate or trust if such estate or trust establishes that such residence is a qualified residence of a beneficiary who has a present interest in such estate or trust, or has an interest in any residuary thereof (re. funds remaining after a payoff pertinent to a particular occurrence, such as probate, insurance or lawsuit settlement).

All of this is essentially to say that a beneficiary of the Equity Holding Transfer Trust (a land trust), who is living in, caring for  and paying for, the property, is entitled to mortgage interest and property tax deductions: ‘the criterion being 1) residing in the property as a permanent residence; 2) having a bona fide contractual obligation to pay all related interest and property taxes 3) holding either – a) ‘the equitable interest in the property, OR b) holding the equitable interest in an estate or a trust that holds the equitable interest in the property.

Note here that these qualifications do not require the tax payer to be named on the property’s deed, or to be a guarantor on the underlying financing.

Re. Wendell D. Belden, et ux (et ux = “and wife”). v. Commissioner,

TC Memo 1995-360 , Code §§163 etal.

WENDELL D. BELDEN AND SANDRA J. BELDEN.

Case Information:

Code Sec(s): 163[pg. 95-2194]
Docket: Dkt. No. 4747-93.
Date Issued: 8/02/1995.
Judge: Opinion by Gerber, J.
Tax Year(s): Years 1989, 1990.
Disposition: Decision for Taxpayer.
Cites: TC Memo 1995-360, RIA TC Memo P 95360, 70 CCH TCM 274.

 MEMORANDUM FINDINGS OF FACT AND OPINION 

Respondent determined income tax deficiencies for petitioners’ 1989 and 1990 tax years in the amounts of $12,488 and $5,040, respectively. Respondent also determined penalties under section 6662 for 1989 and 1990 in the amounts of $2,498 and $1,008, respectively. The issues for our consideration are: (1) Whether petitioners are entitled to claim interest deductions under code section 163 for 1989 and and 1990; and (2) whether petitioners are liable for the penalty under section 6662 for negligence and/or disregard of the rules or regulations for either 1989 or 1990.

Petitioners Wendell D. and Sandra J. Belden are husband and wife, and they resided in Tulsa, Oklahoma, at the time their petition was filed in this proceeding. Petitioner Wendell D. Belden was a registered investment adviser during 1988. At all relevant times, petitioners reported their income and deductions on the cash method of accounting. On December 19, 1988, petitioners entered into a contract for the purchase of a residence (Crown Pointe property) and took possession within two weeks thereafter. On January 16, 1989, petitioners and the seller, Ahrend Homes, Inc. (Ahrend), entered into an occupancy agreement as a supplement to the contract for purchase, providing petitioners with immediate rights of occupancy.

The purchase contract committed petitioners to paying $500,000 for the property, $20,000 of which was paid to Ahrend as earnest money. Petitioners were to obtain $400,000 of permanent financing. The $80,000 balance was to be supplied by petitioners in the form of a promissory note to Ahrend at closing. The purchase contract was subject to the condition-subsequent that Ahrend obtain suitable financing for the $400,000 under terms acceptable to petitioners. In that regard, petitioners were required to be reasonable in their acceptance or rejection of the final financing secured by Ahrend. There was no stated time limit within which financing could be obtained. The parties had not contemplated the amount of time it might take to secure permanent financing.

 

Until arranging for permanent financing, the occupancy agreement with Belden required petitioners to pay Ahrend $3,500 monthly, commencing February 1, 1989. The $3,500 was in the same amount as the interest Ahrend was paying on its outstanding construction loan on the Crown Pointe property. It was the parties’ understanding that petitioners would bear the $3,500 construction mortgage interest as long as they possessed the house and until permanent financing could be obtained. The $3,500 payment was designated “interest only” in the occupancy agreement and terminated upon completion of the sale. During 1989 and 1990, petitioners’ $3,500 monthly payments totaled $42,000 and $18,000, respectively. All utilities were to be placed in petitioners’ names, and petitioners agreed to obtain liability and contents insurance. Following a 2-month transition period, petitioners were responsible for the costs of repairs to plumbing, heating, cooling, electrical equipment, and appliances. Ahrend was given the option of obtaining insurance on its interest in the residence, and was required to pay the local real estate taxes on the Crown Point property. Petitioners and Ahrend complied with all terms of the occupancy agreement.

The Crown Pointe property had been vacant for several years and had fallen into poor repair prior to petitioners’ agreeing to purchase it. Petitioners paid in excess of $13,000 to repair, maintain, or improve the property during 1989. The occupancy agreement provided that petitioners would be reimbursed for improvements that they made to the property, in the event that petitioners were not the ultimate legal title holders of the Crown Pointe property. If the sale was ultimately unsuccessful, petitioners were liable for any damage (which exceeded normal wear and tear) that they caused to the property.

Petitioners and Ahrend did not close on the purchase contract, title was not transferred from Ahrend to petitioners, and fi nancing was not obtained. These events did not occur because of the bank’s foreclosing on Ahrend’s construction mortgage on the Crown Pointe property. Ultimately, petitioners purchased the property from the foreclosing bank, receiving title on February 1, 1991. Petitioners were named as defendants in the foreclosure action because of their equitable or possessory interest in the Crown Pointe property. After commencement of the foreclosure proceeding, and prior to petitioners’ purchase of the Crown Pointe property from the bank, petitioners paid the $3,500 monthly payments directly to the bank. On February 1, 1991, petitioners obtained a $297,000 mortgage on the Crown Pointe property with a bank that had not previously been involved with the property.

OPINION

On their 1989 and 1990 Federal income tax returns, petitioners claimed the $3,500 monthly payments made in connection with the Crown Pointe property as deductible interest payments. These payments were made pending the closing of the residential real estate transaction in which the seller was to obtain permanent financing for the buyer, while the buyer had possession and the benefits of full use of the property as a personal residence. Respondent argues that the payments made by petitioners to Ahrend and the bank were rent and not interest. Petitioners bear the burden of showing that they were entitled to the deductions in question. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435 [13 AFTR 1180] (1934).

Generally, section 163 provides for the allowance of a deduction for all interest paid on indebtedness. Personal interest, however, is generally not deductible. Sec. 163(h). “Qualified residence interest”, however, is excepted from the definition of “personal interest” within section 163. Sec. 163(h)(2)(D). “Qualified residence interest” includes interest paid during the taxable year on acquisition indebtedness with respect to a qualified residence. Sec. 163(h)(3)(A)(i). A “qualified residence” includes a taxpayer’s principal residence within the meaning of section 1034. Sec. 163(h)(4)(A).

In order to constitute “acquisition indebtedness”, the debt must be “incurred in acquiring, constructing, or substantially improving any qualified residence and [it must be] secured by such residence.” Sec. 163(h)(3)(B)(i). Generally, to be deductible interest under section 163(h)(3), a payment must be made with respect to indebtedness that is secured by the taxpayer’s qualified residence. Secs. 163(a), 163(h)(3)(B); sec. 1.163- 10T(o)(1)(i), Temp. Income Tax Regs., 52 Fed. Reg. 48410 (Dec. 22, 1987).

Petitioners were contractually bound to purchase and Ahrend was bound to sell the subject realty. The contract contained a condition subsequent by requiring that Ahrend find acceptable financing for petitioners, but petitioners were required to be reasonable in approving the financing located by Ahrend. Respondent characterizes the contract as being conditional, implying that petitioners controlled the outcome (they could avoid their obligation to take title and pay the remaining $480,000) by refusing to accept any financing obtained by Ahrend. Petitioners counter that they were bound to purchase, had possession of, and were the equitable owners of the realty. Respondent, on the other hand, argues that ownership of the realty is not the deciding factor, and thus, petitioners did not incur any indebtedness in 1989 or 1990 within the meaning of section 163(h)(3). Respondent contends that petitioners did not incur indebtedness until 1991, when title was received from the foreclosing bank and petitioners obtained a $297,000 mortgage. In that regard, respondent argues that Ahrend’s indebtedness cannot be relied on by petitioners to satisfy this requirement. Petitioners counter that they were equitable owners of the property, and that their payments to Ahrend were for interest on the construction loan as set forth in the agreements between the parties.

For petitioners to be entitled to the claimed interest deductions for 1989 and 1990, section 163(h)(3) requires that they show: (1) The interest was paid on “acquisition indebtedness” (i.e., debt “incurred in acquiring, constructing, or substantially im proving any qualified residence”); 3 and (2) the indebtedness was secured by such qualified residence.

Petitioners made the $3,500 payments either to Ahrend (which in turn made them to the bank) or directly to the bank after the time of the foreclosure. The occupancy agreement between petitioners and Ahrend designated those payments as interest on Ahrend’s construction loan, which was incurred to build the qualified residence (Crown Pointe property). The construction loan was secured by a mortgage on the Crown Pointe property, and that mortgage was foreclosed by the bank from which petitioners ultimately obtained legal title. We must now decide whether petitioners are entitled to deduct interest on debt that they are not personally obligated to repay.

Section 1.163-1(b), Income Tax Regs., provides that “Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.”

See also Baird v. Commissioner, 68 T.C. 115, 123 (1977). Respondent argues that the contractual relationship between petitioners and Ahrend was conditional such that petitioners could not become the legal or equitable owners until the property was deeded to them. In a Federal tax proceeding, the question of when a sale is completed is to be resolved by the facts and circumstances in each case, and no one factor is controlling. Id. at 124; Clodfelter v. Commissioner, 426 F.2d 1391 [25 AFTR 2d 70-1254] (9th Cir. 1970), affg. 48 T.C. 694 (1967). Concerning real property, a sale is completed at the earlier of transfer of legal title or the practical assumption of the benefits and burdens of ownership. Baird v. Commissioner, supra at 124; Dettmers v. Commissioner, 430 F.2d 1019 [26 AFTR 2d 70-5280] (6th Cir. 1970), affg. Estate of Johnston v. Commissioner, 51 T.C. 290 (1968). Our factual inquiry must focus upon the shift of the benefits and burdens of ownership. Baird v. Commissioner, supra at 124; Merrill v. Commissioner; 40 T.C. 66 (1963), affd. per curiam 336 F.2d 771 [14 AFTR 2d 5703] (9th Cir. 1964).

Petitioners did not acquire legal title until 1991. Accordingly, we must consider whether the benefits and burdens of ownership transferred to them prior to 1991. At the time petitioners entered into the contract with Ahrend, the only incomplete contractual requirements were: (1) Obtaining permanent financing, (2) execution and transfer of an $80,000 note from petitioners to Ahrend, and (3) transfer of legal title from Ahrend to petitioners. Petitioners had the complete right to possess and resided in the Crown Pointe property, beginning 2 weeks after the agreement was executed. While Ahrend had the option to obtain insurance on the residence and was required to pay the local real estate taxes, petitioners were required to maintain liability and contents insurance. All utilities were carried in petitioners’ names, and they bore the costs of any improvements, unless the property was ultimately sold to a different buyer. Following a 2-month transition period, petitioners were responsible for the costs of repairing the plumbing, heating, cooling, electrical equipment, and appliances.

Under Oklahoma law, if the parties enter into a contract for the sale of realty, factual inquiry must focus upon the shift of the benefits and burdens. A contract for sale, coupled with the buyer’s taking possession, constitutes a transfer of the benefits of ownership to the buyer and may constitute a transfer of an equitable interest. State Life Ins. Co. v. State, 135 P.2d 965, 967- 968 (Okla. 1942); Resolution Trust Corp. v. Sudderth, 854 P.2d 375, 377 (Okla. Ct. App. 1993); King v. Lunsford, 852 P.2d 821, 823 (Okla. Ct. App. 1993). In State Life Ins. Co. v. State, supra, the Oklahoma Supreme Court, in finding the transfer of equitable interest when legal title had not yet passed between parties who contracted for the sale of realty and transferred possession, stated that:

It may be that a mere contract or provision in a contract agreeing to sell real estate at some future date is insufficient of itself to create a present equitable estate in the vendee. But, as in all contracts, the intention of the parties, especially the vendor, governs. If the contract as a whole shows that the intention was to convey a present equitable estate the courts will give effect to such intention regardless of the separate meaning of particular or isolated words.

 

 

 

The present contract provided that the vendor bargained to sell and the vendee agreed to purchase

 

Among those terms was the immediate surrender of possession to the vendee. *** In such case rightful possession carries with it the beneficial interest, and nothing remains to be done except to pay the purchase money when due and to execute the deed. In such case there is a transfer of the equitable estate ***

Viewing this record in its entirety, we conclude that the benefits and burdens of ownership shifted to petitioners when they took possession of the residence. Baird v. Commissioner, 68 T.C. at 124; State Life Ins. Co. v. State, supra.

Petitioners rely heavily on a factually similar opinion of this Court. Amundson v. Commissioner, T.C. Memo. 1990-337 [90,337 PH Memo TC]. In that case a brother was allowed to deduct interest payments on his sister’s mortgage because of an informal agreement under which the brother would acquire a 50-percent interest in the subject residence if he made mortgage payments. Having concluded that the brother/taxpayer “had a 50-percent equitable interest in the property and, in effect, [that he] had assumed liability for the mortgage”, this Court held that the brother/taxpayer was entitled to deduct the interest payments. In the instant case, respondent argues that the taxpayer had no legal obligation to the lender that would permit an interest expense deduction. But the cases cited by respondent in that regard are similar to those which, in Amundson v. Commissioner, supra, were regarded as distinguishable because those cases involved taxpayers who had guaranteed corporate loans secured by collateralizing their residences. Because of the finding in Amundson that the brother/taxpayer had an ownership interest in the property, the cited cases were there distinguished.

This case also presents a unique set of facts under which we conclude that petitioners had a possessory and an equitable interest in their residence. Through their two contracts with Ahrend, petitioners effectively assumed the obligation to pay the interest on the construction mortgage until permanent financing could be obtained. The $3,500 payments were neither rent nor payments to reduce the purchase price. Moreover, the price agreed upon between petitioners and Ahrend remained at $500,000, irrespective of the lapse of time or the total number of $3,500 monthly payments made. Petitioners agreed to carry the existing mortgage interest during the interim period in which Ahrend searched for financing. They were the equitable owners of the property during that period and are entitled to deduct the payments as interest.

Under the unique circumstances of this case, petitioners are entitled to qualified residence interest deductions in the amounts of $42,000 and $18,000 for 1989 and 1990, respectively. Having decided that petitioners are entitled to the deductions in controversy, there are no deficiencies in their income tax, and there is no need to reach the issue of whether petitioners are liable for a penalty for negligence in either year.

To reflect the foregoing,

Decision will be entered for petitioners.

 

 

The next case (‘also digested for convenience) regards one of our own Equity Holding Transfer ™ transactions that was taken to task a few years ago by the IRS when they opted to refuse our clients their rightful claim of income tax deductions for mortgage interest and property tax.

 

As had been their contention in the Belden case, the refusal of the tax deduction came about because the tax payer (Daniel Adams and his wife) were not named on the loan and neither were they shown on the property’s title as owners: i.e., ‘due to their trustee being the legal and equitable title holder of the property entrusted to it…’which is the nature of any title-holding (“Illinois type land trust”).

 

However, because they apparently don’t read their own proclamations often…’or well: in Adams they neglected to look at their own IRC163(h)4(D), which states quite succinctly and clearly that a beneficiary in a “land trust” by any other name is indeed entitled to full income tax benefits as long as the beneficiary can prove being: 1) a full time resident; 2)  responsible for the full burdens of ownership; 3)  pays all property taxes; taxes and all debt relative to the property, and is doing so under a bonafide contract; and 4) is holding either an equitable interest in the property…OR…an equitable interest in an estate or trust that holds the property’s equitable title interest.

 

As long as these qualifications are met and the verbiage in IRS’ Revenue Ruling 92-105 is adhered to, ‘no longer is there a question about a title-holding trust’s full-pay co-beneficiary’s right to income-tax deductibility.

 

Here’s the Adams case:

 

T.C. Memo. 2010-72

UNITED STATES TAX COURT

 

A Federal Tax Court Ruling

 

ANTHONY J. ADAMS, Petitioner

 

v.

 

COMMISSIONER OF INTERNAL REVENUE, Respondent

 

Docket No. 2563-08.              Filed April 13, 2010.

 

Anthony J. Adams, pro se.

 

Bryan E. Sladek and Robert D. Heitmeyer, for respondent.

 

MEMORANDUM FINDINGS OF FACT AND OPINION

 

VASQUEZ, Judge:  For 2003 and 2004 respondent determined deficiencies in petitioner’s Federal income taxes, additions to tax, and penalties as follow

 

Year Deficiency Addition to TaxSec. 6651(a)(1) PenaltySec. 6662(a)
2003 $38,020 $6,304.00 $7,604
2004 $20,705 $1,983.25 $4,141
Unless otherwise indicated, all section references are to the Internal Revenue Code (I.R.C.) in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

 

 

 

As an initial matter, neither party argued or was briefed whether or not:

 

(1) The Essex Drive trust should have claimed the mortgage interest deduction pursuant to section 163(h)(4)(D)1 and the provisions of subchapter J;

 

(2) Petitioner (Belden) could have claimed the mortgage interest deduction as investment interest, Re. Davies v. Commissioner, 54 T.C. 170, 176 (1970) (property that was a residence in the taxpayer’s hands was business property in the land trust’s hands); or

 

(3) The Essex Drive trust was a mere nominee, a sham, or should otherwise be disregarded, see Norton v. Commissioner, T.C. Memo. 2002-137 (land trusts disregarded as shams and income taxable to beneficiaries).  These issues are deemed waived.  See Rule 40; Muhich v. Commissioner, 238 F.3d 860, 864 n.10 (7th Cir. 2001) (issues not addressed or developed are deemed waived–it is not the Court’s obligation to research and construct the parties’ arguments), affg. T.C. Memo. 1999-192; 330 W. Hubbard Rest. Corp. v. United States, 203 F.3d 990, 997(7th Cir. 2000) (same); Larson v. Northrop Corp., 21 F.3d 1164, 1168 n.7 (D.C. Cir. 1994) (declining to reach issues neither argued nor briefed).  Accordingly, our decision in the case will be based upon the extent to which section 1.163-1(b), Income Tax-Regs., applies and on the arguments the parties asserted or briefed with respect thereto.

 

For 2003 and 2004, respectively, respondent (the IRS) concedes that petitioner is entitled to deductions for:  (1) State and local income taxes of $3,823 and $4,161; (2) real estate taxes of $3,346 and $5,020; (3) charitable contributions of $11,263 and $11,637; (4) miscellaneous expenses of $1,330 and $989 (before application of the section 67(a) 2-percent floor); and (5) “Schedule E” net losses of $81,226 and $34,645.

 

The issues remaining for decision for 2003 and 2004 are whether petitioner is:  (1) Entitled to his claimed mortgage

interest deductions; (2) liable for the section 6651(a)(1) additions to tax; and (3) liable for the section 6662(a) accuracy-related penalties.

 

FINDINGS OF FACT

 

Some of the facts have been stipulated and are so found.

 

The stipulation of facts is incorporated herein by this reference.  Petitioner resided in the state of Michigan when the petition was filed.

 

  1. The Essex Drive Trust: Formation and Trust Agreement

 

In 2003 Michael and Zina Gedz transferred legal and equitable title to 325 Essex Drive (Essex Drive property) for a 5-year period to Equity Holding Corp. acting as trustee for the Essex Drive Trust, pursuant to a trust agreement.  A warranty deed memorializing the transfer was recorded by the Register of Deeds,

Oakland County, Michigan.

 

The trust agreement provides that the purpose of the Essex Drive Trust is to hold the Essex Drive property and the proceeds and profits therefrom in trust for the beneficiaries’ use and benefit.  The trustee is to deal with the Essex Drive property only when the beneficiaries authorize it to do so.

 

According to the trust agreement, the beneficiaries’ “interests * * * consist solely” of:  (1) A power of direction to authorize the trustee to deal with the Essex Drive property; (2) the right to receive or direct the disposition of proceeds from the Essex Drive property; (3) the right to purchase, lease, manage, and control the Essex Drive property; and (4) “the obligation for expenses and disbursements relative to the trust property.”  The beneficiaries’ rights to the proceeds are “deemed to be personal property”; the beneficiaries do not possess “any right, title, or interest * * * [in the Essex Drive property] either legal or equitable”

 

Expenses of the Essex Drive Trust are allocated among the beneficiaries according to their respective percentages of beneficial interests held, unless otherwise agreed.  The beneficiaries also are required to obtain insurance for the Essex Drive property.  A beneficiary’s interest passes to an executor or Administrator of his or her estate on death; otherwise, a transfer of a beneficiary’s interest to a third party is subject to the other beneficiaries’ rights of first refusal, and no assignment of a beneficiary’s interests is valid.

 

Unless all beneficiaries consent, a copy of the assignment is delivered to the trustee, and the trustee indicates its acceptance thereon.

 

The trust agreement further provides that the trustee is not obligated to file Federal income tax returns or schedules on behalf of the Essex Drive Trust, notwithstanding “section 671 of the * * * [I.R.C.] of 1954 or any other applicable regulation.”

 

If it becomes necessary for the Essex Drive Trust to file a Form 1041, U.S. Income Tax Return for Estates and Trusts, or other informational returns under “section 6031 of the * * * [I.R.C.] of 1954,” the trustee will not be obligated to prepare them, ‘but the trustee will sign informational returns if necessary at the

beneficiaries’ request.  The beneficiaries are to report and pay all taxes on the earnings and proceeds of the Essex Drive property or which otherwise arise from their beneficial interests.

 

  1. Petitioner’s Beneficial Interest and Trust Documents

 

In 2003 the Gedzes assigned a 40-percent beneficial interest in the Essex Drive Trust to BOGAT Management, and a 50-percent beneficial interest in the Essex Drive Trust to petitioner and Sandra Adams.

 

  1. Beneficiary Agreement

 

The Gedzes, BOGAT Management, LLC (Bogert and Gatten), and petitioner and Sandra Adams entered into a beneficiary agreement that provides that the beneficiaries collectively have the:  (1) Power of direction to authorize the trustee to deal with the Essex Drive property’s title; (2) “right to receive and/or direct the disposition of proceeds from rentals, mortgages, sales, or other related income sources”; (3) right and duty to manage the Essex Drive property; and (4) obligation to pay the Essex Drive property’s expenses.

 

The beneficiaries’ interests in the Essex Drive Trust are personal property interests.  The beneficiaries share in the Essex Drive property’s earnings, gains, proceeds, and expenses according to their respective percentages of beneficial interest held.  No beneficiary may make material alterations or improvements to the Essex Drive property without the trustee’s and the other beneficiaries’ prior written consent.  The beneficiaries’ rights to transfer their beneficial interests are subject to the provisions of the trust agreement, and any transfer must be agreed to by a majority of the beneficiaries.

 

The beneficiary agreement further provides that the Essex Drive property will be sold at termination (i.e., February 28, 2008) subject to a first right to purchase (right of first refusal) held by petitioner and Sandra Adams.  The terms of the right of first refusal are that the Essex Drive property is to be made available for sale to petitioner and Sandra Adams at a price equal to what would be proposed by a third party and that they have a right to offset the sale price by the value of their share of profits derived and any contributions that are agreed to have been paid by, and refundable to, petitioner and Sandra Adams.

 

Petitioner and Sandra Adams’ right of first refusal “begins with the date of * * * [the inception of the related beneficiary agreement (March 1, 2003) and terminates upon the Essex Drive property’s sale or other disposition.”  According to “Exhibit ‘A’ to the Beneficiary Agreement”, petitioner and Sandra Adams’ refundable contribution is the sum of $12,000.  Their initial contribution consists of all nonrecurring costs contributed including closing costs, contributions to existing equity “($0.00 -‘Down Payment’),” Realtor®  commissions, and costs of agreed-upon expenditures for repairs and capital improvements to the Essex Drive property by petitioner and Sandra Adams.  Petitioner and Sandra Adams’ contributions are deemed fully “Refundable At Termination, If Equity Permits”.

 

 

  1. EHT Occupancy” Agreement

 

The related beneficiary agreement also provides that no beneficiary is entitled to occupy or possess the Essex Drive property unless an NEHT Occupancy agreement accompanies the beneficiary agreement.  The NEHT Occupancy agreement refers to the Essex Drive Trust as “Landlord” and to petitioner and Sandra Adams as “Tenant,” and provides that Landlord agrees to lease to Tenant the Essex Drive property, whereupon Tenant is to pay rent of $2,900 per-month, which includes principal and interest on all loans secured by the Essex Drive property.  Tenant is required to maintain insurance coverage for and is liable for all repairs and maintenance of the Essex Drive property.  Tenant may not make material alterations to the Essex Drive property without Landlord’s consent, and expenditures for repairs are not refundable or creditable to Tenant unless done at Landlord’s written direction.  Tenant may not assign or sublet its interest under the NEHT Occupancy agreement.

 

  1. Related Documents

 

Petitioner and Sandra Adams received other documents for the Essex Drive property.  The first document, titled “Beautiful Home”, states:  (1) No bank qualifying, no credit approval, and immediate tax benefits; (2) “Rent to Own”; (3) three payments and closing costs get you in at $320,000; and (4) participate in future appreciation and benefit in equity buildup.  The second document, titled “How We (TK Investment Properties, LLC) Can Benefit You (the Buyer))”, states that benefits provided to a buyer include:  (1) easier credit qualification and payment arrangements; (2) entitlement to all income tax deductions for “Mortgage Interest and Property Tax payments,” even though title does not pass to buyer; (3) receipt of equity buildup from reduction of the mortgage principal as payments are made; (4) receipt of appreciation of the Essex Drive property; (5) protection of the Essex Drive property from the buyer’s creditors; and (6) the pride of ownership without the rules and constraints of conventional real estate acquisition and mortgage processes.  These documents include an amortization table that was provided to petitioner and Sandra Adams, and sets forth the amounts of mortgage interest and principal paid for each successive payment.

 

III.  Petitioner’s Occupancy

 

Petitioner and Sandra Adams moved into the Essex Drive property in June 2003 and resided there for 5 years.  During that time petitioner made improvements to the Essex Drive property.  For example, he replaced the cedar deck for about $1,700 and installed an automatic garage door opener for about $500 to $600.  He re-landscaped the Essex Drive property and incurred costs of about $1,500 for “Dirt shoveling, [and] stuff like that.”  He also incurred costs of about $500 to $600 to have glass block windows installed in the basement because of Michigan’s harsh winters.  Since the Essex Drive property trust’s value declined, however, and at the end of the contract term petitioner did not exercise the right of first refusal to purchase the Essex Drive property.  Petitioner sent Equity Management Services payments of $2,900 per-month that included principal and interest on all loans secured by the property.  Petitioner credibly testified that that the fair rental value of the Essex Drive property was about $1,500 to $1,600 per month.  The escrow account statements from which the mortgage payments were made, bear the Gedzes’ names as mortgagees(? sic), and the Forms 1098, Mortgage Interest Statement, also bear the Gedzes’ names as mortgagees (?).  Equity Management Services, acting on behalf of Equity Holding Corp. sent petitioner copies of the escrow account statements and the Forms 1098.

 

  1. Petitioner’s Tax Returns

 

Petitioner filed his 2003 Form 1040, U.S. Individual Income Tax Return, in November 2005.  He filed his 2004 Form 1040 in February 2006.11  For 2003 and 2004, respectively, he claimed mortgage interest deductions of $24,135 and $23,471 that respondent disallowed.

 

 

 

 

OPINION

 

Petitioner has neither claimed nor shown that he satisfied the requirements of section 7491(a) to shift the burden of proof to respondent.  Accordingly, petitioner bears the burden of proof.  See Rule 142(a).

 

  1. Mortgage Interest Deductions

 

Section 163(h)(1) generally disallows a deduction for personal interest.  An exception to this rule is qualified residence interest.  Sec. 163(h)(2)(D).  Qualified residence interest includes interest paid or accrued during the taxable year on acquisition indebtedness.  Sec. 163(h)(3)(A). Acquisition indebtedness means any indebtedness that is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer and is secured by the residence.  Sec. 163(h)(3)(B)(i).  A qualified residence includes the principal residence of the taxpayer.  Sec. 163(h)(4)(A).

 

Generally, for interest on a mortgage to be deductible the indebtedness must be an obligation of the taxpayer and not an obligation of another.  Smith v. Commissioner, 84 T.C. 889, 897 (1985), affd. without published opinion 805 F.2d 1073 (D.C. Cir. 1986).  But section 1.163-1(b), Income Tax Regs., provides: “Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.”  Where a taxpayer has not established legal, equitable, or beneficial ownership of property, we have disallowed the taxpayer’s claimed mortgage interest deduction.  Hynes v. Commissioner, 74 T.C. 1266, 1288 (1980); Song v. Commissioner, 2  Whatever rights or interests petitioner held in the Essex Drive property are determined under Michigan law because the property is in Michigan, see Altmann v. Commissioner, 20 T.C. 236, 252 (1953), and the trust agreement provides that it is governed by Michigan law. T.C. Memo. 1995-446; Bonkowski v. Commissioner, T.C. Memo. 1970-340, affd. 458 F.2d 709 (7th Cir. 1972).

 

The Court considers State law to determine the nature of the taxpayer’s property rights.  United States v. Natl. Bank of Commerce, 472 U.S. 713, 722 (1985); Aquilino v. United States, 363 U.S. 509, 513 (1960).12  The Court also considers certain factors to determine whether a taxpayer is an equitable or beneficial owner of the property, including whether the taxpayer:  (1) Has a right to possess the property and to enjoy the use, rents, or profits thereof; (2) has a duty to maintain the property; (3) is responsible for insuring the property; (4) bears the property’s risk of loss; (5) is obligated to pay the property’s taxes, assessments, or charges; (6) has the right to improve the property without the owner’s consent; and (7) has the right to obtain legal title at any time by paying the balance of the purchase price.  Blanche v. Commissioner, T.C. Memo. 2001-63, affd. 33 Fed. Appx. 704 (5th Cir. 2002).

 

Under Michigan law, the term “trust” includes any express trust wherever and however created (with certain exceptions not shown here).  Mich. Comp. Laws Serv. sec. 700.1107(m) (Lexis Nexis 2005).  Express trusts may be created to sell, mortgage, or lease lands; to receive the rents and profits of lands and apply them to the use of any person, during the life of the person, or for any shorter term subject to the rules prescribed in Mich. Comp. Laws Serv. chapter 554; or for the beneficial interest of any person where the trust is fully expressed and clearly defined upon the face of the instrument creating it subject to the limitations as to time.  Mich. Comp. Laws Serv. sec. 555.11 (Lexis Nexis 2007).

 

Petitioner’s property rights or interests are as follows: he is a beneficiary of the Essex Drive Trust, which meets the definition of an express trust under Michigan law; however, the trust agreement provides that he does not have any right, title, or interest in the Essex Drive property. See id.  Other related documents refer to him as a buyer and certain attributes of a sale are present such as a down payment, closing costs, and petitioner’s payment of principal and interest, while other attributes of a sale are not present such as a transfer of the Essex Drive property by deed to petitioner.  The NEHT Occupancy agreement refers to him as Tenant and to his monthly payments as rent.  The escrow account statements, the Forms 1098, and an amortization table were sent to petitioner, even though he was not personally liable for the mortgage, and the escrow account statements and the Forms 1098 bear the Gedzes’ names.  We now turn to the benefits and burdens of ownership factors. Some factors weigh in favor of finding that petitioner had assumed the benefits and burdens of ownership of the Essex Drive property while others weigh against.

 

Factors that indicate that petitioner assumed the benefits and burdens of ownership are:

 

(1) He had a duty to repair or maintain the Essex Drive property;

(2) He was responsible for insuring the Essex Drive property;

(3) He had a duty to pay the Essex Drive property’s taxes, assessments, or charges;

(4) He had a right to the Essex Drive property’s proceeds from rents, mortgages, or sales;

(5) He had the right to obtain legal title at any time by paying the balance of the purchase price:  his right of first refusal having begun on the date of the beneficiary agreement and having terminated on the Essex Drive property’s sale or other disposition;

(6) He bore some risk of loss because he was required to maintain insurance on the Essex Drive property and because he could lose his refundable contribution, which may have included the value of the improvements petitioner made, if there was no equity in the Essex Drive property; and…

(7) He agreed to pay the mortgage principal and interest under the NEHT Occupancy and beneficiary agreements.  See Amundson v. commissioner, T.C. Memo. 1990-337 (finding agreement to make mortgage payments created “enforceable interest-bearing debt” to taxpayer’s sister); see also Belden v. Commissioner, T.C. Memo. 1995-360.15  In short, petitioner treated the Essex Drive property as if he owned it.  See Amundson v. Commissioner, supra (taxpayer’s performance of obligations as owner is indicative of ownership interest); see also Trans v. Commissioner, T.C. Memo. 1999-233 (same); Uslu v. Commissioner, T.C. Memo. 1997-551 (same).

Factors contrary to petitioner having assumes the benefits and burdens of ownership are: 

 

(1) He could choose not to exercise his right of first refusal and to walk away from the Essex Drive property, see Randolph v. Reisig, 727 N.W.2d 388, 392 (Mich. Ct. App. 2006) (right of first refusal does not create interest in land); see also Jones v. Commissioner, T.C. Memo 2006-176 (Optionee was not entitled to mortgage interest deduction because under California law he had no ownership interest in property and because he had not acquired sufficient benefits and burdens of ownership to establish that he was equitable owner);

(2) He had to enter into an NEHT Occupancy agreement with the Essex Drive Trust in order to possess or enjoy the use of the Essex Drive property, see Ryan v. Commissioner, T.C. Memo. 1995-579; and (3) although petitioner made substantial improvements to the Essex Drive property, the beneficiary and NEHT Occupancy agreements provide that he could not make material alterations or improvements to the Essex Drive property without certain consents.

Ergo, on the unique facts of this case, we conclude that the benefits and burdens that favor ownership outweigh the factors against ownership.  Petitioner has assumed the benefits and burdens of ownership of the Essex Drive property.  See, e.g., Derr v. Commissioner, 77 T.C. 708, 725-728, 724 n.11 (1981) (beneficiary of an Illinois land trust possessed most attributes of ownership).  Petitioner, therefore, is entitled to the mortgage interest deductionsRespondent’s determinations are not sustained.

 

  1. Section 6651(a)(1) Additions to Tax

 

The section 6651(a)(1) additions to tax were based on the deficiencies.  Because of our holding that petitioner is entitled to the mortgage interest deductions and because respondent conceded the other deductions that he had disallowed in the notice of deficiency, see supra p. 3, petitioner is not liable for the deficiencies.  As there are no deficiencies, petitioner is not liable for the additions to tax.

 

III.  Section 6662(a) Accuracy-Related Penalties

 

Because of our holding that petitioner is entitled to the mortgage interest deductions and because respondent conceded the other deductions that he had disallowed in the notice of deficiency, see supra p. 3, there are no under payments of tax.   Therefore, petitioner is not liable for the section 6662(a) accuracy-related penalties.  Respondent’s determinations are not sustained.

 

      To reflect the foregoing, the court’s decision will be entered forthwith under Rule 155.

 

 

VASQUEZ, Judge:

 

 

 

 

DUE-ON-SALE CLAUSE: The clause (Para. #17) in virtually all mortgage loans, that permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance Due and Payable immediately should the property securing the loan be sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent (‘and without the borrower’s giving them the opportunity to charge more money or say “No” to the transfer).

Despite the due-on-sale clause and its implications in the creative real estate financing business, it is quite possible for one to take over the payment stream on a non-assumable mortgage loan without needing to fear, or even to be concerned with, a DOSC Violation…’and without violating it.

In order to effect such a take-over without there being an unauthorized transfer, one need simply assure that the property is, in-fact, NOT being sold, traded, hypothe-cated or transferred in any ‘unauthorized’  manner (‘i.e., one’s placing his/her own real estate into his/her own inter vivos trust is not considered an unauthorized transfer as per Title 12 of the US Code §1701j-3)).

In this regard, since placement of real estate in the borrower’s revocable living trust for “asset protection” purposes is fully allowable under the law (ibid); and since appointment of a co-beneficiary as Remainder Agent is a prudent thing to do when creating any kind of inter vivos trust: a would-be “seller (“owner of record”) need merely vest its real estate in bona fide corporate trustee for such a trust, and thereupon deal with the ownership interest in the trust, ‘rather than dealing with the title ownership in the property.

At this point, the buyer (‘i.e., ‘of beneficiary interest: versus interest in real estate) gains virtually 100% of the same incidents and benefits of Fee-Simple Real Estate ownership that any traditional buyer might in a traditional transfer of the property’s title, i.e.: income tax deduction for mortgage interest and property tax, use, occupancy, quiet enjoyment, littoral and riparian water rights, salability, and the right to ‘quiet enjoyment.”

The only caveat here is that the “living (inter vivos)” trust being utilized for this purpose must be an “Illinois-type,” title-holding [Land] Trust, and be fully revocable and be an inter-vivos trust (‘i.e., ‘in effect during one’s lifetime).   However, the land trust is, by its nature, wholly directed by its beneficiaries and ‘not by its trustee, as is the case with other inter vivos trust structure (‘such as, say, a “fully funded inter vivos family trust).  As well, ‘in the land trust, the legal title to the corpus (‘the property) as well as all “equitable” title, is vested in the trustee, who becomes the true (‘albeit, temporary) owner of the real estate during the trust’s stipulated term of agreement.

As a result of of the total vesting of title in the trustee, the beneficiaries themselves, hold only a personal property interest in the trust, versus owning real estate per sé; however, in this type of trust, the beneficiaries are none-the-less treated as property owners for income tax purposes (IRR §92-105).

The term of the trust is decided-upon by mutual-agreement of the beneficiaries, and can last up to 21 years beyond the “life-in-being” of any primary beneficiary (i.e., this rule is to prevent a Contract in Perpetuity).

The rule against perpetuity is often stated as follows: “No interest is good unless it unconditionally must vest, if at all, not later than twenty-one years after the death of some life in being at the creation of the interest.”

*When a part of a grant or will violates the Rule against Perpetuity, only that portion of the grant or devise is removed. All other parts that do not violate the rule are still valid. The perpetuities period under the common law rule is not a fixed term of years. By its terms, the rule limits the term of the contract to no more than 21 years following the death of the last identifiable individual living at the time the interest was created (i.e., the “life in being”).

Such terms generally run for from 1 to 20 years, with the understanding that, at the end of that time, the trust will be terminated and the seller’s interest (as little as 10%) will be forfeited to the co-beneficiary (buyer).  Such forfeiture merely needs to be in consideration of some future act by the buyer (e.g., prompt payments; strict adher-ence to contract terms; a share in appreciation or overall profit; etc.).

Often times, however, beneficiaries might mutually agree to share profits at
termination in proportion to their respective beneficiary interests (50:50, 90:10; 75:25, etc.).  n tis regard, it is most important understand here that the verbiage of a lender’s Due-on-Sale clause doesn’t always convey exactly what we or our attorneys THINK it does, or what the lender expects us to believe it does ( little trickery here)…irrespective of whether a lender’s exercising its rights under a DOS clause are “real,” “false” or indifferent.

What the DOS does infer is: “UNLESS PROHIBITED BY APPLICABLE LAW…” the lender has a right to foreclose, if the title to its security is transferred into a trust, and if a beneficiary interest in that trust is sold or transferred.”
Well…make no mistakes about it! Such action ‘IS’ indeed prohibited by “applicable law.” The Law (The Federal Depository Institutions Regulations Act of 1982) strictly prohibits ANY lender from taking exception to a borrower’s placing its property into its own inter-vivos (living) trust (such as a Title-Holding Land Trust), and appointing a 2nd party to function as a remainder agent co-beneficiary.  Tjs is so because the directors of this type of trust are the beneficiaries, ‘not the trustee.  Ergo, the person to take over in the event of the demise of the director would be another beneficiary: not another trustee.

Further, there is nothing to prevent the same co-beneficiaries from leasing the property out to any one they may choose…’say, to the trust’s 2nd co-beneficiary, for example.

Overall, the process described here creates what is tantamount to a legally constructed, and very safe and well-shielded ‘Wrap-Around Seller-Carry’ device.

Since the original owner of the property has named the second party as a beneficiary in the trust and leased the property to him/her under a triple-net lease (i.e., net, net, net lease, wherein the tenant pays mortgage interest, property tax and handles all maintenance), the resident beneficiary (or investor co-beneficiary) has obtained all the benefits of a standard sale… ‘without there actually having been one.

When proposing that a seller remain on the existing loan for you: if you really want to be assured of ‘getting the deal,’ its important that you make it sound so good for the seller that he can’t refuse.  In order to do that, you’d suggest that for his own safety and peace of mind, you’ll pay to put the property into a neutral trust (‘if he prefers), and that he need never transfer the property’s title to you at all… until you’ve proven yourself, by eventually refinancing or selling the property and paying off
his mortgage.

In this scenario, you’d explain that you’ll consent to merely becoming a co-bene-ficiary in the trust until the loan is fully retired in, say, 6 months (or 3, 4, 5 or 20 years…or more).

Note that this arrangement (i.e., a “Equity Holding Trust Transfer™”) gives you, as the buyer, 100% of the tax write-off (See IRC § 163(h)4(D)); 100% of the use, occupancy, possession; 100% of the equity build-up (from principal reduction); full rights to all rents; and other profits upon the sale or other disposition of the property.

Note as well, that you also have any and all other rights ordinarily only available under the so-called “Bundle of Rights” in any form of Fee-Simple Real Estate
ownership.

In the Equity Holding Transfer™,  the seller needn’t ever take any chances with you; and you don’t have to take any chances with the seller either. By virtue of the structure of the Equity Holding Transfer™, the trust property is protected from liens, suits judgments, divorce actions or claims, bankruptcies or anything else you can think of…’on both sides…’including state and/or IRS tax liens. Moreover, the due-on-sale clause becomes pretty much a non-issue in that the property has not been sold; the title has not been transferred (other than to the borrower’s authorized trust); and there is no consideration for a ‘purchase of real estate’ per se.

In addition, the commodity being transferred (beneficiary interest in a trust) is characterized as Personalty (personal property), and not Realty (real estate), and therefore is not subject to the same creditor rights as would be real estate.  And…the transaction has not infringed upon the lender’s foreclosure rights, or compromised its security interest).

In closing, do note that for maximum safety, it recommended that at least 10% of the trust’s Beneficiary Interest and 50% of the beneficiary’s Power of Direction should be retained by the settlor (seller), with an agreement to forfeit that interest to you upon disposition of the property at the trust’s termination. However, also note that the Settlor Beneficiary’s fifty percent Power of Direction can be given to you by means of either an Assignment of Power of Direction, or by a Revocable, Limited, Power of Attorney.

The reason for the seller’s retaining a percentage of beneficial interest is to satisfy the requirement that if the seller places his property into a revocable trust, he must be and remain a beneficiary of that trust. The reason for keeping the 50% Power of Direction intact, is that most county jurisdictions will not re-assess the property for
property taxes, or require transfer fees, when one transfers its property to a bona fide living trust, so long as no more than 50% of the “voting rights” are being conveyed by the transaction.

CAN AN EQUITY HOLDING  LAND TRUST TRANSFER™ (EQUITY HOLDING TRUST TRANSFER™) AVOID THE PERILS INHERENT IN INNOVATIVE REAL ESTATE FINANCING AND ACQUISITION 

Much has been said and written about the ©Equity Holding Corp  Trust Transfer™ concept (i.e.,, the EHTransfer™) and it appears that a select few are finally beginning “to get it.” However, probably because the so effectively replaces the need for other creative financing schemes and dreams, it often falls under attack by its detractors (especially by certain lawyers who make their livings by doing that which they more fully understand; and by those who tout and teach older, less protective, concepts such as wrap-arounds, contracts-for-deed, equity shares and lease options).

In actuality EHTransfer™ supports the objectives of each of those seller-carry vehicles, while offering a much sturdier platform for protecting the property, and therefore the principals, from the myriad risks and downsides of owner-carry financing. Few proponents of subject-to financing wouldn’t agree that there are numerous risks inherent in one’s agreeing to share a property’s title or mortgage loan obligations with another.

The EHTransfer™: A property is vested with a land trust trustee, and instead of conveying title interest; a PARTIAL beneficiary interest in the trust is assigned to a would-be buyer. That party, once named as Successor Beneficiary in the trust, and a Net Lessee in the trust property becomes entitled to all the benefits of homeowner ownership, including income tax deductions for mortgage interest and property tax.

STUFF TO AVOID WHEN YOU CAN 

Let’s look into a few potentially risky shortcomings pertinent to creative real estate financing, which downsides can be avoided by use of the multi-faceted title holding land trust transfer. The objective for anyone acquiring real estate ownership should always be minimum risk and maximum protection, without sacrificing income or capital gain potential.

Violation of the Lender’s Due-On-Sale Clause: 

Whether deemed a real “threat” by certain “gurus” or not (i.e., those who claim that banks just don’t care about unauthorized transfer), a DOSC call can be disastrous for someone who cannot afford to refinance when a lender calls its loan due because of an unauthorized title transfer (We hold letters from major national lenders clearly altering their stance on such transfers, stating that the EHTransfer™ model does not create a compromise of their alienation admonitions). 

The Threat of Either Party’s Legal Actions Creating an Attachment or Charging Order upon the Property: 

In any so-called Wrap, Contract for Deed, Lease Purchase or Equity Share arrangement, multiple parties are involved, and each one has either a valuable financial interest in the property, or has a primary payment obligation relative to its mortgage. As a result, there is always a real danger that either party’s liens, lawsuits, marital disputes, bankruptcy or probate proceedings could seriously cloud title to the subject property, thereby creating a grave predicament for the other party. This threat is virtually eliminated by use of the co-beneficiary, third-party trustee, title-holding land trust, in that a beneficiary’s ownership in such as trust is purely of personalty (personal property) rather than of realty (real estate) and cannot be partitioned by judgment creditors (legal opinion letters on file).

Difficulty in Dispossessing an Errant Tenant/Buyer.

When an equitable interest in real property (real estate) is conveyed to someone with a possessory interest in that same property, such party is no longer subject to eviction for damage or non-payment.  Instead, dispossession of an “owner” must take the form of foreclosure, and may also require ejectment action and quiet-title action in order to regain possession, entry and salability of the property.  In this regard, one would be well advised to employ an Equity Holding Trust Transfer™ for conveyance of the property to a prospective buyer. Such an arrangement might remain in effect until such time as the tenant/beneficiary sells the property, or refinances and purchased it outright at the trust’s termination.

In the Equity Holding Transfer™, a corporate trustee holds the property’s legal and equitable title while the tenant/beneficiary remains under the threat of simple eviction (rather than foreclosure), while concurrently enjoying all the benefits of ownership, but without title ownership of the real estate itself.

STUFF YOU CAN DO WITH THE ©EQUITY HOLDING TRUST TRANSFER™ 

To effect the objectives of a Lease Option (i.e., a unilateral agreement to sell), the land trust property can be leased with a contractual understanding that the tenant may purchase the property or a future interest in the trust itself at some later date. Such purchase can be set at full Fair Market Value, less any monies owned to the tenant by the trust. And instead of an Option fee, the tenant can post the some predetermined amount in the trust‘s required Contingency Fund. The monthly lease obligation then becomes an aggregate payment including mortgage principal and interest, the property tax, the insurance, a monthly trustee’s holding fee and an overage that becomes the settlor’s (or investor’s) positive cash flow. [Note that any contract verbiage connoting an option to purchase constitutes a due-on-sale violation (re. 12USC1701-j-3)] 

To effect the objectives of a Lease-Purchase (‘a bilateral agreement to sell and acquire) 

In the Equity Holding Corp’s land trust transfer system, the anchoring land trust’s tenant- beneficiary can be assigned as little as a 10% beneficiary interest in the trust with a promise to convey the remainder upon that party’s  tenant/buyer’s outright acquisition of the property at the trust’s termination.  All benefits of ownership including tax write-off, appreciation, principal reduction and pride of ownership are available to the tenant throughout the transaction.

To effect the objectives of a Wrap-Around Mortgage or Contract for Deed 

The would-be buyer/”vendee” is made a successor beneficiary in the anchoring land trust and given, say, 10% or more beneficiary interest in the trust, to hold until a new loan would be obtained and the property be purchased outright.

To effect the objectives of an Equity Share 

The land trust’s tenant/beneficiary is given a 50% interest in the land trust, and a corresponding 50% share in net profits when the property sells or is refinanced at termination…’by the tenant (‘following a return of the seller’s or investor’s initial equity at inception).

The Equity Holding Tax Lease 

A tenant/beneficiary is given, say, a 10% beneficiary interest in the land trust, along with the full burdens of ownership, along with an agreement to relinquish its interest in the trust at termination. In order to be entitled to the income tax deductions for interest and property tax, the tenant need only qualify under IRC 163 (re. “Qualified Residence” parameters), being paying all taxes, insurance, monthly payments, and hold at least a 10% beneficiary interest in the underlying title holding land trust.  I.e., at termination the trust and the triple-net lease terminate and the tenant-beneficiary is free to move-on or negotiate for an extended term of years.

LET’S GET SERIOUS ABOUT THIS BUSINESS OF OURS!

NO ONE NEEDS PILES OF CASH OR GREAT CREDIT
IN ORDER TO MAKE A LOT OF MONEY IN
“CREATIVE” REAL ESTATE INVESTING!

Can you acquire investment real estate and get wealthy, despite starting off with ‘No Credit,’ ‘Marginal Credit’ or even ‘Bad’ Credit?  ‘And how about making money in this business when your perceived short-comings include — ‘having no cash either?

Wait! Let’s make it even worse.  Let’s presume you’re sans (i.e., without) cash and credit, but you also have no experience, no professional contacts…’and you’re ugly.

[Were any of these factors really to matter, regarding success in this business, ‘especially that last one-I’d still be slopping pigs and plucking chickens for a living (…’not meaning to disparage any chicken-pluckers or pig slop slingers out there, by the way; ‘but I do find accumulating and counting money and real estate titles is a far more rewarding enterprise)..

Regarding the first question (i.e., “Can you…”), the answer is a resounding “YES”! But that’s true only if you have lots of other stuff too, ‘such as a self-starting ability, determination, sincerity, maturity and at least a modicum of salesability… and–above all– ‘a Burning Desire to Achieve!

Do you need every one of these qualities in order to be financially successful?  No! But if you are missing any one of them, your maximal chance of success is reduced proportionately with each missing element…’with special attention to the “Burning Desire” part.

With no disrespect for those who have sacrificed, scrimped, and saved to maintain perfect credit, I’d like to say that I couldn’t adequately express the respect (‘and no small degree of jealousy) that I have for you and your achievement. Personally, however, I have never been blessed with a lot of money and good credit at the same time.

Throughout the many phases of my own personal development (‘beginning somewhere around the Cenozoic Epoch), I’ve had both…’just never simultaneously.

Nevertheless, even without an abundance of cash and/or credit at any one time, I’ve managed to accumulate several million dollars’ worth real estate at various times over the years; ‘with almost none of it acquired with, or because of, credit (or cash).

And although, to some extent, the cash and credit parts of life-in general have improved a bit for me, I still prefer to acquire property silently and secretly without a cent out of my own pocket, and without a new mortgage loan or monthly payments.

Real estate is virtually free for me, given the way I do it, ‘in as much as my resident-beneficiary tenant-partners make the payments, handle all repairs and upkeep, and cover any upfront fees when I put them in the properties).

For anyone whose credit has been damaged: ‘know for sure that reestablishing it is a prudent thing to do; however, don’t forget that one’s not “using” their credit (the American Stoic approach) is far worse than one’s not having it.  Although, millions of us do just fine without it for long stretches of time…because we can get it.

Here’s my logic: If people with great credit don’t use it, and get rich anyway, ‘why would someone else without any need to worry about not having it?

And that’s where I come in.  In my own case, I filed a business BK in 1989, and gave away, and spent, everything I had ever owned in my life (‘everything!) in order to pay off my creditors. It took a while, but I did it, and I didn’t suffer much in the process, because within a month of having gone through the ordeal, I acquired a beautiful $520,000 home without a penny out of my pocket and without any need for credit. I even gave the seller (‘Mr. and Mrs. Gil Burrell of Granada Hills, California) my full credit report along with all the information leading up to my bankruptcy.

I got the property based solely upon my pleasant demeanor, decent “selling skills” and my plausible explanation for the BK and bad credit. Because of the sincerity I portrayed along with my offer to provide my plan for correcting the problems (and the “expensive looking” suit that I was wearing), the idea of credit per se became a non-issue for getting that property…’and another fifty more over the next couple years.

After that period in our lives, unfortunately the Burrell house was shaken apart by the 1994 Northridge Earthquake, reducing its value overnight by $300,000, leaving an over-encumbrance of $200,000 plus: ‘at which time I just walked-away; ‘and by the same techniques, acquired another home  a mile or two distant, and carried-on with our business (i.e., ‘no down, no credit, no new mortgage real estate acquisition), whereby my resident co-beneficiaries in the trusts that held titles to those properties, paid all the bills and handled all maintenance and general expenses for me (‘payments, taxes, insurance, HOA dues and a reasonable positive cash-flow to me)…’in exchange for use, occupancy, full tax-deductions, loan principal reduction, hoped-for appreciation and Pride of Ownership.  [Neither I nor they were on title, or on the loans, but with the EHTrust™ transfer system that we teach, that doesn’t matter.]

So…’about the time I began to feel secure, successful and cocky again re. my exquisite home-buying skills, and making better than average money by teaching hundreds of others how to do what I knew how to do so well, ‘the 2007 Subprime Crisis swooped in, hit hard and gained momentum clear up to, and well-beyond, 2010 (‘and is still haunting hundreds of thousands of the “totally screwed” throughout the country today.

In 2007 and the early part of 2008, I was fortunate enough to see the proverbial “writing on the wall,” and successfully sold-off several of our properties…the one’s with real equity in them (‘in which I had pure profit due to having no real money invested in them).

However, as is the often the case …‘When the Student is ready…the Teacher…’swoops down from out of the sky and beats the living crap out of the poor student…’in order to cure him of his hubris and wholly unearned cockiness.

Overall, in the melee I lost 53 properties due to the crisis, and managed to use up the profit I’d gotten from my earlier sales in attempting to salvage the rest…’all to no avail, while the economy continued on its path from “really bad” to atomically super-shitty (‘pardon the expression…’it’s an ancient Druid term derived from an amalgam of the ancient Druid words – “Shingle,” and the abbreviation for “Teletype”: I.e.: Shi[ngle]+TTY).

Since that time, we’ve survived, and we do reasonably well in having silently acquired a modest number of other properties by precisely the same methods…’i.e., ‘wholly without credit or cash, but with being more picky about our tenants and how much up front cash they come in with.  We now make sure they don’t have bullet holes in their cars, and that their pants are not lowered below their buttoxes ‘so as to display their gang colors on their drawers or any “vertical hemispheric demarcation (‘as it were).”

I wouldn’t say we’ve recovered completely…yet, ‘but we’re getting there, and we do eat pretty regularly, and are reasonably well-protected from the elements (wind and rain) ‘as long as the next storm doesn’t blow the canvass off our makeshift tent poles. (‘No…’actually we have a very nice home in Henderson Nevada and thank God for giving us the prime-rate crisis as a reason for permanently putting California in our rear view mirror (‘no offense to Californians…’its just that your taxes are too high and your politicians are too crooked…’and all of them are certifiably goofy).

Without ANY apparent “credit worthiness” we’ve managed to acquire credit cards (secured and unsecured), and to finance several nice automobiles. ‘Over the years, I must say, that we just haven’t suffered much, even in view of losing 53 properties and a couple million in equity: due largely to having very little invested: ‘as the properties were all acquired without down payments, without new mortgages; and our resident beneficiaries paid all the bills (‘i.e., until they couldn’t do so any more… ‘at which time the properties went back to their original owners, for their decision as to whether they wanted them back, or preferred to let them go to foreclosure (‘virtually all went the foreclosure route, but there were no loans in my name and I was not on single title…’my corporate trustee was and was beyond all responsibility and recourse).

The upside of it all is…’well…’what all losers say when they finally get back on their feet after a losing streak:  “Aha!  Now I know what to do the next time this happens (‘although, providence will probably figure out another prank with which to punch me in the gut until I get the point).”

And that point is a simple one: The prudent person should do everything in his or her power to get their credit in order; but in the meantime, ‘never let the absence of credit negatively interfere with, or affect, their investment pursuits.  One simply does not need cash OR credit in order to be a successful real estate entrepreneur… ‘assuming a good grasp of their intentions, and a good escape plan, when starting…’and assuming you have a solid source of information, education, know-how, mentoring and coaching, and a source for sound and dependable advice and encouragement.

Following–‘in the order of their overall importance–are the tools you need in the No Down, No New Loan, real estate investing business:

  1.  An honest dissatisfaction with the status quo
  2.  A burning desire to achieve
  3. An honest NEED for increased abundance. I.e., ‘if you DON’T NEED it…’you won’t get it!  ‘Without needing (‘having a burning desire for it) you only have wishing, hoping and dreaming to depend on, ‘which are each on par with horse-racing and crap-shooting as far as attaining is concerned).
  4. Tenacity: I.e., ‘the undaunted ability to stick-to-it, no matter what!
  5. Resiliency: I.e., the ability to shrug off a failure (‘or several of them in a row) and move on with undiminished zeal
  6. Selling skills: Learned and/or natural sales-ability (‘i.e., the ability to listen and think at the same time; always listening more than talking; remaining 100% honest and forthright while staying unattached to the outcome)
  7. A professional and business-like demeanor re. your personal grooming and attire. E.g., a misplaced body-piercing or ornamentation can cost you millions in lost opportunities in just a few years…’without your ever even knowing that it happened, ‘much less Why
  8. A solid understanding of Real Estate and Real Estate Finance
  9. A source of available cash…or someone to call-upon who has it… or a way to avoid its necessity
  10. A real comfort in product knowledge, allowing one to “go commando” in this business.)   *Comando: No cash, no credit, No experience and perhaps Limited sobriety

In this business, without at least the first five elements in the above list, you are likely destined for failure (‘in this business).  However, with #1 through #5, ‘along with any one of #6 through #10, your chances of success are good.

With all of, say, 9 out of 10, your success is unavoidable, and abundance is already yours, and just patiently waiting for you to reach for it and demand it into you life.

The best advice anyone will ever give you: ‘Find that Self-Serving Need in your life that is feeding upon your financial deficiency and destiny…’and eliminate it ‘once and for all.  Know that anything pleasurable that you decide you can live without will always (invariably) be immediately replaced by something else that is better for you and you life’s aspirations.

OVER ENCUMBERED PROPERTIES

BIG PROFITS WITHOUT COMPETITION
Bill Gatten

Consider this:

If you could know with confidence that a particular stock (‘say, “Peachy Computers”) is selling for $550 per-share today, and that it will more than double in value over the next two months, ‘would you be willing to pay $600 per-share for it (i.e., $50.00 per-share more than it’s worth)?

Gosh, I hope so, but now consider the same scenarios where you have a “cash partner” who will put up the $50 for you for half of the $50 in a couple months (‘a 50% ROI in two months?  ‘Not a bad deal for you and your benefactor Gosh, I hope so, but now consider the same scenarios where you have a “cash partner” who will put up the $50 and who will be satisfied with just half of the $50 in a couple months (‘a 50% ROI in two months?  ‘Not a bad deal for the partner and a super-dooper deal for you: ‘i.e. a ten-billion-plus percent ROI (which would be about the same ROI if you’d invested 10 cents).

Or (‘now a little closer to home), ‘let’s say you find a house with a value of $225,000, and you learn that the property is securing a loan of $250,000.  ‘Would/could this be a good deal for you IF, say, you knew for sure than the property would be worth $300,000 in three years, ‘i.e., given reasonable appreciation projections?

In your computations here, now consider the same house not appreciating at all over the next three years, ‘during which time you have a tenant-buyer (“partner”) living in it, making all the payments, and who posted a $10,000 Contingency Fund up front in order to get in without a full down payment or needing to qualify for a mortgage, ‘and who is also paying you $150-$200  per-month in positive cash-flow, while personally 100% of all maintenance, repairs, taxes and insurance along with the underlying loan’s principal and interest.

Would the forgoing opportunity be a good deal?

Considering this deal (never use the term “deal” in any conversation with a client  or prospect), remember that you got the house for nothing down and merely assumed and passed-on the existing recurring costs your tenant-buyer.

You had no standard credit qualifying process; and you’re holding $10,000 in a Contingency Fund…’all without a violation of the underlying lender’s \Due-on-Sale admonitions, or compromise of any federal regulation concerning restriction re. Owner-financing of real estate (Dodd-Frank)?  Also consider doing a transaction like this perhaps once or twice a month with others of the millions of over-encumbered properties across the US (‘i.e., by a method that very few others have the slightest idea of how to handle).

Alternatively, let’s now say that you are given an opportunity to take-over a $250,000 clean 3-bedroom, 2-bath, 1800 sq. ft. home in a nice area – i.e., ‘one on which you need make no payments (‘your partner will do that), on which you receive a positive cash flow of, say, $100 or $200 per month…’and all of this, without the necessity of a down-payment, new financing or credit qualifying.

Would you take it? 

Wait!  What?  No payments?   Before you decide on this one, remember that this fictional property, like the fictional stock purchase above, has no equity (‘i.e., its market value is $250,000 and the loan-payoff is $275,000).  I.e. ‘not only is there NO equity, but the “equity” is NEGATIVE by $25,000).  ‘Still interested?

Before you decide, note that should you accept the property as offered, you’ll have no maintenance costs or management or repair expenses.  Moreover, ‘it’s not you who is on the loan and who will be primarily responsible for making payments or paying for property taxes, insurance (‘or any HOA dues or assessments)…’and your name will not appear on the mortgage, ‘nor will it appear in the public recording of the property’s deed (title).

OK, Now decide:  ‘Pipe Dream, or Dream-Come-True?  Or… ‘is it one of those too-good-to-be-true scams that pop-up so frequently in our business?

I’m hoping (trusting) that your response to the questions above (i.e., “Would you do it?”) will be the same as mine would be, ‘which is, “Buddy, you can bet those hagfish-skin cowboy boots, I would!”

“But why on Earth,” ‘some might say, “would anyone choose to take on the responsibility of an overpriced, over-encumbered property with negative equity?”  [Analogous side-question posed as a rhetorical didactic statement] ‘Why do people keep buying stocks and bonds when their value at inception is exactly equivalent to their purchase price…i.e…’no equity?].

The real issue here is that Equity in real estate is wonderful when you have it; but it has never been the “Be-All and End-All” when it comes to real estate acquisition; and those who think otherwise are missing the point and some significant opportunities involving millions of dollars in potential income, profit and a highly satisfying life of financial security—and here’s why:

There are, after all, myriad readily salable benefits of real property ownership, aside from Equity, ‘some of which include:

  1. Income Tax Write-Off for mortgage interest and property tax (‘and its “transferability” for profit);
  2. Equity build-up from mortgage-principal reduction;
  3. Equity build-up from economic appreciation;
  4. Use as collateral for other real estate acquisitions or unrelated business opportunities;
  5. Rental, Lease and Purchase-Option income potential;
  6. Time-sharing potential in certain types of properties;
  7. Re-salability (marketability) i.e., packaging for early re-sale to other investors;
  8. Land Use, beyond residential occupancy;
  9. Profits derived from “flipping” and/or discounting one’s ownership or acquisition rights to another party;
  10. Pride of Ownership– ‘singularly the most sought-after, salable and coveted aspect of homeownership).

It should be clear in perusing the foregoing list that one needs only a few of these benefits (‘maybe even just one or two) to make money in the business of real estate acquisition.  For example, ‘consider how you might fare in your own real estate investing endeavors were you to have, say, only items  #3, #2 and #8; or perhaps only items #2 and #3; or #4, #7, #8 and #9 (…or maybe 9 out of 10).

The point is, ‘who needs “Equity” when all these other profit centers are so clearly abundant and so simply and easily at your disposal?

THINK, IF YOU WILL, ABOUT…

A serious “Don’t-Wanter” homeowner who is straddled with a $250,000 property earing a loan balance of $350,000 (i.e., ‘upside down by $100,000), and an aggregate PITI payment (‘i.e., principal, interest, taxes and insurance) of $2,530 per-month. [i.e., P&I = $1,880 + T = $525 + I = $125].

  1. Consider that any traditional home buyer acquiring a similarly valued home would need to take out a loan for $250,000 at, say, 4.5% interest if 100% financing were indeed available to such a buyer with perfect credit.  In this case, the aggregate PITI payment (i.e., principal, interest, tax and insurance) would be $1,750 (Est) per-month for 30 years (i.e., P&I = $1,390 + T = $260 + I = $100).
  1. Therefore, quite obviously, a seller of this over-encumbered property (i.e., $250K value with a $350K loan) can’t sell by traditional means without paying his bank $100,000 in cash and covering closing costs of about another $20,000 and paying all maintenance and management costs on top of that (i.e., ‘converting the over encumbrance to $120,000.  He/she is, instead, forced to rent or lease the property out for around $1,500per-month: i.e., leaving him/her with a negative cash flow of over $2-300 per-month: plus rental property management (‘not an enviable position in which to find oneself).
  1. ..’in view of ‘a’ & ‘b’ above, what might such a property owner say to your offer to take the property over and reduce his/her negative cash-flow down from to, say, $500 or $600 per-month to a lot less, while you simultaneously relieve him/her of 100% of all management, maintenance, taxes and insurance expenses…AND…’the $120,000 over-encumbrance?

Moreover, when/if you offer to take this burden off the owner’s hands, are you not essentially handing him/her a hypothetical check for $120,000 in non-taxable  debt-relief …after having calculated about how long it will take for economic appreciation and mortgage principal reduction to sufficiently to neutralize the overage (‘a simple process with any business calculator)?  And what if no appreciation ever takes place?  How much did you lose, given your right to walk-away at the transaction termination, either relinquishing title back to the owner-of-record or negotiating an extension of the original terms?

Realistically, if any reasonable person in this predicament would object to paying you, say, $5,000, $10,000 or $15,000 upfront, ‘or, say, $500 per-month for 60 months, for doing this for them, they are not thinking clearly at all?  After all, your fee is far less than closing costs and real estate commissions would be (‘even if a Realtor® would take the listing…’which they won’t) in a traditional sale if such a sale were possible.

  1. ‘By the same token, ‘what might a potential homebuyer with marginal credit and minimal down payment say to paying you a bit more than Fair Market Rent, in exchange for 100% the income tax write-off for property tax and mortgage interest, along with all (100%) of the benefits inherent in Fee Simple real estate ownership?  ‘All without a down payment or loan-qualifying,
  1. Think about it… ‘for someone in a one-third income tax-bracket, ‘the after-tax cost of renting for $1,700 per-month is actually $2,550 per month

(I.e., ‘after earning that amount and giving 1/3rd of it to the government for taxes, 2/3rds of the $2,550 is left-over to pay the $1,700 rent.  This obviously then means that the actual after-tax cost of renting in this case (or any other) is really $850 per-month more than the $1,700 rent (‘as a matter-of-fact, the renter is paying 50% of his/her rent ‘in income tax” (‘i.e., 1/3rd of what’s he/she earns, but 1/2 of what’s paid…(’that’s the unwritten, sort’a  secret and tricky rule of the IRS).  I.e.: “OK you want to spend a dollar? Well, then, but you’d better earn a dollar-and-a-half, so that when we take out our 1/3rd for tax, you’ll still have a dollar left to spend: we want half of what you spend, which is one-third of what you earn…’Like it or not, we are your 50:50 partner, Pal.”

Question:  Which is less expensive — ‘the after-tax cost of $1,700 per-month rent ($1,700 + $850 = $2,550), or an aggregate mortgage payment of $2,200 per-month with a tax deduction?

Answer:  Because of the tax deduction benefit, the $2,200 house payment turns out to be significantly less than renting the same house.

  1. Now—‘stop for another quiet moment and seriously consider how much a tenant-buyer might pay YOU upfront (‘or per-month, ‘over and above the “mortgage” payment) in exchange for your putting him/her into their “dream home” for what is tantamount to 100% fee-simple home ownership, without a down payment or any more credit-qualifying than you, yourself, might require.
  1. With $500 from the seller and $2,200 from the buyer per-month, you have a positive cash-flow, in addition to the upfront money (‘or the no-interest monthly installments paid to you for it).

Also…’in any such arrangement, your “seller,” your “buyer” and YOU, are well-shielded by the type of trust in which the property is vested: i.e., ‘protected against threatened litigation involving the property—by virtue of the Open Door Wealth Management Equity Holding Trust Transfer® in whose third-party bonded, licensed, non-profit corporate trustee, the property’s legal and equitable title are vested for an agreed-upon term.

Find a better system that this for dealing with otherwise wholly untenable investment real estate, and we’ll buy you soup taco (‘as flimsy a thing as one surely must be).

A tough question posed recently by a would-be investor in the East: 

“Where I live there hasn’t been any appreciation in real estate for several years now. If I truly want to pursue being a real estate investor, should I move elsewhere, or wait for the market to turn?

To some this might seem a reasonable question; however, my response was: “Stay put! Empowering such bogus rationale is what keeps the millionaire ranks as low in number as they are.”

The key to creative real estate investing is to have a plan that adapts quickly to ANY market…it doesn’t matter which direction market dynamics flow, the force is still there: water flows east with the same strength as when it runs west. In a “down” market, there are few willing buyers; but obtainable properties abound, and they’re all for sale at the best prices.

In an “Up” market there may be fewer “easily” obtainable properties: but there are more buyers, and they’ll do just about anything you want them to in order to get in on the action.

The fact is that market dynamics in creative real estate have always required “thinking outside the box.” The true creative entrepreneur lives with, copes with, and makes his/her living with…’that fact always in mind.

Think about it…a fisherman who goes fishing armed only with catfish bait, most probably won’t catch trout. All he can expect to bring home is catfish…’if they’re biting that day. If the catfish aren’t hungry, the fisherman will be.

On the other hand, the serious and well-studied angler, carries a “full” tackle box, so that when the catfish aren’t biting, he can hook up for trout, bass, walleye…or a sperm whale, if he wants to…’at a moment’s notice.

Understand that when real estate appreciation trends are up, a seller’s market prevails: sellers set high prices and hang in there till they get them. On the other hand, when appreciation is down or stagnant, that’s a buyer’s market: fewer of those kinds of properties may be available, and their sales are sparse.  It’s during these downtimes that most folks are counting pennies and digging in for a long winter, rather than looking for a new home.

In other words, a seller’s market pushes prices and circumstances toward the seller’s benefit; whereas a buyer’s market pulls everything down to suit more buyers’ needs.  But none of this should be a concern of the well-studied CRE investor. In an up market you sell, in a down market you buy and hold.

During our last major downturn, a common cry was: “Help!  Houses are a dime a dozen, but I can’t find any buyers.” But now that the market has turned, the current entreaty is, “Help! Buyers are everywhere, but I can’t find any houses!” And (for the most part) who do you suppose these two disparate plaintive moans are coming from?

Right! Exactly the same people: ‘those who choose to blame their own shortcomings on market condition, having failed to plan to “bend with the trend (as it were).”

To excel in any market, we need education…and dependable tools that work in all circumstances. In a seller’s market, we must be able to attract and serve buyers who would love to climb on the home-buying bandwagon, but who haven’t yet saved up the cash or garnered the credit to do so. In a buyer’s market, that knowledge and those same tools must attract sellers of no, low, or negative equity properties; fixer-uppers; distress sales; NOD filings; and “hard-to-moves”…while simultaneously wedging us, the creative investor, into the middle.
This is where Equity Holding Corp’s Equity Holding Trust Transfer™ comes in.

The Equity Holding Trust Transfer™  is, in essence, a third-party title-holding (land) trust system (“on steroids”) , which works virtual wonders for investors, buyers and sellers in any market.

With this remarkable tool, the existing mortgage stays in place—without a due-on-sale compromise; as full income tax write-off is transferred to the tenant-buyer  (‘i.e., in exchange for higher payments than rent can provide a landlord; but significantly lower payments for the tenant-buyer (due to the many ownership benefits including full income tax deductions for mortgage interest and property tax, as well as profit sharing).

By virtue of the anonymity of ownership, the Transfer™ property is well shielded from creditor judgements, tax liens, lawsuits, bankruptcy action and marital disputes. Think of it:  No down payment; No bank qualifying; No payments; No expenses; No recourse; No eviction (dispossession) problems; and No tenants, toilets, trash and trouble.

THIS is creative real estate investing!

Imagine telling a seller who may be reticent about “carrying,” that he needn’t transfer the title to you until you opt to sell or refinance in the future. Or that he needn’t worry about liens, suits, judgements or personal problems ever compromising the property’s title… while he remains on the loan (‘nor do you need to worry about such occurrences on his behalf).

The Equity Holding Trust Transfer™ gives your tenant full tax write-off in exchange for paying (your) full mortgage payment, property tax and insurance (and HOA?). For a share in future appreciation potential, they’ll gladly pay 100% of the (your) maintenance, repair and management costs. In other words: “Mr. Buyer, if you can afford the payments (which include a few hundred in positive cash-flow for me) and a few thousand dollars in closing costs (most of which goes into my fuzzy little pocket)… I’ll give you the property.  The only thing I want out of it is to have you refinance it in yur own name, or sell it, in a few years, and at that time, ‘if there’s been any appreciation, we can just split it.”  In the meantime you have 100% of the house, 100% of the tax write and 100% of all fee-simple real estate ownership benefits…’ and of course…’full pride of ownership.

BUILDING A BIRCH-BARK CANOE OUT OF SARAN WRAP AND BANANA PEELS OR…”WE MAY BE EXPENSIVE, BUT WE ARE VERY SLOW”

For interest’s sake, the following is a recent letter to network members who suggested that he might want to reconsider using the NEHTrust or PACTrust because it takes longer to facilitate and close than does a L/O or Wrap. Well…being the thin-skinned meek little (sweet) jelly muffin I am, I suggested that if he didn’t want it done right, I couldn’t help him; but that if he did want it done right it would take more time than most other creative financing schemes (L/O/s CFD’s, Wraps, Equity Shares, etc.).

Our motto around here is: You can pick any two (but only two) from the list below, and we’ll be your Huckleberry…

  1. Have it Done Properly
  2. Have it Done Quickly
  3. Have it Done Cheaply

So…after it was suggested that we shouldn’t take such criticisms so personally, I responded with the following:

Yup…I do take personally anything that has to do with the safety and well being of your business and/or mine. My business is ME, and my products and services are 100% ME: and [product or service comprises my very alter ego to the nth degree (to the bone, as it were). And, hey, that’s not a bad thing though, because that quality within me is what keeps me and all my students and clients out of court and out of jail.

As well (I continued), I do understand your frustration Elmo, (“Elmo T. Flopenenwaller”) and I am willing to work through it with you with any constructive suggestions you might have for improvement: but in the meantime, you MUST understand that certain processes simply may not be avoided or compromised. If we allowed that, we could not hold ourselves responsible for these transactions and keep you and your clients out of serious trouble later on down the line.

The entire process comprising the Third Party Co-Beneficiary Transaction (PACTrust™ or NEHTrust™) is as follows (I have given reasonable time spreads for the number of workdays that might be (could be) involved in each of the steps or phases which comprise the documentation process…variations in mailing and shipping times and weekends and intervening holidays notwithstanding:

  1. Fist, your clock starts ticking (though ours doesn’t yet) when you meet with you client and get their acceptance of your proposal – 1 – 2 DAYS
  2. Next you obtain all the appropriate information and send it to us (or have us obtain it for you). 1,2 3 OR MORE DAYS has usually gone by since your original contact) – 1 DAY
  3. Next, you compile and forward us Appendices 1 through 5 completed (if not completed accurately or fully, add another day or two for us to round-up all the information we need for data input) – 1-2 DAYS
  4. Our data input and document formatting is completed (3 or more hours of work), whereupon the initial land trust is created and sent to legal for review and to PAC or Equity Holdings for holding once the signed original is received following COE) – this serves as notice to collections and the trustee that the transaction is in process and entering Escrow within the next 1-2 days, and for them to get their procedures in line to receive the new project when Escrow closes – 1-2 DAYS FOR INPUT AND FORWARDING
  5. A Verification of Data (VOD) report is then sent to you (the investor) for review. At this point nothing is sent to the parties until you have personally approved and verified that the figures are accurate and that no information is being given to anyone that shouldn’t see or have it (e.g., your acquisition price, mo payments, initial work-out arrangements, etc.). We then have to wait up to 48 hours for a return or acceptance of the VOD: though we will proceed without you if we haven’t heard from you in 48 hours – 2-3 DAYS
  6. When your VOD has been signed and returned to our office, or when your 48 hours are up, we then draw First Drafts. At that point if no corrections are necessary (‘happens VERY rarely), then the first drafts are individually forwarded to all parties (by regular or overnight mail, unless we are instructed differently): Allow for 2 days to delivery and 2 days for return or verification – 4-5 DAYS
  7. When all drafts have been returned with corrections or acknowledged to be OK as is (happens rarely), we then either — 1) complete and forward 2nd drafts (if corrections were made) – 2-3 DAYS; or 2) proceed to final documentation (if no corrections were required) – 1-2 DAYS. All final documents are forwarded (by overnight mails or PDF computer file) to Escrow – 1-2 DAYS
  8. Any additional verbiage in the Rider Agreement or in related documents (other than boilerplate) must be run though our legal department (outside law firm) for review and approval – 1-3 days (depending upon attorney’s case load)
  9. Following legal review, documents are forwarded to Escrow, who then prepares the Settlement Statements and any other necessary documents simultaneously with their Escrow Instructions for shipping. 2 DAYS
  10. At this point Escrow either arranges for a sit-down closing in the client’s area, or (if preferred) documents are sent Over Night for execution in counter-part for return to Escrow for final review and approval of completeness. The documents have then to be signed notarized and returned to Escrow by the US Mail, Fed Ex or UPS – WHOLE PROCESS CAN TAKE 6-7 DAYS
  11. When everything is back in Escrow’s hands–if no mistakes have been made—the final title search is run and the deed is sent by messenger for recording in the local area (US Mail, Fed Ex or UPS): all monies are then distributed (checks cut) to the appropriate parties and the Escrow is closed – 1-4 DAYS (depending upon time-of-day materials are received and/or mailed out by Escrow)
  12. Upon their receipt by Escrow, all original signed documents are reviewed for correctness and forwarded (Overnight Mails) to PAC or Equity Holdings and to NARS for final set-up of the Holding and Collections files. PAC then sends a Welcome Letter and remittance instructions…and voila, the transaction is finalized – (ANOTHER 1 – 2 days).

Now, Understand CLEARLY that IF at any point along the way a mistake is made and not caught soon enough, it may become necessary to redraft certain documents (e.g., if the MAV were not stated correctly in the beginning, or if payments were not calculated properly, or if a key profit center wasn’t clearly defined in the beginning…or new Rider information were to requested, etc.)

Ways to shorten the processing time or your transaction:

  1. Make sure all “I’s” are crossed and all “T’s” are dotted on the original worksheets (Appendices #1 thru #5) when you send them to us
  2. Verify and clear all anticipated charges through NARS (Appendix 4) first, before sending in the worksheets (Appendices #1 thru #5).
  3. Assure that all start-up moneys (Retainer Fee and Good Faith Escrow Deposit) accompany your order for documentation; and assure that the Retainer Fee Agreement is properly signed and dated when we receive your package. We can not start without a signed and paid Retainer Fee Agreement
  4. Provide NARS with a good and valid Legal Description of the property along with your order for documentation and facilitation (full Lot, Tract, Map Book, Page, Plat, Parcel, Assessor’s I.D. Number, etc.) at start. If we have to order it, it can add 2-3 or more days onto the turn-around time.
  5. Volunteer to handle the walk-in and recording of the transfer document (deed) yourself once it has been signed and notarized by the transferor (state that you will do that in a note with your documentation order)
  6. Handle all mailings by overnight or express mail
  7. Be prompt in reviewing and returning VOD’s, drafts, corrections, changes or amendments by Fax. And, above all, be explicit enough in your notation (re. variations from standard documentation) that you do not have to be contacted for clarification
  8. Be as brief as possible, but complete (i.e., be succinct) in all written (faxed or Emailed) correspondence.
  9. Volunteer to handle the final signing of documents yourself in your office (must have a Notary standing by) so that clients can’t dawdle and procrastinate.
  10. Never be mean to anyone in the NARS documentation department (but do not send candy or flowers alone…cold hard cash and booze bribes seem to work best).

BUMPED EQUITY – ‘NOT UNLIKE A SAVINGS ACCOUNT INTO WHICH YOU PUT NOTHING: BUT OUT OF WHICH YOU PULL THOUSANDS OF EXTRA DOLLARS IN A COUPLE YEARS

Let’s say you find a property that is worth perhaps $90,000 to $100,000.

You learn that you can have it for an MAV (Mutually Agreed Value) of $80,000 by making it a fast deal and just taking over the monthly payment obligation.

Let’s also say that the property needs, say, $4,500 or so to cover unpaid arrearages (‘assuming the lender won’t consider forbearance).

In order to make a future profit, ‘you now bump the equity (i.e., increase the current MAV (mutually-agreed value) for your Resident Beneficiary to, say, $105,000 and charge him/her, say, 6.0% to get in (about $6,500). You have now made $25,000 on paper and $2,000 in cash up front, plus a positive cash-flow along the way (‘i.e., ‘in addition to the principal reduction and future appreciation you’ll see over the term of the agreement.

You’re doing great!  Nuthin’ ain’t cost you nuthin’ so far!  But in this case, Nuthin is indeed worth Sumthin!  (‘With apologies to Janis Joplin and Bobby Mc Ghee)

Next, you make your verbal offer to the seller at $80,000, and explain that you are an investor and need to make a reasonable profit (maybe). You explain that since you will have to negotiate with you incoming Resident Beneficiary, with his/her permission you’ll need to put a larger than actual MAV on the offer: ‘i.e., in order to have plenty of negotiating room (‘as is virtually always needed).

Then, ‘when presenting the offer to the Settlor (seller), you show his actual refundable contribution as zero, but show yours as the difference between the acquisition amount (80,000) and the bumped MAV of $105,000. This doesn’t affect him negatively in any way, and could even lessen any tax burden he might have ‘if he will have Capital Gains to deal with (‘upon the trust’s termination).

Now, ‘when you decide to meet with your Resident Beneficiary prospect, he/she sees the higher amount and doesn’t worry about the difference, ‘as he/she will presume that you put in $25,000 in cash (‘unless you tell them otherwise).

The documentation will now show that at the end of the agreement’s term, you and your Resident Beneficiary will sell or refi and give the Settlor (your seller) his equity refund (‘which is zero in this case…‘unless there were to have been some equity for him at start).

At the trust’s termination (‘and that of the lease), you give yourself your $25,000, and return the Resident Beneficiary’s initial non-recurring closing costs (‘i.e., any closing costs that were a one-time expense); ‘following which you and your Resident Beneficiary split the remaining net proceeds relative to your respective percentages of beneficiary interest having been held in the trust: i.e., ‘depending on whether or not the requisite 10% beneficiary interest held by the Settlor during the trust’s term will be relinquished to you or not…’according to your initial agreement with the Settlor.

In certain cases you might have agreed (‘perhaps for added incentive) that the Settlor should participation in profit-sharing at termination ‘proportionately with his percentage of beneficiary interest held (‘although more often than not, the Settlor’s percentage is set to be fully relinquished  at termination in consideration of prompt payments and strict adherence to contract terms throughout the transaction).

Question: So why should the settlor have any beneficiary at all during the transaction’s term?

Answer: 1) So that there is no violation of any underlying lender’s Due-on-Sale Clause (12USC1701j-3); 2) so that the Settlor can have an insurance interest in order to acquire and retain Landlord Insurance Coverage (the tenant beneficiary obtains his/her own renter’s policy); 3) and so that the Non-Resident Beneficiary  will have access to the right of Depreciation for tax benefits (i.e., “Use it or lose it,”  ‘as they say ‘in reference to the IRS’ recapture upon sale, i.e., whether it has been claimed or not).

Remember that bumping the Mutually Agreed Value in this manner by, say, five or ten thousand dollars today doesn’t make the property any more valuable (today), or earn you any more money (‘today): ‘but it does give you significantly more profit at the end of the EHTransfer™, when the trust is terminated and the property is sold or refinanced, and net proceeds are distributed.

Question:  Why would anyone agree to take on the property at more than it appraised value?

Answer: Because they are acquiring a home of their own without needing new bank loan, ‘without standard credit checking; without a normal down payment; and because you don’t care about their credit as much, ‘as long as you have a couple (2 or 3) refundable payments held in the trust’s Contingency Fund for use in case of default and the necessity for eviction.  Inasmuch as, due to the trust, they can never claim having an equitable interest in the property (i.e., the trustee holds all of that), a foreclosure process is never necessary…’just simple, unfettered eviction pursuant to the agreement in the ancillary Triple-Net Lease.

Remember too that the posted Contingency Fund is for the purpose of making any missing mortgage payment; and no matter how much money may be in the fund, a default in payments will result in eviction and termination of the trust (‘if not cured within the allotted time).

Note as well, that irrespective of any amount in the Contingency Fund: ‘in the event of a default, it will likely be yours to keep, in so much as the tenant-buyer will still owe the missing payment/s and all remaining payments on their lease: ‘as well, they also owe any requisite refurbishment and re-marketing expenses.  And also, for any amount still outstanding, they are subject to lawsuit and obligated to pay you, voluntarily nor not, what you are owed ‘should they come into money within the next eight to ten years (‘and depending upon where you live, your lien against them is renewable after that time period).  Note that the defaulting party’s incentive to pay you what you are owed is intensified when they realize that your lien can prevent them from getting credit for buying a house or car, ‘or maybe even getting (or keeping) certain jobs.

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Another way to bump (or “pump”) a property’s MAV is to make your offer at the $80,000 amount, then get the offer accepted in writing: ‘then go back to the Settlor and suggest that for your benefit, the $80,000 be crossed-out and initialed, and replaced with a higher number in order to give you some negotiating room with your incoming Resident Co-Beneficiary (‘you point out that doing so will raise your beginning contribution without affecting his income his tax basis (‘could be a good thing if he has equity).

You then say: “Let’s make it, ‘Oh, say, $105,000; ‘and although I probably won’t get anything close to that, ‘it gives me some room for negotiation.”  Again…you now have the higher MAV showing in the documents and needn’t hide anything from the resident (or the Settlor).

When your Offer to Acquire is accepted by signature of the Settlor, that’s also a good time to have him/her execute the limited Power of Attorney, so that you don’t have to go back to him for signatures later.

That’s it…’ain’t no big deal!  Just keep on bumpin’!

FUNNY STUFF ATTORNEYS SAY… ‘AND FINDING ONE WHO UNDERSTAND LAND TRUSTS

A caution to always seek out the advice of a competent attorney before “trying this at home” is always good advice; although I find it difficult to proffer truly good (non-legal) advice on the subject of seeking the right attorney with regard to the Equity Holding Trust Transfer™ or land trusts in general. In fact, I find myself “…jest a tad ‘twixt a rock and a hard place” here (as it were), mostly because… they jest ain’t hardly none o’them  a’tall around these parts (as one might say on Jerry Springer).

Although I certainly do not advocate proceeding in any real estate related transaction without the advice of a “good’ and “knowledgeable” real estate attorney (a little like finding a handsome hag fish or a smart wrestler, I’m afraid): the quandary is that—‘first off, there are very few attorneys who know a lot about the use of trusts in general. Then there is the fact that there are even fewer who know kidney beans from koala bears about what a “land trust” is…’much less how it differs from other inter vivos (living) trusts, and what it’s capable of doing. Many attorneys have never even heard of such a thing; and there are even fewer yet who are competent to offer sound advice—pro or con—relative to the use or safety of an “Illinois-type, revocable, inter vivos, title-holding beneficiary-directed, third party trustee, land trust transfer (the Equity Holding Trust Transfer™).”

Ordinarily, when an uninitiated attorney is engaged for the purposes of reviewing a land trust transfer—much less an Equity Holding Trust Transfer™ with all of its attendant appendices, directions, Escrow documentation, creditor letters, etc.— he or she is faced with a true pointy-horned dilemma. The only two options available are: 1) Get into Nexus-Lexus or out to the law library and spend some time getting educated on the advent and history of land trusts, or 2) render advice (pro or con) on something they know virtually nothing about (‘and I can assure you that it will always be ‘con: albeit I and our own attorneys are always on hand).

I’d presume that less than 4 or 5 hours would be needed to thoroughly research the pertinent local and federal codes and cites, and the myriad features and uses of the land trust (i.e., a bill of from $1,700 to $ $5,000); Think about it…if you were a busy attorney with your itinerary over-burdened with time constraints, what would you prefer to do?  Bill for a couple hours, or advise a client to do something you’re not completely sure of.

I.e., ‘would you opt to: 1) Spend your “billable” hours doing hard research for free for a transaction you’ll probably never see the likes of again; 2) Risk your client’s walking away and your receiving nothing for your consulting time, or 3) might you attempt to convert the entire transaction to something else? I.e., to something you better understand, and with which you feel more competent to advocate…’and on which you could make some money?

Similarly, if you were the client seeking and hoping to pay only for a simple review and approval of a set of documents, would you be willing to finance your attorney’s continuing legal education at the rate of $175 to $275 (or ?) per-hour? Probably not. My guess is that you’d relent, as many do, and be coerced into accepting the suggestion that the entire transaction should be transformed into something more “manageable (for the attorney).” Perhaps a nice “Contract for Deed” or maybe a seemingly innocuous “Lease Option.”  ‘After all, let’s face it, there just isn’t much billable potential in telling a client, “I’m not competent to review these documents…you should see someone else.”

Taking the advice to “convert to something else” clearly means reverting back to the very downsides, short falls and serious risks that the Equity Holding Trust Transfer™ conveyance concept was designed to avoid and protect you from, in the first place.  I.e., shortfalls such as (‘just to name a few):

  • Public recordation and notification of the transaction (‘neither party’s name needs to appear in the public record…and it ‘gets the “Sue Me” sign off the property owner’s back);
  • The lenders’ alienation admonitions (due-on-sale clause) not violated (12USC1701 j-3);
  • There is no compromise of the Wall Street Consumer Financial Protection Act (re. Dodd-Frank re. seller-assisted home financing)
  • Prevents a claim of “Equity” by a defaulting tenant-buyer so often used to thwart eviction and force a drawn-out and expensive foreclosure process…and free rent while the case drags on;
  • Avoids the threat of either the seller’s or the buyer’s creditor judgments attaching to the property (or to any Option on it);
  • Eliminates the threat of either party’s income tax liens attaching to the property
  • Removes the possibly of marital dissolution claims preventing easy disposition of the property
  • Stops the insidious susceptibility to attachment by partition actions and/or charging orders against individual participants by judgment creditors;
  • Avoids the risk of either party’s being penalized because of the other party’s bankruptcy, probate marital dissolution, incarceration or forced ancillary administration process upon a party’s death;
  • Provides an (“escrow-like”)  third-party title-holding trustee that very effectively shields the title against litigation and prevents the potential for disputes among beneficiaries

If you or I were to consult with our licensed, board-certified general medical practitioner about treatment for a brain tumor, a good one would refer us to a neurologist. However, the mindset of the legal practitioner is all too often analogous to that physician’s suggesting that we simply contract a more manageable condition. E.g., ““A brain tumor eh?  Well, I don’t know much about the brain, so how ‘bout I treat you for hemorrhoids instead? Here. Take this. Insert it carefully. Pay ast the front desk. me. Call me in the morning, and if this cure doesn’t work…’great, just let me know and we’ll switch to still another malady (“I’ve got a ton of ‘em”)

So (‘you ask): “Well, should I seek the advice of an attorney or not?”

Yup you should! Indubitably as a matter-of-fact (so say I)! However, do be sure to choose a truly competent one who has experience with land trust transfers in creative real estate transactions. And if they start talking about Lease Options, Lease Purchases, Land Contracts (Contracts for Deed), Wrap-Around Mortgages, Equity Shares, Subject To’s or Silent Seconds…run! Run like the wind!  (Unless, of course the attorney is your brother-in-law…in which event the dilemma will be yours: either act on bad advice, or…divorce).

Are there any attorneys you could recommend?

Who me?  Thanks for asking, but No. Although there are a few with whom I’ve become familiar over the years who do understand the concept (albeit a limited few, to be sure): Bill Bronchik, Denver Colorado; Mark Warda, Ft. Lauderdale. Florida; Bryan Dunklin, Dallas, Texas; Jay Swob, Cincinnati Ohio; Henry W. Keno, Chicago Illinois (‘but he’s been dead for over 25 years); Paul De Witt, Los Angeles, California.

Some attorney quotes:

In answer to “Why aren’t there more attorneys who know about land trusts?

“Because very few know how to use them, and even fewer recognize the myriad benefits.”

Mark Warda, Attorney, Florida

If you can’t find the expertise [i.e. ‘when seeking a competent attorney re. land trusts], you have no choices but to keep on looking, or take upon yourself the task of trying to educate your advisors and counselors.” Good luck with that!

Jay Douglas Swob, Attorney, Cincinnati

“Another problem with using attorneys is that most have a negative attitude about anything with which they are unfamiliar. They’ll probably advise against using a land trust because they [themselves] don’t understand it.”

 

 Bill Bronchik, Attorney, Denver, Colorado

 

“In that the ‘land trust’ is less frequently used outside of Illinois where it was first created [circa 1920], it is unlikely that many attorneys will be immediately familiar with its benefits or unique structure.”

Henry W. Kenoe, Attorney, Chicago, Illinois
Keno on Land Trusts, IICLE, 1989

“No! Don’t do it! Oh M’god! These can only be done in Illinois. They violate the Doctrine of Stepped-Transactions. Lease tenants can’t take tax write-offs. ‘You crazy?  No court in the country would see such a thing as a conversion of real estate to personal estate! Doctrine of Equitable Conversion?  What’s that?  Run Gertrude, run! Run like the wind!

But wait! Before you rush off, Gertrude, let me create a nice little all-inclusive (wrap-around) mortgage for you instead. It’ll do the all the same things and I’ll only charge you $2,000.”  The Due-on-Sale Clause? Oh, don’t worry about that…’lenders hardly ever pay any attention to those things.  I’ll build in a nice exculpatory paragraph anyway (i.e., ‘so you can’t sue me) and it’ll be in bold print.

Could the buyer get the property embroiled in a lawsuit or tax lien while you’re still on the mortgage and unable to make the payments or sell the property?  You ask.  Well, I suppose so, ‘but that hardly ever happens either (‘mumble-mumble’)…’so don’t worry about it (…‘cough-cough).

Could you evict the buyer if he doesn’t make his payments? Well, no. But, hey, there’s always judicial foreclosure, Unlawful Detainer, Ejectment and Quiet-Title action: which I will be more than happy to handle for you (…at, oh, say, $325 per-hour plus court   costs…’no guarantees of course).

Huh? “Would the property be tied up in the other party’s Probate proceedings, if they die?” Well, um, yes, but most people don’t ever die: but even if they were to that, doing so would just be a matter of another paycheck for me, ‘now wouldn’t it? I don’t see any problems here“

Anonymous Lawyer, Riverside, California.

There is no person on earth who is more apparently knowledgeable about the law than an attorney who doesn’t know what the hell he’s talking about.”

Bill Gatten Seminar Leader, Henderson, Nevada

Bill Gatten, the author of this article, is in no way engaged in the practice of law, or in rendering other dependable professional advice.  If legal or other expert assistance is required, the services of a competent professional should be obtained. Do not expect Bill Gatten to know anything (‘about anything).

ANOTHER NOTE: ‘Want to get your client’s and their attorneys to do the right thing? Give them a copy of the article. ‘Especially this part:

If a physician thought like many attorneys do:

“A brain tumor eh?  Well, I don’t know much about the brain, so how ‘bout I treat you for hemorrhoids instead? Here. Take this. Insert it carefully. Pay me. Call me in the morning, and if this cure doesn’t work…’great, just let me know and we’ll switch to still another malady (“I’ve got a ton of ‘em”).

 

TO BE A RICH PERSON, SIMPLY STOP DOING WHAT POOR PEOPLE DO

I don’t mean to sound maudlin or too “new-agey” here; but the one bit of magic that I have managed to glean from my three quarters of century on this wobbly little planet of ours is that WE as individuals are absolutely in-charge of everything that the universe has to give. We are not only in charge of our own destinies, but also in charge of the very clockwork that is the Universe itself. Although most of us live our lives wholly oblivious to that fact, we none-the-less are in absolute control of our health, our fates, our bank accounts, our aspirations and even the aspirations of others (…i.e., the collective needs of the world at large).

Think about it. Didn’t we (you and I together) send a man to the Moon and stand with him behind the cameras in awe as he took what presumably was humanity’s first step on another planetary body?

Didn’t we send spaceships and video cameras to all the known planets? Didn’t we invent cures for Diphtheria, Polio and Malaria? Didn’t we build the Hubble Telescope and put it into orbit around a beautiful, blue inhabited water planet in a remote part of a remote galaxy among billions of other galaxies like it…’for no reason other than because we wanted to and felt that it necessary?

Didn’t we harness the very electricity that once was the scourge of humanity, but which now is enabling demi-godly evolution of the Information Age and our personal lives on a miniscule remote planet in the vastness of virtually endless space?

Of course we did! You and I did that!  ‘And I couldn’t have done it without you!

There is no single individual anywhere on Earth who can take credit for any of our modernity…it is humanity that did it all, and it will be humanity who travels to the stars for our species’ exploration and relocation.  It us YOU and I who will one day cure all the diseases of mankind including the aging process. And that’s exactly who YOU are, and what WE are capable of doing.  Each of us is a crucial piece in an enormous magnificent jigsaw puzzle that never can be complete without every single tiny piece being in its specific place, supporting the entirety of the whole.

As individuals, we need only to be aware of, and in tune with, all of it, remaining steadfastly aware of all of it in order to use all of it and take credit for it. With each and every one of our achievements, somewhere along the line, a solitary individual with a burning desire to do a thing that alters the entire Universe forever—’with a little help from all the rest of us—’simply DID SO…’because he/she chose to do so, and because they knew for sure they could…refusing to acknowledge other people’s perception of the assumed insurmountable” obstacles and impossibility of a dream ever manifesting out of purest imperceptible Potential.

  • “You’ll never get mail from Los Angeles to New York in a single day!  There simply is no man or horse that can run that fast! 
  • You’ll never put a man on the Moon or Mars…’there’s nothing to breath when you get there!

  • Traveling to another planet is impossible.  There’s no atmosphere in space, and therefore nothing for a propellant to push against in order to create an “equal and opposing reaction”!
  • There are no other universes! We have the Milky Way, and everything that exists is right here in it! Oh wait! What are all those little specks that lie beyond the Milky Way.  Oh crap!  ‘Back to the drawing board it is!

Here’s my own little success affirmation (‘as it were…’call it a mantra if you wish?), which, by the way, I have taped to the dashboard of my car, my bathroom mirror and on the back of my TV remote (‘with which I spend entirely too much time) and I’m in the process of having tattooed on the inside of each eyelid.  If you want it, it’s yours too. I honestly have to say that it’s done alright by me. But here’s the caveat: If you read it over once or twice and think you understand its full meaning, you will be wrong…’like any expertly cut diamond, it’s far more multi-faceted than it might appear to be to the casual observer:

I  am in tune  with,  and solely in charge of, the abundance
and   the essence of, Life, which constitutes the purpose of
humanity’s existence. I will, therefore, prosper and stand
conspicuous in the most spectacular of ways…   ALWAYS!

Dr. Tom Johnson, C.O.R.S.

The core message here is that whatever it is that we choose to have, ‘if we truly want it (need it or not), it will be given to us on a silver platter when we know with certainty that having it is our absolute right; and when we honestly ‘expect’ to have it. We can pray for it. We can hope for it. We can wish it upon ourselves. We can ask Santa for it. But if we’ve already tried all of that, and are weary of all the mewling and moping and hoping—and if we are sick and tired of screwing around and being ignored while waiting for the good stuff that others seem to have more of than we do: then we must dig in, rare back and scream (i.e., holler, bellow, bawl-out, yell).

This to say that we have no choice but to tilt our heads way back and proclaim, from the diaphragm through, to, and beyond the uvula,’ as loudly and sternly as we can, that what we want is already ours and by damn, we’re going to have it…NOW!

Its funny, I know, but sometimes God just doesn’t appear to hear real well when needs are whispered as prayerful little “poor-me” supplications. But when they are boldly demanded with sternest, self-assurance, he(she?) smiles and says: ”Well, sonovagun, ‘alrighty then! You finally figured it out! It’s about time!”

When you’ve asserted yourself in this manner (figuratively or literally)…and really mean it…my solemn promise to you is all that you honestly command into reality via Need versus Hope, will indeed appear… ‘and sooner than you think. ‘So be ready!

The most closely guarded secret relative to obtaining is not the fact that if you truly want it and have a good reason, that it will be given to you.  There’s a far more valuable “tool” that we need to understand.  Personally, I can remember my “poverty days (my own)” of not too many years ago, when I thought repeating my mantras and my affirmations daily (to myself)…with stern conviction…and paying larger tithes than I could afford, would bring me financial relief. It did not. It didn’t do diddly-squat (‘so to speak) in that regard…’ until I figured out the solution to the enigma.

The enigmatic mystery all along was simply that if you don’t think you deserve it, no matter how badly you want it, and no matter what you do to get it, you will never discover that it is already yours and just waiting for you to summon it from potential.

Whatever it may be, you must NEED it (burningly) enough to demand it with every screaming fiber of your body and sou and MEAN IT.  And, until you do exactly that, your plans for achievement remain undefined and cannot allow the Law of the Universe to “know” what the hell it is that you think you’re supposed to have.

Consider walking up to an airport ticket counter and saying, “I’d like a ticket please.” The ticket agent then asks, “’And where would you like to go?”  Whereupon you reply: “Well…someplace better than where I am right now, ‘that’s for sure.”

Think about it…how far are you going to get before your realize that you need to get a lot more specific.  You “need” to refine your objective and know for sure exactly where you want to be. You also must know when you’ll be prepared to leave and when you’d like to arrive, and what your surroundings should be like once you get there. In other words , forget about where you WANT TO GO and determine instead where you NEED TO BE!

The resolution of the “enigma” then is: ‘Know with certainty what you want; brashly demand it without apology; know that it is already yours to have; expect it without embarrassment or doubt. Then, Voila! It’s on its way and you can’t stop it. Just be very careful what you pray for…because when you really mean it…you’re gonna get it!

But wait! There’s still another catch. There are a few things you must to do first in order to get aboard the Achievement Train. These items are not necessarily daily exercises, or life-changing goofy stuff that you can’t live with for long, and which embarrass your friends and family when they see you doing it. But they constitute the “catch” nonetheless, and are summed-up very succinctly in the following quote by Louise Hay:

In order to eliminate [any] ‘scarcity’ in one’s life, one must identify and relinquish some [veiled] self-serving need that relies upon that scarcity for its fulfillment

In analyzing this simple, life-altering truism, it becomes obvious that if, for example, one were to desire to, say, lose weight, he or she would have no choice but to give up something desirable but unnecessary. For the weight-challenged, take your choice: any two of the following will do (and you can keep all the rest)—’those scrumptious high calorie foods; ‘that insulin-spiking dietary starch; ‘that satisfying couple’a cold beers every evening after work (‘Oh God! Please! Not the beers!); ‘your sedentary lifestyle; or… ‘a blissful couple weeks of not exercising.

Another prime example of a deeply hidden self-serving need that relies upon a scarcity for its existence is “Failure.” In other words, many people actually choose to fail: I.e., “If I don’t attain success, my need to bitch about everything and blame others for my deficiencies won’t be impinged upon, ‘and I won’t ever have to face the prospect of…’well, ‘failing.   In other words, if I don’t try, no one can say I failed; and that way, I won’t have to come back for an encore (…and that’s very important, because even if I did accidentally succeed once, who’s to say I could ever sustain the roll I was on, and be able to do it again).”

For the same reasons, if one wants to lose the depleted bank account, and the monthly late-notices (“friendly reminders”), then he or she has no choice but to firmly resolve to give up something. ‘For starters, how about giving up, say, a couple hours of TV watching per-evening, two or three of those leisurely Saturday afternoons per-month? How about giving up the safety inherent in declaring that you don’t like cold-calling? Or perhaps letting go of that that fattening poverty- building, ‘oh so soothing propensity for procrastination;

As Dr. Wayne Dyer says in his educational course by the same name: “YOU’LL SEE IT WHEN YOU BELIEVE IT!”

For our purposes, the key is simply to understand, once and for all, that in order to become successful in Creative Real Estate, ‘especially as it pertains to the Equity Holding Transfer™, you don’t have to change your lifestyle, your religion, your spouse, your girth or the way you pluck your nose hairs. You merely need to identify and select a few of those replaceable Self-Serving Needs, ‘and resolve to abandon them in favor of diligently taking for yourself that which you REALLY want out of life.

Honestly, do you think your God will mind if you rare back, scream out boldly, emphatically and demand that “he” give you what you know with certainty that you truly deserve?  No!  ‘Any God who, in fact, would be offended by any starving soul raising his/her  voice in dire need is really not a very good God.

Imagine, if you will, a devout and truly virtuous preacher in the process of drowning in lake with others watching?  ‘Do you think his dire entreaty for salvation is going to be whispered softly in order to avoid offending God?  Hell no!  ‘You’ll hear him twenty miles away vociferously demanding the life that he knows with certainty he deserves, and of which he is about to be deprived!  In this analogy the preacher knows without question what he want at that moment, ‘and he damn-well ain’t screwin around with platitudes and sweet-talk!  In such a dire circumstance I am positive that any caring God would never resent even the busting of an F-Bomb or two somewhere along the line.  If you’ve ever felt that you were about to drown and weren’t much of a swimmer, ‘you know exactly what I’m talking about.

If you’re about to drown financially…’now you know what to do about it!