The Equity Holding Transfer™ as a Bridge-Funding Device
Provide ALL Ownership Benefits to a Buyer
Prior to Mortgage Approval, Down-Payment and/OR Deed Transfer
The EHTrust Transfer™ (an EHTrust™ with two or more beneficiaries) is designed as a private and silent transfer of real property ownership benefits from one party to another. With the EHTrust Transfer™, when used in conjunction with am Assignment of Beneficiary interest and a Triple-Net Occupancy Agreement, home ownership benefits derived by an acquiring party are directly analogous to title ownership…but with effective asset protection in-rem (‘re. legal action against the real estate vs. against the person…i.e., “in personam”).
A BRIEF SYNOPSIS
- BRIDGE FUNDING: I.e., the provision of temporary ownership benefits to an acquiring party while that party waits for (or prior to) loan approval… ‘or perhaps after a contingent approval while waiting for sufficient funds for a down-payment and closing costs.
- Such “ownership benefits” are inclusive of: occupancy, quiet enjoyment and full income-tax write-off for property tax and mortgage interest.
- In order to accommodate a buyer of real estate, whom, for any of various reasons, might be compelled to wait a while (‘a few weeks or months…’or years) before being able to complete his/her purchase transaction: that party can be afforded 100% of ALL fee-simple ownership benefits (‘i.e., re. the benefits within the so-called Bundle of Rights“).
- The bridge financing arrangement is achieved by the owner’s simply vesting the property’s title with the trustee for an EHTrust™, thereupon, creating a co-beneficiary relationship with the acquiring party for a stipulated term (‘of days, weeks or months) that corresponds with the anticipated time it will take to complete the purchase.
- Should the transaction not be completed as promised in the time agreed-to, the relinquishing party (“seller”) can merely terminate the agreement and dispossess (‘evict) the co-beneficiary…without the necessity of foreclosure, and without the possibility any “claim of holding equity” so often used by defaulting tenants in order to forestall eviction (‘i.e., in order to force a lengthy and costly foreclosure process).
- The owner-of-record, as the trust’s settlor and director, can however—solely at its option—agree to renew or extend the EHTransfer™ for an additional period of time).
READ MORE (‘If doing so is deemed necessary)
Application of Bridge Funding with the Equity Holding Transfer™
Often times, after a buyer is found, the underwriting and loan-approval process takes months, while a fully-approvable buyer struggles with the finalities of mortgage funding: i.e., perhaps needing time to remove a bankruptcy or former foreclosure from one’s credit report; or needing time to retire certain personal indebtedness in order to improve a Debt-to-Income Ratio; i.e., ‘perhaps needing to buy time in order to come-up with a full down payment; ‘waiting-out the sale of a former property…’or myriad other setbacks that can delay mortgage approval and funding.
In situation such as these, an ideal solution (‘were it to be possible to do so) would be to lease the property to the incoming buyer on and interim basis until the funding process was complete. However, doing so is seldom a workable solution in that a monthly lease payment would likely not come close to being sufficient to cover mortgage payments, property taxes, insurance, HOA fees and utilities. And there is, of course, always the likelihood that the buyer could just give up after a period of time, ‘or maybe enter a long-term lease or seek another property.
However…IF the prospective buyer could in-fact be given 100% of ALL Fee-Simple home ownership benefits and move in to the property while awaiting final approval, all parties could be fully accommodated, in that the would-be buyer would save a sizable sum by making monthly payments that, although higher than rent, yield the financial benefits of full income-tax deductions and the other monetary benefits of ownership)
Such “home ownership benefits” include:
- Use and Occupancy
- Pride of Ownership
- Privacy and Quiet Enjoyment
- Income tax deductions for interest being paid re. the underlying mortgage interest
- Income tax deductions for the payment of applicable property taxes
- Potential economic appreciation (market appreciation)
- Equity build-up from reduction of the mortgage’s principal
- A free third-party collection and disbursement service to handle payment record-keeping, accept payments and distribute funds re. insurance premiums, property taxes, HOA dues, etc. (‘any remaining money is sent to the trust’s Settlor)
- The property is then leased (temporarily) to the prospective buyers via a triple-net residential lease (i.e., ‘a lease requiring payment of all principal, interest, taxes and insurance).
- The Lessee (‘the prospective home buyer) is made a Co-Beneficiary in the trust for a stipulated term of years (or months)
- When final loan approval and funding takes place, the property’s title ownership is returned to the owner-of-record (the Settlor) and then to the party in the property
During the trust’s set-up, parties can collectively agree on any contingencies they wish: ‘such as, say, the length of the arrangement, the right to extend (or not) after the prescribed term; justifiable reasons for early termination or eviction (i.e., ‘loan disapproval, payment default, neglectful or illegal actions, etc.).
By virtue of the IRS’ Code §163 [‘specifically (h)4(D)] and IRS Revenue Ruling #92-105, the resident co-beneficiary-lessee in the EHTrust™ will, during the trust’s term, be treated for income tax purposes as an owner of the trust’s corpus (the property).
The attendant Assignment of Beneficiary Interest, the Beneficiary Agreement and Triple-Net Lease Agreement serve to delineate each party’s benefits and respective responsibilities to the property, to the trust and to each other.
At this point, it’s important for one to be comfortable with the fact that a transfer to such a trust is wholly acceptable relative to a mortgage lender’ admonitions concerning unauthorized title-transfer (12USC1701-j-3 re. the “due-on-sale” clause).
Also note that what might appear to be a contradiction of 12 USC 1701, within US Office of Thrift Supervision’s Code of Federal Regulations (12CFR591(vi)), is wholly without merit or legal effect, in that Title 12 of the CFR (‘the OTS’ interpretation of 12 USC) in its entirety has never been enacted, or intended to be enacted, as law [‘as clearly stated in Title 1 of the CFR and affirmed by the Office of the Law Revision Counsel of the US House of Representatives]
Once the buyer’s loan is ready, the Contingency Fund is released to the Buyer or the Lender and the trust and lease are terminated as the property is deeded to the Buyer.
Note that this type of transaction can be structured so that, even prior to one’s mortgage loan application, a Resident Co-beneficiary could be required to build the trust’s Contingency Fund during his/her tenancy to an amount sufficient to cover all of, or any deficiency in, his lender’s requisite down-payment and closing costs (‘perhaps while also building equity and restoring his/her/their credit).