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.