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Protect your owner carry home
When you use any form of owner carry, such as lease option, lease purchase, rent to own, wrap
around mortgage, or all inclusive trust deed (AITD),
you are at risk!
But, you can minimize those risks!
An owner will carry is simply any form of lease option, lease purchase, rent to own, wrap
around mortgage, or all inclusive trust deed (AITD). These are great ways to get more potential buyers who may not have
perfect credit or large sums of money for a down payment.
But, all owner will carry scenarios come with great risk. You could easily find yourself losing money, the home, or in a myriad of lawsuits.
There is a method to protect your owner carry home. But, before we get to
that here are some articles that you should read through just to get a feel for what can go wrong (use your back page
button to come back to this page).
Avoid the Pitfalls of a Lease Option Arrangement
When a Lease Option Goes Bad
Lease Purchase Horror Story
Combined with the problems describe in the links above, you could be face with the lender
calling the note due. Virtually all conventional loans, with the possible exception of a VA loan, will
contain a clause that prevents the above type of transactions from occurring. The lenders want to
create a new loan, more money for them. While rare these days, it is still a threat. One that we can
easily eliminate.
With all this in mind, here are some of the benefits we can offer:
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A legitimate
"takeover"
of one's existing loan payments, without loan assumption or violations of the underlying lender's alienation and "due-on-sale-" admonitions.
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A
higher selling price
in most cases.
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A faster sale and shorter escrow, since there is no waiting period for loan application, qualification, and approval.
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Avoidance of IRS imposition of income tax on
Debt-Relief
when foreclosure or short sale is the considered option.
-
Freedom from loan payments
which may no longer be affordable, as well as the cost of insurance and general maintenance.
-
Enhanced income and profit potential, compared to what
straight renting or leasing
could provide.
-
The ability of the homeowner to transfer income tax benefits and other benefits of ownership. Increasing the net income from 70% of
straight lease to 100% or more, very favorable to the lending institution for acquiring other properties.
-
Protection from possible injurious or malevolent actions of the "other party", due to
the recourse and tough penalties built into the system.
-
In comparison with traditional "owner-carry (OWC)
" arrangement...a shielding of the property from an errant party's tax liens, lawsuits, bankruptcy, judgment, liens, probate, and
power-struggles in a marital dissolution.
-
The easiest collection of a resident's payments; handling of disbursements to creditors; mailing to late notices; and
processing any necessary admonitions, evictions or other legal process -
the seller need never to handle these functions
.
-
Ease of eviction and avoidance of the time, anguish, and expense of
judicial foreclosure, ejectment
and quiet title actions to regain entry and possession following a tenant's default.
-
Partition of the profit potential to be derived from a future sale, while, in the meantime, someone else pays all the bills.
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Deferred Capitol Gain tax on rental property or property held less than 2 years out of 5. You will not pay the Capitol Gain tax until the
termination time.
Introducing the Equity Holding Trust
The Equity Holding Trust is a method that is used to actually transfer the rights of fee
simple real estate from the owner to the buyer without the need for a new loan or a large down payment. This same
method can be use for any type of a owner carry arrangement and will give the above mentioned benefits and many
more.
By placing the home into the Equity Holding Trust, you will achieve the best possible
protection you can get until you complete the agreement you have with the potential buyer. Along with the protection, you
gain privacy of the transaction. You will only show is a beneficiary of the home held in trust. All public
records will show the home is owned by the non-profit company acting as the trustee.
There are three steps you and the potential buyer need to do to achieve protection of your
owner carry home. First, you, the seller (also known as the Settlor) will create the Equity Holding Trust. Second, in a separate action, you
will name the buyer as a beneficiary of that trust. The last step is for the buyer to sign the occupancy agreement. Then there will
be an addendum call the Rider. This is the exceptions to how the Equity Holding Trust works to best fit the agreement you and the
buyer have. We handle all the documentation throughout the entire process and give you supporting documents for your tax advisor.
In this arrangement, all advance payments and deposits from the buyer are held by the trust in a contingency fund. This is fully
refundable to the buyer as long as the buyer completes all parts of the agreement.
As an example, if you are going into a rent to own situation, where a portion of rent payment is going to
be credited to the principal. We would write that into the rider that a portion of the rent is to be held in the
contingency fund or the equity balance held by the you would be reduced by that amount. Which ever
works best for both parties.
In the case of a lease with the option to purchase, the Equity Holding Trust provides the buyer the first right to
purchase at the end of the agreement. By not making it a true option, but simply letting the buyer have the first choice,
the "due on sale" clause is not violated.
There are many more benefits, but you should get the picture. As always, the choice
is yours, protect the owner carry venture your about to enter into or take your chances. Simply contact us
via the form below to get started.
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