General Questions: Buyer and Seller, Trust Related:

   

 Can a Resident co-beneficiary (as tenant and assignee of beneficiary interest) legally vacate the trust property before the end of the agreement?

 Yes, with the approval of the other beneficiary/ies a resident beneficiary may lease or rent the property out, sell their interest, or even leave the property vacant, so long as the respective financial interests of the other parties are not compromised.  And permission for the resident beneficiary to do any of these things may not be unreasonably withheld.

 Can a Co-Beneficiary unilaterally (acting alone) terminate the trust before the end of the agreement?

 No.  Once the trust transaction has been established between parties, only a breach of contract by a co-beneficiary would allow another beneficiary (settlor, investor or resident) to act alone on any issue relative to the parties, the transaction, the trust, or the trust property.

 What happens if a beneficiary dies during the term of the trust?

 Upon death of a beneficiary, its interests and obligations in the trust and related documentation pass to the heirs (thereby avoiding probate).  The heirs then assume precisely the same obligations, responsibilities, rights and benefits that the original beneficiary held.  Nothing changes.

 If it were to be a resident beneficiary who died, and the heirs were to fail to honor the obligations of the agreement, eviction would follow.  The beneficiary interest of the defaulting parties would then be extinguished by the methods prescribed in the original documentation.

 What happens if a beneficiary files for bankruptcy during the term of the trust?

 In that the trust converts one’s ownership of realty to ownership of personal property (i.e. an interest in the trust, versus an interest in the property), and since personal property is not deemed subject to partition by judgment creditors, unrelated beneficiaries holding their property in this manner needn’t fear their property becoming the subject of:  a creditor judgment, lien, or charging order.  Neither could the property be the subject of a state or IRS tax lien, any party’s bankruptcy, marital dissolution, or probate.

 What happens when (if) a resident beneficiary fails to make payments when due?

 There are two separate consequences of a default by a resident beneficiary: 

a)                     Eviction, and

b)                     Extinguishment of the defaulting party’s interest in the trust:

 1.                     First Step—Termination of Occupancy:

By the terms of the trust’s separate lease agreement, the party acting as landlord (usually the investor beneficiary (us), or a neutral entity appointed by them) has been instructed by all beneficiaries (the defaulting beneficiary included) to, in the event of payment default, evict the resident beneficiary from the premises.

 2.                     Second Step—Termination of Beneficiary Interest in the trust:

By the defaulting parties’ own specific direction to the trustee (as per the original contract), a payment default by any tenant in the trust property who is also a beneficiary in the land trust, constitutes an offer by the defaulting beneficiary to sell all of its beneficiary interest to the non-defaulting party/ies at the property’s Fair Market Value at the time of the eviction.

 It is further agreed in the original contract that such sale shall take place only after payment of a Default Fee (and repayment of all past due amounts, missed payments, late charges, fees and penalties).

 The design and purpose of this default remedy is to keep the lease and the trust separate from each other, and to allow for fair treatment and full recourse by the parties should any of them be or feel maltreated by the other.  This remedy is designed to be mutually punitive and protective.

If the Resident Beneficiary doesn’t make their required payments they lose their beneficial interest through the terms of the agreement, and we will find a new Resident Beneficiary to take their place.  Meanwhile, we will make any payments that the reserve fund doesn’t cover, and then get reimbursed when we find a new Resident Beneficiary.  No worries for you, the Seller.

 

  What if a property loses value during the term of the agreement?

 Erosion of real estate values is, of course, always a possibility, and if, at the end of the term of the trust, the property can’t be sold (or purchased by the resident beneficiary) for enough to return the nonresident beneficiary’s initial contribution (e.g., his/her beginning equity); and should the nonresident choose not to reduce the amount of its refundable contribution…then the resident beneficiary has these options:

                   1)           Vacate the property with no further obligation, forfeiting its entire interest without refunds of any monies.

2)           By mutual agreement, extend the contract.

3)           Buy the property for the amount owed to the co-beneficiaries and retire or assume the underlying financing.

 Could a buyer benefit from the TSS should the underlying loan on a property be greater than its value?  (i.e., an over-encumbered property)?

 Yes.  The “over-encumbrance” on the property is often perceived as simply a trade-off for an acquiring party’s inability to qualify for a standard mortgage loan, or its lack of a standard down payment and/or preferred credit.  Because the purchase may avoid the mortgage approval traps of self-employment, newness on the job, limited job history, or marginal (or not) credit history—one planning on a long-term ownership might choose to disregard the property’s over-encumbrance.

 The fact is, that even if by the end of the agreement, the resale value of the property had not increased sufficiently to cover the loan against it, the resident will still have enjoyed the benefits of home ownership and income tax deductions that would have been unavailable otherwise…and at termination he/she still has the right to –

1)                     Petition to extend the agreement, or

2)                     Just move out and pay no more

 In other words, at the trust’s termination the resident beneficiary may not have made any money from appreciation:  but neither did any of his/her friends and neighbors who purchased their homes traditionally at the same time.  And unlike those friends and neighbors, the resident beneficiary can freely walk away with no further obligations, while the others still have a burdensome property on their hands and 25 years of mortgage payments ahead of them.

 The Due-On-Sale Clause…Could a mortgage lender Claim that the Trust Selling System violated its Due-On-Sale clause?

 Though unlikely, the answer is yes.  No one can predict what any commercial institution could (might) “claim” in the future…whether right or wrong.

 However, beyond the borrower’s transfer of the property to a trustee of his own inter vivos trust (fully authorized by federal legislation), none of the trust documents are, or need to be, recorded.  Although, even if discovered by the lender, such documents involve only an appointment of a successor beneficiary and a lease of the property to that party, and neither of these actions are prohibited by law or any lender’s due-on-sale clause.

 What would happen in the event of an irreconcilable dispute between co-beneficiaries in the Trust Selling System?

 Although the chance of such an occurrence is slim due to the third-party ownership aspect of the trust, disputes between parties may arise from time to time, but seldom if ever would they impede the original objectives of the arrangement.

 Holding property under the ownership of a trustee can be thought of as similar to holding a property in third-party escrow by a settlement agent.  Doing so prevents misdealing and untoward actions by any party against another during the settlement process.

 Nonetheless, beneficiaries do contractually agree in advance, that if irreconcilable differences do arise, they are to be settled by arbitration under the rules of the American Arbitration Association.  Each party agrees that it will abide by, and rely upon, the decision of the appointed arbitrator.

 What would stop a settlor, in his own revocable trust (a trust which is set up in his/her own name and revocable by him/her) from revoking it to the detriment of the other beneficiary/ies?

 Of prime importance is the fact that, even though the trust that under pins the Trust Selling System is a revocable trust, it is directed by ALL of its beneficiaries mutually.  In other words, unless special provisions were to have been made in advance, no single beneficiary can direct the property’s legal owner (the trustee) to do anything, sign anything or approve anything involving the property or its title, without the absolute concurrence and mutual direction of all the beneficiaries.

 Since the trustee must be involved in any action concerning the trust and its property, a beneficiary acting alone cannot alter the trust agreement, borrow money on the property, or bring about a lien against it…without the full agreement, acceptance and direction of the other beneficiary/ies.  For example, a resident beneficiary wanting to add a room, install a swimming pool, or encumber the property, may not do so without the knowledge, consent and mutual direction of the other beneficiaries.

 

Questions the Seller may Have:

 

Can I stay in the home?

·      Yes, we prefer you stay in the home until closing, although it's not required.

Should I make the payments until the home is sold?

·    We would prefer to work with mortgages that are current.  We can still work with you as long as you’re not too far behind (typically 3 months), but the further behind you are the more a buyer would have to bring to closing to make the loan current – and the less likely it will be that a buyer can be found to buy the home.

·     Also, as the loan goes into default, a foreclosure becomes possible.

·     Generally if you are not able to keep a loan going, WE CAN HELP by doing a short sale on your home. Often we can start a short sale and mortgage assignment program together (a COMBO PLAN) and if a buyer can’t be found in time for the Trust Selling System program, we can fall back to the short sale to avoid a foreclosure. For more information on short sales, see our website www.foreclosureky.com  

Are there other alternatives to the Trust Selling System?

·     In general, if a home has little or no equity, the only way to sell the home is to do a short sale or have someone take over payments, as in the Trust Selling System (TSS). Otherwise you would have to bring money to the closing table in order to cover the closing costs, commissions, and possible payoff shortage.   You could always rent your house to cover your payments, but there are problems and headaches that come with that.  Or you could do a lease with option, sell subject-to the existing mortgage, contract for deed, wrap around mortgage, etc.  However, each of these methods have severe drawbacks for the seller and buyer.  CLICK HERE for a comparison of these methods and a brief discussion why the Trust Selling System is a far better alternative than any of these other methods.

·     If you don’t want to sell your home, you may consider negotiating a forbearance or loan modification agreement with your lender. These agreements generally allow a homeowner to agree to a schedule to “make up” missed payments that resulted from a temporary interruption in income and/or reduce the payments going forward. If your situation is more permanent than temporary, you will likely not be approved for forbearance, in which case a short sale or TSS is probably a better option.

How does this program affect my credit?

·     It depends. If you are behind in making your payments and/or have a spotty payment history, at the time that a buyer buys the home  through the TSS, your payments will be brought current and this will generally improve your credit.

·    For many sellers, as payments continue to be made monthly, and in a timely fashion, their credit will continue to improve or remain unchanged. Obviously, if payments are late or missed, your credit will degrade.  However, since we have a vested interest in the property we won’t let that happen.

·     In most cases, although the loan(s) remains in your name these loans are treated by the credit bureaus as cash neutral accounts (a debt with an offsetting credit).