Monday, October 15, 2007

Seller-Carry Financing in General

Before reviewing the NARS Equity Holding Trust™ transfer system (NEHTrust™), let's take a look at some older, time-worn seller-financing concepts and their many pitfalls and downsides.

Straight Lease - A rental for a specific period of time. No benefits other than use and occupancy. Always at the landlords whims and mercy. Far more costly than owning due to absence of income tax deductions and equity build-up

Lease Option (L/O)
- A unilateral agreement to buy at some future time, under pre-arrangedd terms if the tenant has the money and credit wherewithal to do so at the exercise date.

So what's wrong with a L/O? They've been done for years. The L/O violates a lender's due-on-sale admonitions (See. 12USC1701-j-3). An unscrupulous optioner can change the terms on a whim relative to the option price and rent credits, requiring extensive legal action to rectify. If the Optionis recorded, the lender's due-on-sale admonitions are brought to ber and the house and the option could be lost; if not recorded there is no guarantee the property wouldn't/couldn't be sold or leased to someone else without the optionee's knowledge. Optioners can, and often do, refuse to honor their commitments in the face of increasing values (again, forcing expensive and tenuous litigation). Very few Lease Options are ever consummated, thereby most often wasting one's Option Fee and Rent Credit payments.

Contract for Deed (CFD)
- The CF is essentially a "Lay Away Plan." The property's legal title is given to the buyer only after all debt has been retired: ie., there is no legal ownership until the property is fully paid for.

And the problems are...? The CFD violates a lender's due-on-sale clause; and (either) parties' creditor liens, lawsuits, judgments, marital dispute litigation, and tax liens will attach to the property. And...the death of either party throws the prperty into a decend's probate (re. posthumous creditor claims.)

The "Wrap" All Inclusive Mortgage
- In a "Wrap" a seller creates a mortgage loan that is equal to or greater than the existing loan/s on the property. Then from the buyer's monthly payment to the seller the mortgage payment/s is/are made...thereby leaving the seller a positive cash flow.

So, what's wrong with that? Violation of the Due-on-Sale Clause; the seller's, suits, judgments, marital litigation, probate and tax liens attach to the property; and the death of the seller puts the entire property in probate. There IS, however, a better way to accomplish the same objectives without the risks.

The Equity Share (ES)
- A shared-ownership of real estate, wherein two or more parties hold title as tenants-in-common. Typically, one party makes the down payment while the other lives in the property and makes the monthly payments for an equal share in profits upon sale.

So, and the problem is...? Another due-on-sale violation. The other party's liens, lawsuits, judgments, marital dissolution litigation, tax liens and affairs of probate attach to the property...thereby negatively affecting the surviving party's ownership interests. Once again, the objectives of equity sharing can be safely accomplished without the risks and downsides by use of the Equity Holding Trust Transfer™.

The "Subject-To"
- The Subject-To is an informal assumption of mortgage payments subject to a loan's existing terms, with or without the lender's knowledge and/or permission.

And the problem...? "Subject-To" is basically a generic term that can be applied to any of the above schemes. And like all the above, an unauthorized Subject-To violates the lender's due-on-sale clause. The Subject-To clouds the property's clarity of title; it invites disastrous dissension and frequent litigation between parties. And...any party's business, personal and legal actions attach to the property: thereby seriously negatively affecting the interests of the other party/ies. The solution follows with an explanation of the NARS Equity Holding Trust Transfer™.

The Equity Holding Land Trust Transfer System (EHT) - Protection with virtually none of the downsides, but all of the benefits and advantages of Seller-Assisted-Financing
. With the EHT, a seller's property is vested with a 3rd party trustee in a land trust. Income tax benefits can be conveyed to a co-beneficiary/buyer. In that the trustee is the property owner, no party can act independently of the other. No party can jeopardize title. The property is shielded from public view,and is well insulated from lawsuits, creditor judgments, tax liens, bankruptcy, marital dispute and probate on behalf of either (any) party to the arrangement. And...the lenders' "due-on-sale" clause is not violated.

Problems? As is common with ANY financing method, a seller (trust grantor) could "stir up trouble (although without effect)." The property could lose value over the term of the agreement, necessitating a future sale at a loss, or requiring mutual agreement for an extension of the agreement; without proper caution one's real estate could fall into disrepair. No negative exists, however, that would not be in common with any form of home mortgage financing.

WHEW! That is a screen full. If you made it through all that, congrats! As you can see the EHTrust Transfer is far superior and without most of the downfalls of any other seller-assisted financing.