A
Straight Lease
A
rental for a specific period of time. Generally incurs a negative cash-flow
along with unrecoverable costs of management, maintenance and vacancies.
No chance for elevated income.
A
Lease/Option
A
unilateral agreement to sell with bargain terms at a future date. So what's
wrong with an L/O? They've been done for years. The L/O violates a lender's
due-on-sale admonitions. A L/O can (if an option fee is taken or rent credits
are given) lead to an inability to evict a defaulting tenant. Such a tenant
in default can claim having "Equity" in the property, and in so doing,
force a judicial foreclosure process versus an eviction. This can afford
him/her months of free rent while the litigation rages on. As well, terms
can be changed on a whim relative to buy-out provisions, repairs, equity
credits (rent credits), etc.: all requiring extensive, expensive, legal
action to rectify.
This
alternative s often used where the parson on Title has a large equity possition
and feels this may be the way to protect his or her interest.
Contact for Deed
The
CFD is essentially a "Lay Away Plan." The property's legal title is relinquished
to the vendee (buyer) only after all debt has been paid off: i.e., there
is no legal ownership of the property until it's completely paid for.
And
the problems are...? The CFD is a direct violation of a lender's due-on-sale
clause; there is no means for eviction; the vendee (resident/buyer) holds
a "equitable" interest in the property, allowing only for foreclosure,
ejectment and quiet title in the event of a breach of contract in lieu
of eviction. Further, any parties' creditor liens, lawsuits, judgments,
marital dispute litigation and tax liens attach to the property... and
the death of any party throws the property into probate. Lastly,
the laws in some states have changed placing many onerous burdens
Wrap
Loan
In
a "Wrap-Around Loan" a seller creates a mortgage loan that is equal to
or greater than the current loans on the property. Then from the buyer's
single monthly payment to the seller the underlying junior loan payments
are made (usually leaving a positive cash flow for the seller).
So,
what's wrong with that? Well, a Wrap violates the lenders' due-on-sale
clause; there is no means for eviction in the event of default; the resident/buyer
holds an "equitable" interest, necessitating foreclosure, ejectment and
quiet title actions in lieu of eviction; any parties' creditor liens, lawsuits,
judgments and tax liens attach to the property; and the death of any party
throws the entire property into probate.
A
shared-ownership of real estate, wherein two or more parties hold title
as tenants-in-common. Typically, one of the parties makes the down payment
while the other lives in the property and makes the monthly payments.
“Subject
To” Deals
This
is an assumption of mortgage payments subject to a loan's existing terms.
And
the problem...? "Subject-To" is basically a generic term that can be applied
to any of the above: and like the above, a Subject To violates the lender's
due-on-sale clause; obstructs (stops) one's right of eviction of an errant
tenant/buyer; it conveys Equity; it jeopardizes title; it invites disastrous
disagreement and 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
Equity Holding Title System (Ama-Kya Trusts)
Virtually
none of the downsides, but all of the benefits and protections of Seller-Assisted-Financing.
A seller's property is vested with a 3rd party trustee. Income tax benefits
can then be conveyed to a tenant. No party can act independently of the
other. No party can jeopardize title (accidentally or on purpose). The
property is shielded from public view, and is well insulated from lawsuit,
creditor judgments, tax liens; bankruptcy, marital dispute and probate
on behalf of either (any) party to the arrangement. Simple eviction rights
are preserved ... and the lenders' "due-on-sale" clause is not violated
or compromised. (More on the "Due-on-Sale Clause," following on page 5).
Problems?
As is common with ANY financing method, an EHT tenant/buyer could default
in its payment or management obligations under the agreement, thereby requiring
disposition by simple eviction action, or imposition
of penalties and/or sanctions. The property could lose value over the term
of the agreement, necessitating a future sale at a loss or an extension
of the agreement.
