The political Oscar show has begun in Washington.

The Democrat Enron case (Fannie Mae and Freddie Mac) show has started .

The Frank’s and Dodd’s who engineered these quasi-government companies in the 1990’s Clinton Administration are now heading the campaign to make garbage look like gold with a “bail out”.

If Washington wants to help Wall Street what should be done is to create a 30 year to 50 year bond which would be paid back with interest (say at 6% or more) to the taxpayers but it would be paid by those being bailed out. 

The political establishment does not have to saddle the taxpayer (Main Street) with this political, thoughtless financial burden created by Congress.  This is the capitalist way of doing things which is what made the United States great.

Allow Fannie Mae and Freddie Mac to re-package their questionable mortgage notes, discount them to what the market will bear, and in return they will get some money for operating expenses.  The people buying these re-packaged item(s) will either make a lot of money or lose significantly…..but that is the investors choice.

The bond could be set up so that the first 10-20 years would be interest only; the last 30-40 years would be amortized (principal and interest) over the remaining life of the loan.

I think 30 years is better than 50 but I willing to give a little.  Why 30 years?  The 30 year mortgage is the standard mortgage period for Main Street, so the same should apply to Wall Street, Washington Street, Detroit Street and any other street you wish to add.

But what do I know…..I live on Main Street and do not understand the on-goings of  Washington or Wall Street.

There is a book entitled “Waking Giant:  America in the Age of Jackson” by David S. Reynolds (Harper) in which the author describes the President Jackson era of rabid growth, banking brawls and other faddish items.  As a critic wrote:  “Jackson hated banks—hated the idea of a government protected money machine–and he vetoed a bill to renew the charter of the Second Bank of the United States which can be loosely described as yesterday’s Federal Reserve.  This veto occurred in an election year.

What is interesting is the presidential issue then is the same issue today….a referendum over the constitutionality, equity and efficacy of banking in general (Fannie Mae and Freddie Mac).  What Mr. Reynolds concludes is that in Jackson day, just as today, we are in an age of hoaxes and nostrums.  We have changed, but haven’t changed much since 1832.

The next step would be a complete investigation and removal of the political people involved in this whole mess.

And the brains and management (that keep this Country going) do not reside on Wall Street or in Washington but on Main Street.

Ventura County:

The past week showed significant gains in sales, a big drop in listings, and variance between list price and actual sales price of homes sold dropped by 50%.  Days on the market for homes sold was high at 99 days compared to the average of 71 days the week before.

But the market appears to be sound however the drop in jobs and the increase in unemployment have not been incorporated in the numbers so the impact is still fluid.

Until then it is a good market as shown in the table below.

The monthly chart below and the Spot Yearly Comparison between 2006 and now suggests that the market is looking for balance which I think occurred in June/July of 2008.  The disconcerting jumb in inventory was not expected but this may simply be a minor hiccup for this period.  But the trend appears to be done.

Ventura County has witnessed a 25% drop in home values since 2006.  Compared to other areas such as Redlands, etc., this is relatively small.  However areas such as Fillmore and Santa Paula have seen an average of 50% decrease in home values.  Fortunately other parts of the County pared that number down.

Your comments are welcomed.

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We are witnessing the best day time soap opera ever written.

It has Greed, Sex, Lies, Apathy and maybe a Cover Up?  Hollywood could not ask for a better script.

One hopes that all of this is make believe but unfortunately things are beginning to unfold, quicker than most people want or expected.  The good stuff probably hasn’t been seen yet.

So let’s see…..in addition to Fannie Mae and Freddie Mac, this past week we bailed out AIG (which if I read the transaction correctly may not be a bad thing ….. AIG pays everything back with interest and if they don’t they have trillions in assets which the government can sell off).

Also there was some talk that the Federal Reserve will buy ALL bad notes from the banks.  No one asked if this was limited to mortgages or if auto loans and others were going to be thrown into the pot.  Expect the worse….all bad loans will include mortgages, auto and other loans (like credit cards).

So yes the United States tax payer will be plucked again by Congress.  What is a mere $ 7,000,000,000,000.00 amongst friends with more to come.  Maybe there should be more 000’s added to whatever that number represents.

This is going to be a slow, unwinding soap opera which will get an Oscar based on the performances yet to come from our politicians.  I cannot wait until the other shoe drops.

And if that is not a kick in the pants, the people who created this Fannie Mae/Freddie Mac mess are still in office, heading many of the committees and (this is the best part of all), they are the one’s that will do the investigating and will be the architects who will create (yes, you guessed it) legislation to cure the problems they generated. 

Perfecto!  You cannot ask for anything better.  Isn’t this the best script ever written.  How many political Enron types do you think will end up in jail?  My guess is ZERO!  

Of course in most plots there has to be a bad guy.  Yep….you guessed it.  The news media are calling this soap opera that we are witnessing the Bush problem.

NOT SO!  This is the 1990’s Democrat Congress fiasco.  It’s their legacy to our future generations.

And another balloon released for general reading and reporting is that Fannie Mae and Freddie Mac are private companies.  Not so!  These are Government sponsored monopolistic entities pure and simple.

During the 1990’s the Clinton Administration saw fit to say and implement a strategy that all people deserved a home.  A home in every pot so to speak.  It did not matter that the recipient could or could not afford a home only that each person should have a home.

Subsequent to this policy a number of Republican law makers attempted to put controls on Freddie Mac and Fannie Mae but to no avail.  Barney Frank and others muscled out any attempts to put controls on Freddie Mac and Fannie Mae.  I have not checked but I wonder how much in donations Barney Frank and the others received from Freddie and Fannie?

This 90’s policy is what we are dealing with today.  There are multiple billions of dollars at stake that the tax payer will have to pay.  This is the legacy from the 1990’s group of Senators and House members that put into effect this horrible policy.

If this activity were undertaken in the private sector (remember Enron) to be sure we would be have hearing on Capital Hill instantly.  But all is quiet.  Hearings (if any) are going to started after the election.  Why not now? 

What should be happening now are hearing to see who is responsible for the overall mess.  It is unfortunate that the culprits are in office and no one is going to be charged.

This is a government Enron type situation and the politicians are circling the wagons to protect their own. 

The media has been eerrily quiet with the exception of blaming Bush (which in itself is tiresome).  There should be lots of print and broadcasting as had been done with Enron and other companies.  What has happened to our investigative reporters? 

As happens in the private sector some politicians should be going to jail but don’t hold your breath because that isn’t going to happen.

There are lots of questions to ask.  The first of which is “Who in Congress was keeping tabs on Fannie Mae and Freddie Mac?  Why didn’t they see what was going on?  What committee(s) and who are the committee members that are supposed to be watching the public interest?  

Prison seems like a good place to put many of these people…..just like one would do in the private sector.

But it appears that the law which covers these crimes is handled differently for the private sector than for public crimes of the same nature.  Enron now appears to be a love story compared to what is happening in Washington.  Funny how that works out.

And do not get too comfortable……oozing out of the wood work will be Uncle Sam having to rescue State pension plans which are beyond the reach of many municipalities to cope with.  Now that is going to be one heck of problem to resolve.

I suspect that a shock is in store for the system.  In the private sector this would be handled via a bankruptcy and all pensioners would likely lose.  I suspect that the public sector will also declare bankruptcy and all pensioners would lose.

Let’s add to glowing embers the possibility of a Jimmy Carter’s era of 17% mortgage rates?  Oh….by all means one should expect healthy tax increases but that may a difficult task to legislate.

This gets better all the time…..I am running out of pop corn so wait for the next installment.

Side bar:  From an historical point of view there were four panic occasions in which the Government  had to act.

Panic of 1792.  Nobody is around to discuss this situation but the Federal Government acted to take over State debts from the Revolutionary War.

Panic of 1907.  Again not too many people around to address this situation but it appears there was a run on banks and trusts for failed loans in a copper company.

The Depression (1930’s period).   The Home Owners’ Loan Corporation was created whereby Congress bought default mortgages (about 1 million mortgages) from banks, refinanced them at lower interest rates for fixed, 15 year terms.  The stock market crash was the culprit.

Savings and Loans Crisis (1986-1995).  Congress created the Resolution Trust Corporation to clean up the Savings and Loan mess created by failed commercial real estate loans which totaled $ 124 billion. 

Ventura County.

Mentioned repeatedly was the fact that Ventura County appeared to be immune to the goings on National landscape.  I hope that is remains true.

It appears that the shield has been dented.  The shield hasn’t been punctured but the reports of jobs decreasing significantly often is a first step for other things to unravel.

The weekly real estate numbers appear to be strong.  There has been a sizable reduction in listings; homes continue to sell at a good pace; days on the market appears to have settle in at about 6-8 weeks;  but the variance between list price and sales price increased significantly over the last week.  The culprits for this are high end residential sales.  Properties selling for less than $ 500,000 tend to be less inclined for significant discounting.

Sidebar:  Not much has been mentioned but it appears that foreclosures for properties above $ 1,000,000 is increasing significantly especially in areas of Florida, Nevada and California.

Overall the Ventura County real estate market is good and as can be noted the appreciation rate for County real estate will be approximately 7+% for the next 12 months.

Your comments are welcomed.

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On the National level and to no one’s surprise Fannie Mae and Freddie Mac were put into receivership. 

Unfortunately the culprits that created these entities are now working on Fannie Mae and Freddie Mac II.  Who are the culprits?  View the article written in July, 2008, http://www.venturacountyretalk.com/2008/07/20/ventura-county-real-estate-doings-for-week-ending-july-19-2008/.

Yes you guessed it….Barney Franks and his coharts.  The crafted legislation created by these brain thrusts will only cost the American taxpayer BILLIONS of $$$$$.

Just cannot wait for the next gift we will receive from our in-place political santa clauses.

In October, 1992, Jim Leach, Iowa Republican pleaded to put measures in place to control Fannie Mae and Freddie Mac.  Barney Franks, Massachusetts Democrate musceled a counter arguement and prevailed.

Again in the year 2000 there were more cries to control Fannie Mae and Freddie Mac and once again Barney Franks prevailed citing that these institutions were public agencies.

Our political people (both in Sacramento and Washington) have redefined public agencies with self gratification, activist agendas and investment machines.  One should worry when political people note that what they do is in context of the “will of the people”.  Their people count is limited to the number of fingers they have on their hands.

We have too many Barney Franks types in Sacramento and Washington.  What needs to be done now is to give these folks beach lounges and retire them to the beach.  Their legacies are getting too expensive for tax payers.  

Not all was bad this week.  Interest rates dropped to 5.5% from above the 6% line.  They should be going lower but banks will be hesitant to really provide the relief the Federal Reserve has put into place over the last several months.

Lines of credit are becoming extremely difficult to obtain; mortgage applications are still be made difficult.  So the folks that should be helping the consumers are putting the screws to them instead.

The dollar dropped significantly this past week creating street talk that the Federal Reserve is once again going to lower interest rates.  If there is a decrease one should can expect to see a small drop of about 1/4 point (if that).

Ventura County.

It is interesting how Mother Nature introduces little characters which can create havoc.

One such introduction is the African moth (called the False codling moth or “Thaumatotibia leucotreta”), which is from the sub-Saharan Africa and trapped in Port Hueneme this past week.  This moth can jeopardize Ventura Counties (and California) agricultural economy.

It appears that this little guy likes field crops, cotton, avocado, peach and citrus trees.

This moth does two things.  It destroys the fruit and can destroy fruit trees.  A double threat insect that can quarantine the above Ag products from leaving the county or State and all fruits cannot be sold for human consumption.  The years of building markets overseas will be put in jeopardy if this insect isn’t isolated quickly and permanently.

Should the fruits have to be destroyed many households will have to find substitutes for row crop foods which will increase prices significantly on the produce that is available.

It is hopeful that there are minimal if any twits whose whole existence is to counter productive efforts to erase this nemesis.

This week listings continued to decrease; sales dropped slightly (from 119 two weeks ago to 100 last week); days on the market settled lower and the variance remains approximately the same.

As an aside I have noticed that previous terms and digs such as “low-cost” housing, housing prices are too high, “un-affordable” have been limited are not used either in print or visual media recently.  Interesting how the market place put the brakes to these comments.

Your comments are welcome.

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It appears that Uncle Sam is going into the financial mortgage business with the pending (street talk) of a take over of Freddie Mac and Fannie Mae.

People are trimming down spending despite the small decrease in fuel prices.  Retail sales have not accelerated with the stimulus package as expected. 

Neither Fannie Mae or Freddie Mac (quasi-business Congressional inventions) will be the same.

There will be a complete transformation of management and do not be surprise if the result is a transfer of these entities to a  “private company” (dare I say maybe foreign.  Now that would upset the status quo wouldn’t it). 

Refresh your memory by reading the July article (noted below) regarding the development of Freddie Mac and Fannie Mae institutions.  The article is:  http://www.venturacountyretalk.com/2008/07/20/ventura-county-real-estate-doing%e2%80%99s-for-week-ending-july-19-2008/ .

Add to the list the increase of unemployment and one starts to think that inflation is going to rear its’ ugly head and the economy is going into the tank.

Not so.  Despite the negatives (which are pounded into our heads by the media) there was an increase in production, the dollar is starting to exert itself against other currencies and there is now more positive reporting on the bottoming of the real estate down turn. 

Foreclosures are still high especially in California and Florida (and it looks like Ohio is getting hit as is Michigan).  But other areas of the country are holding their own.

Forbes recently listed Albuquerque, New Mexico, Charlotte, North Carolina, San Antonio, Texas, Portland, Oregon and Austin, Texas as areas with great growth possibilities.

I do not agree with Forbes.  I do like parts of Texas but I still think that Oklahoma, Mississippi and Louisiana should not be left out of the equation. 

The street talk is that the Federal Reserve will not change the interest rate structure at its next meeting.  Of more interest is (at least per the gossip on the street) that it is expected (hold onto your chair) that banks will start to lower mortgage rates (with prodding from the Federal Reserve).

To be sure the decreases will be gradual but on can expect rates to start hovering around 5.75% instead of 6+% within the next few weeks.

Banks are cinching down lines of credit.  So this haven that a number of people sought has been walled up and people, and businesses, will have to look elsewhere (hard money) for funds.

Ventura County.

Despite all the National woes, real estate in Ventura County is doing well. 

Inventory is down; sales continue to increase; days on the market showed a down turn and the variance between average list to sales price showed a decrease.

 Home prices have reached the range of December, 2003-June, 2004 prices which was $ 489,040 to $ 566,654.  The average sales price of a property in August of 2008 was $ 517,106.   When compared to the peak prices of the year 2006, Ventura County home values have decreased approximately 25%.

But (there is always a but) values of home properties in Ventura County since 1997 have increased approximately 167% or at an average of 14.5% each year since 1997.

So there has been a lost from the 2006 price peak but overall the County has continued to strengthened upward over a 14+ years. 

Since the bottom has been set (fizzle portion of the above chart) one can now picture what the future (sizzle) is going to be and it is excellent for Ventura County.

Not many Counties in California can show this type of real estate growth and there are very few in the Country that can show this type of growth.

Yes we had a few bad years but overall we have had it very good.

Your comments are welcomed.

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Erin was focused on the peoples that now attend colleges and addressed their generation and what each generation brings to the campus.

I saw this presentation somewhat differently.  I looked at the presentation as a real estate broker and saw in it the various ages that a realtor works with.

I took from Erin’s presentation and added a few items that expands his college approach and transitioned it to the real estate world.

As one reads they themselves will certainly see items that have been excluded so it is not to be considered a complete picture of real estate buyers or sellers…..but simply is a start of who you are working with and what their bases of doing and acting as they do.

I found that there is some relationship between Generation Y and Traditionalist (as labeled above) even though there’s 50+ years or more between these generations.

I also noted that Boomers and Traditionalist were almost opposite.  Traditionalist are the parents of Boomers and it appears that Mother Nature ever so cleverly made sure that there would be some significant differences in attitude and human relationships.

Enjoy the reading and add to and subtract from the chart as you see fit.

Your comments are welcomed.

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Summer is slipping by, the football season has just started and we are blessed to have so many outlets to view and do in this area that it makes living here a great pleasure. 

But I suspect if one dislikes sports it could be just the opposite.

However there is a bright side even if you do not like sports.  There are outlets available to drown out politicians.  That is worth something.

There has been positive news regarding the economy and real estate in particular.

Most news bits are now stating that it appears that the worse is behind us.  Shortly almost everyone will be shouting from the roof tops of how good real estate is and then the cycle of gloom and doom will reappear.

A never ending cycle isn’t it.

Banks however are in the crossed hairs of the Federal Reserve.  The Federal Reserve has indicated some displeasure with banks regarding interest rates and it is now taking the unusual steps of trying to find out why interest rates are not lower. 

With all of the cuts exercised by the Reserve mortgage rates have not come down and this action by the banks exacerbates the mortgage problem.  One has the feeling that banks are going to brought to task and will have to answer some questions.

Unfortunately this means more government intervention.  Banks have not been cooperating.  I suspect that will change.

However people do become their own worse enemy.

Reported in the Los Angeles Times (Sunday, August 30,2008) “Sites hawking fake documents facilitate loan fraud”, by Kenneth Harney, outlined people utilizing Craiglist and a number of other internet outlets subscribing the use of their bank accounts to help borrowers exaggerate assets in their loan applications.

The article addressed this by noting that people with good credit and income rent their names and asset verifications for home purchase by unqualified buyers.  They charge upward to $ 7,500 or more for their financial identification.

Ventura County:

County listing continue to decline, sales are increasing, days on the market is tending to lessen and the variance between list price and actual sales price is stabilizing but is still high.

What this means is that either asking price is still too high or sellers are opting to take less just to get out from underneath.

Refer to http://www.venturacountyretalk.com/2008/08/10/sizzlefizzlesizzle/ and you will see that the base is about set.

Looking at a year to year comparison (following chart) one can see the significant drop in prices that has occurred over the last 2+ years.  This will abate shortly and as noted in the above reference it appears that prices will bounce once the year 2004 average price is achieved.

If you are potential seller I would suggest that (if you can) you WAIT.  You will be glad that you did.  If you can wait for a year or two you most certainly be glad that you had.

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If your mortgage debt is partly or entirely forgiven for the years ending 2007, 2008 or 2009, you may be able to claim this special tax relief.

Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief.

The debt must have been used to buy, build or substantially improve your principal residence and must have been secured by that residence.

Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for this special tax-relief provision. In some cases, however, tax relief based on insolvency or other special provisions of the tax law may be available.

A form 1099-C will be issued if your debt is reduced or eliminated.  By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

If you have debt or mortgage relieved for the years 2007, 2008 and 2009, do talk to your attorney, CPA or tax preparer to determine the impact on your individual tax liability and explore any mitigating options that you may have.

Source of information:  Tax and Business Strategies, September 2008.

Your comments are welcomed.

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Trying to view the future is at best an art and attempting to project what real estate will be doing requires an eye for trends and keeping your fingers crossed that it will hold together.

Economic variables such as what the farm belt harvest will be, interest rates and controlling inflation has an impact on any forecast. 

 Then there is the political arena(it is that time of year) and what other countries economies will do.

Oil appears to be every-one’s favorite commodity and anything that interferes with oil will create a problem for the world. 

So attempting to make a projection is like predicting the weather.  Many want to make it sound like a science but in fact it is an art.  Similar to weather forecasting. 

Only after time has passed does one know if his/her “art” was close to the mark. 

The reported second quarter, 2008 National real estate map reflects the real estate mood throughout the United States.  The overall appreciation rate approximates 5% (greenish-blue area) average throughout the country.

The biggest difference between the 2nd quarter and 1st quarter, 2008 quarters is the decrease in real estate values is the North Central portion of the United States in areas of Ohio, New York, Minnesota, etc.

And yes Arizona has picked up some…..nothing great but it did get out of the red.

Looking at California, the areas with the lowest rate of appreciationfor the 2nd quarter, 2008 continues to be (this is a recording) Merced, Stockton, Modesto, Salinas, Vallejo, Riverside/San Bernardino area, Bakersfield, Fresno and Madera. 

Santa Barbara, Goleta and Santa Maria are in the lower quadrant for appreciation but that is going to change rather rapidly.

When one looks at the following National real estate maps there have been a few changes and California, Nevada and Florida continue to show accelerated decreases (greater now than at the beginning of the year).

Areas of Texas, New Mexico, Oklahoma, Washington, Utah, Wyoming, Montana, etc., have definitely cooled as reported in the last update.

Oklahoma still appears to be a good place to invest although I am beginning to sense that it too will cool off shortly.  Tulsa and Oklahoma City are good areas.

I think that California is starting to come out of its down turn but the numbers have yet to catch up with this judgement.  I suspect that we will definitely see a significant change in California by the end of the 3rd quarter, early part of the 4th quarter of 2008.

Closer to home, Ventura County, and other California cities it is going to be UP.

As mentioned it appears that California will be coming out of its downside by the end of this year.  This chart reflects some of the area growth over the next year and two subsequent years. 

Ventura County will be enjoying a hearty increase surpassed only by San Luis Obispo area.

Los Angeles and San Bernardino will not be participating as other areas but they too will be showing positive growth.

This is the mood of the United States real estate at the end 2nd quarter,

 2008. 

 This was the mood of the United States real estate during the 1st quarter, 2008.

 This was the real estate mood during the 4th quarter, 2007.

 For investors it is go Southeast young man, go Southeast but stay out of Florida.

Your comments are welcomed.

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More than a simple land trust, this is a whole trust transfer system.

But why should you use it?

  What are the advantages?

• Prevent the lender from exercising its “due on sale” clause

• Be able to evict a defaulting buyer instead of having to foreclose on them

• Get privacy, safety and legal protection
•  It’s quick and easy (you can often close in 14 days or less)
•  Defer capital gains
•  Superior income tax treatment
•  Preserve tax basis (property is not reassessed)
•  Protection from litigation, creditor judgments, tax liens and probate issues
•  Reduces the risk of selling to a buyer with a small down payment and not-so-perfect credit
•  Acquire a property with a low down payment and no bank qualifying
•  Allows for loan payment take-overs without violating the due-on-sale clause, or having to assume a loan
•  Freezes the seller’s equity until some point in the future when housing has begun to appreciate again (the seller will get their equity at some point in the future)
• Sell without short sale or foreclosure, even if you’re a little bit upside down (if you have a decent loan and you’re not too far behind on payments)

The Title-Holding Land Trust (often referred to as the “Illinois Land Trust”) is accepted throughout the United States. This may arguably be the best possible means of real property asset protection and/or transferring real estate.

It’s like taking my seller financing strategies and putting them on steroids.  (Read about the risks of various seller carry back strategies and how the Trust Transfer System avoids them)

The land trust is unique in that a property’s legal and equitable titles are vested in the trustee, rather than in the owner of record. The land trust’s beneficiaries remain fully in control of the property and the actions of the trustee. As a result of this beneficiary-directed third-party trusteeship, any property so held is effectively hidden from public view and shielded from legal actions by lawyers and creditors.

When there are multiple (unrelated) beneficiaries in the trust, the property and its title become virtually impervious to tax liens, creditor judgments, lawsuits and charging orders. Even the IRS can’t touch a property in a co-beneficiary land trust.

The Trust Transfer System includes:

1. A Land Trust
2. An Assignment of Beneficiary Interest
3. A Beneficiary Agreement (a partnership agreement)
4. An Occupancy Agreement (i.e. a tenancy agreement whereby a co-beneficiary ‘leases’ from the trust, versus holding a title interest in the property)
5. A Power of Attorney from a non-participating beneficiary to the party handling the management of the property.

When combined, these documents effectively afford a would-be buyer all the benefits of home ownership, including income tax deductions. It protects all beneficiaries from any negative personal or legal action by or against the other parties.

A unique feature is that it converts the settlor’s ownership of realty (real estate) to ownership of personalty (i.e. ownership of the trust, rather than of the property held by it). Therefore, since personalty is not deemed subject to partition by judgment creditors, unrelated parties holding property in this manner needn’t fear the property ever becoming the subject of: a creditor judgment, lien or charging order. Neither would the property be the subject of a tax lien, any party’s bankruptcy, marital dissolution or probate . . . a most comforting feeling when carrying paper for someone else.

The Trust Transfer System gives a seller who is willing to keep his existing financing in place a quick, easy and safe method of disposing of the property, while simultaneously providing a buyer with virtually 100% of the benefits of ownership, including full mortgage interest and property tax deductions.

And without qualifying for bank financing! The down payment and qualification parameters are determined by the seller.

Because the property vested in a land trust has not been “sold,” but merely vested in a trust and leased to a successor beneficiary of the same trust, there is no overt violation of the lender’s due-on-sale (alienation) admonitions.

The trust system provides the seller an excellent means of avoiding immediate capital gains taxation, risky seller carry back scenarios, and the hassle of becoming a landlord with negative cash flow. Also, a state’s withholding tax can be avoided if the trustee is a corporation (at least in California).

More on the Due-On-Sale Clause:

The FDIRA (Federal Depository Institutions Regulation Act; or “Garn-St. Germain Law” of 1982; 12 USC 1701-j-3) limits the justification for foreclosure relative to a lender’s due-on-sale clause (over an “unauthorized title transfer”) under certain circumstances, one of which is the vesting of a mortgaged property into an inter vivos trust (such as a land trust).

As a result of that federal law, mortgagors (borrowers/property owners) cannot be prohibited from placing their real estate into a revocable, living land trust. Neither can they, following establishment of the trust, be prevented from leasing the property to whomever they might choose.

And, when a buyer (lessee/tenant) in such a trust property is also given a remainder interest (becomes a successor beneficiary or remainder agent) in the same trust, that party becomes fully entitled (under IRC 163(h)4(D)) to virtually the same incidents and benefits of home ownership that he/she would have had they financed the purchase of the property in any other manner.

It is for these reasons and more that the Trust Transfer System is a superior and logical way to convey the benefits of real estate ownership when a seller will leave the current underlying financing in place to assist the buyer.

What about the Trustee?

While almost anyone can be named the “trustee” of a land trust, there are significant benefits to using a Corporate Trustee for your land trust, including a much higher degree of safety, security, reliability, trustworthiness and credibility.

This is especially so when more than one beneficiary is involved. In such circumstances, there are severe draw-backs to using any type of trustee entity other than a third-party, non-profit mutual benefit, corporate trustee.

Appointing one’s self as trustee (or a closely related third-party not at “arms-length” to all the beneficiaries) inherently presents potential conflict of interest issues.

Additionally, if a trustee is also a beneficiary, a merger of title is created (Doctrine of Merger), invalidating the trust if challenged in court as being a bona fide land trust. It is also probable that under threat of legal action, the Trustee would likely fail to honor the privacy and anonymity of co-beneficiaries.

An individual trustee would most likely not have the resources to provide a completely separate bonded collection and bill-paying service for the beneficiaries, or be able to provide such services for free. At the same time, the attempt to charge a fee would not be seen as adequate unless the proposed trustee were bonded. On the other hand, an individual trustee’s failure to charge a fee would not support the land trust’s validity in court.

The courts would most probably not acknowledge an individual as a standard trustee, charging fees “commensurate with industry standards.” Therefore, the integrity and structure of the land trust would be severely impaired.

Additionally, an individual trustee’s death would embroil the property in his/her probate or other personal legal actions.

Using a friend or relative as trustee presents much of the same risks and issues found with appointing one’s self as trustee - particularly if the individual is not at “arms-length” with any of the co-beneficiaries. Such a trustee could also have another agenda contrary to the best interest of the co-beneficiaries, or other legal issues personal to them that may pose problems.

Using one’s own attorneywould perhaps not pose a problem as long as no other unrelated beneficiaries were involved who would have separate and independent interests and financial objectives within the arrangement.

One’s own attorney would not necessarily create a mutually trusted, unbiased third-party “fiduciary” in the trust relationship.

Though malpractice insurance may help protect against an attorney’s errors and omissions, the attorney would most likely not be bonded as a trustee for land trusts. Thus, the attempt to charge a trustee fee would not be seen as adequate, unless the attorney or law firm was a bonded entity.

Using one’s own corporation would present many of the same problems as using one’s self, or another individual as trustee. Some courts have held that this arrangement would create a merger of title, thus likely invalidating the land trust model.

Using an outside corporation as trustee. In virtually all states, any corporation used as a holding company must be either:

1. One’s own corporation,
2. A chartered depository trust institution (Bank & Trust, Title & Trust, etc.) or,
3. A non-profit, charitable corporation established solely for the purpose of holding titles to real estate in trust for the benefit of its members.

The Third Party Non-Profit Corporation

Equity Holding Corporation is a professional non-profit entity specifically engaged in the holding of titles in land trusts, fully staffed by full-time knowledgeable professionals, as an unbiased third-party title holder. A reasonable trustee fee, which is well in line with industry standards, is charged enabling the creation and funding of a third-party collection and disbursement entity providing a free bill paying service.

The Corporation cannot die, thus avoiding probate issues. It is professionally administered and well informed, providing adherence to laws, rules and regulations relative to reporting while maintaining consistent good standing with the State.

It is bonded as a trustee for the title holding, beneficiary directed, third party trustee-nominee title-holding land trust and functions as an unbiased and unassociated third-party title holder.

It is recognized as a bona fide holding institution by any court that might challenge the integrity and structure of the land trust.

Data Source:  The Note Queen (http://notequeen.com/.  I received permission from Dawn Rickabaugh on 8/25/08 to re-print this article and to display it on this blog.

Both Dawn and myself suggest that you check with your attorney, CPA or tax preparer and find out if this option is suitable for your situation.

Comments are welcomed. 

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The Olympics, Little League World Series and very limited negative real estate news. 

The Ventura County weather has been outstanding, the ocean water has been great.  One wishes this could continue for the rest of the year but that cannot happen.

The most negative real estate news is the down grading of Freddie Mac and Sallie Mae stocks (which was expected).  Other negative news focused on inflation in the economy and significant coverage has been on-going about other nations facing the same economic problems as we in the United States.

Russia is flexing its’ muscles so one should anticipate some rough going regarding our relationship with them (which hasn’t been all that great anyway).

Ventura County real estate continues to stabilize.  The week to week assessment shows that inventory continues to decrease; sales continue to increase; the variance between list price and average sales prices of homes sold continues to be high (about 5.7% meaning that there is still stiff negotiating between buyers and sellers with buyers coming out the better.  But this is changing).

It does appear that sales have slowed over the last several weeks which is normal for the summer months.

One should read the article http://www.venturacountyretalk.com/2008/08/23/brief-summary-of-benefits-of-seller-financing/ for an option to consider in selling a property.

Side bar:  I will start a small series of discussions on people becoming their own bankers in order to move property, perhaps increase their monthly cash flow and leave a legacy for their children and other love ones.

The reference article “Brief Summary Of Benefits Of Seller Financing” is a start and an accepted IRS method of selling a property.  Its use has been somewhat limited but it can be of help for some people to defer capital gains taxes on property sold.

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