putting a house in a trust instead of selling it

[conq]

Hi Bogleheads! I've been reading, enjoying, and learning a lot from this forum for a couple years, but this is my first post.

My mom owns (pays a mortgage on) a house that she's been renting out for several years. After the last tenant moved out, she decided to sell the house. The house needs significant repairs, and instead of performing the repairs first and then selling it, she looked into selling it in its current state.

Someone, let's call him Bob, made an offer that she accepted, and they signed a contract for $X. The contract amount is a little less than what she owes on the mortgage, so she'll need to cover that extra cost.

After signing the contract, Bob brought in someone else, let's call her Carol, to evaluate the needed repairs. Carol thought $X was too much to pay for the house and proposed another plan. Carol proposed putting the property in a trust where the property address is listed as the owner. The mortgage would stay in my mom's name, but Carol would pay the mortgage each month. Carol would handle the repairs, and I assume (although my mom didn't say) that Carol/Bob would handle all the rental duties like finding tenants, collecting rent, etc.

My mom asked for my advice on this proposal. I have no experience with trusts or any other "nonstandard" real estate transactions, but I wouldn't like the idea of relying on someone else to pay a mortgage that's in my name. And I don't see how it benefits my mom to enter into that arrangement when she already has a contract in place that she's satisfied with, unless Bob can back out of the contract and she's back to square one. (I don't know the details of the contract.) It seems to me that Carol/Bob are the only ones who benefit from the trust arrangement compared to the outright sale, because they can back out anytime they want. Although presumably they'd be incentivized to stick with it until they've recovered the costs of their upfront repairs.

It's possible that my mom didn't fully understand Carol's proposal or didn't accurately relay it to me. Is anyone familiar with a trust arrangement like I described here? In my reading about trusts, the context was always estate planning, which isn't the case here. And I didn't run across any examples of listing the property address as the trust owner.

I'm guessing the best advice is "Talk to an attorney", but I was hoping someone here might have some insights. Or maybe can tell me what questions my mom needs to ask Carol to better understand the proposed arrangement.

Thanks!

[cheese_breath]

My non-legal advice is don't agree to anything that leaves the mortgage in mom's name. Guess who the mortgage holder comes after when Carol doesn't make the payments.

[ARoseByAnyOtherName]

The buyers are trying to take advantage of your mother. They aren’t going to propose an alternative that is to your mothers advantage!

You have a signed contract. The only thing I would accept is a clean sale, or the penalties outlined in the contact for breaking it.

[fabdog]

Sounds like a scam to me...

Who's going to be the "trustee" of this trust listing the address as owner? My guess, Bob and/or Carol... then they sell it, or take out a new mortgage, or rent to folks without paying... or some combo of the above... or other ways to extract value from the property before walking away. Leaving your mo without ownership of anything except the mortgage

If Bob won't honor the original contract... no sale....

Mike

[Raymond]

Sounds like Bob and Carol are trying to scam your mother.

As already mentioned, she should tell Bob, "You bought the house, we're done now, unless you want to back out."

And Carol needs to be told to go away.

[DesertDiva]

How old is mom? Is she competent to make her own financial decisions? How did she meet Bob? Why couldn’t Bob secure his own financing? If the property is put into a trust, who would be the trustee? How would the trust distribute the real estate after your mom’s passing? Do Bob and Carol have a history of conducting these types of “deals”?

An attorney specializing in Elder Law is needed. Maybe even a phone call to a local FBI office. I would love to see a background check run on these two.

[cheese_breath]

Sounds like Bob and Carol are trying to scam your mother.

And watch out when Ted And Alice come into the picture after you tell Bob and Carol "No".

[Raymond]

Sounds like Bob and Carol are trying to scam your mother.

And watch out when Ted And Alice come into the picture after you tell Bob and Carol "No".

Haha!

[Raymond]

How old is mom? Is she competent to make her own financial decisions? How did she meet Bob? Why couldn’t Bob secure his own financing? Do Bob and Carol have a history of conducting these types of “deals”?

An attorney specializing in Elder Law is needed. Maybe even a phone call to a local FBI office. I would love to see a background check run on these two.

Absolutely would not be surprised if the background checks come up with interesting information.

OP's mom is not even my relative, and this situation as described is really [making me angry].

[DesertDiva]

How old is mom? Is she competent to make her own financial decisions? How did she meet Bob? Why couldn’t Bob secure his own financing? Do Bob and Carol have a history of conducting these types of “deals”?

An attorney specializing in Elder Law is needed. Maybe even a phone call to a local FBI office. I would love to see a background check run on these two.

Absolutely would not be surprised if the background checks come up with interesting information.

OP's mom is not even my relative, and this situation as described is really [making me angry].

Ditto: I keep editing my post because I keep coming up with so many reasons why this is is a purely evil scam.

Another possibility: Carol will collect the rent, but she will not pay the mortgage. The house will foreclose and tenants will stay there until they are forced out.

[JoeRetire]

Someone, let's call him Bob, made an offer that she accepted, and they signed a contract for $X.

After signing the contract, Bob brought in someone else, let's call her Carol, to evaluate the needed repairs. Carol thought $X was too much to pay for the house and proposed another plan. Carol proposed putting the property in a trust where the property address is listed as the owner. The mortgage would stay in my mom's name, but Carol would pay the mortgage each month. Carol would handle the repairs, and I assume (although my mom didn't say) that Carol/Bob would handle all the rental duties like finding tenants, collecting rent, etc.

My mom asked for my advice on this proposal.

Or maybe can tell me what questions my mom needs to ask Carol to better understand the proposed arrangement.

Mom needs to tell Bob/Carol to go away. Then she needs to find someone that wants to actually purchase the property.

[BillyK]

Even if it were a good deal which it doesn’t appear, you can’t just go out and deed the property into into the name of a trust without first going through the lender. It can trigger the notes due on sale clause.

[conq]

Thanks everyone for all the input and concern for my mom! The deal felt a little scammy to me, too. I even edited out "Is this a scam?" before I posted, because I didn't want to bias the responses. My mom was also somewhat wary of it.

How old is mom? Is she competent to make her own financial decisions?

She's in her upper 60s and reasonably financially competent (she still runs a small business), but I think she's out of her league in deals like this. And she tends to be a little too trusting.

How did she meet Bob? Why couldn’t Bob secure his own financing?

A contractor who quoted her repair estimates put her in touch with Bob, although I'm not sure how well she knows the contractor. Bob's an investor who buys properties in the area to rent. I'm not sure about his financing situation.

If the property is put into a trust, who would be the trustee? How would the trust distribute the real estate after your mom’s passing?

These are great questions that I would definitely want answered before even considering this proposal.

Do Bob and Carol have a history of conducting these types of “deals”?

Bob said he's known Carol for about a year and has worked with her before on "problem" properties like this one.

Given the overwhelming response in this thread so far, I plan to advise her to decline the trust arrangement and stick to the contract. My suspicion is that Bob will back out of the contract, and I know she'd be very disappointed to lose a buyer and have to start over. She isn't in an area where houses move fast.

If she still wants to consider the trust, I will strongly advise her (on the threat of not visiting her for Mother's Day if she doesn't ) to consult an attorney to make sure the trust is legit and that she understands the implications of it.

I'll also mention to her the possibility that these are scam artists and see how she feels about contacting the authorities. I doubt she'll want to go that route unless they do something more overtly underhanded.

[conq]

Even if it were a good deal which it doesn’t appear, you can’t just go out and deed the property into into the name of a trust without first going through the lender. It can trigger the notes due on sale clause.

Interesting point. I had to look up the due-on-sale clause. If the mortgage stays in her name even though the property is transferred to a trust, would that still trigger the clause? But does it even make sense to transfer the property to a trust without changing the name on the mortgage? (I'm asking these questions out of my complete ignorance, not trying to disagree with you.)

[DesertDiva]

I'll also mention to her the possibility that these are scam artists and see how she feels about contacting the authorities. I doubt she'll want to go that route unless they do something more overtly underhanded.

If it’s not a scam, then no harm done. If it is a scam, authorities will tell you. If BobCarol have been working together already, they’ve tried this before and will continue to do so until someone stops them.

[Carefreeap]

Even if it were a good deal which it doesn’t appear, you can’t just go out and deed the property into into the name of a trust without first going through the lender. It can trigger the notes due on sale clause.

Interesting point. I had to look up the due-on-sale clause. If the mortgage stays in her name even though the property is transferred to a trust, would that still trigger the clause? But does it even make sense to transfer the property to a trust without changing the name on the mortgage? (I'm asking these questions out of my complete ignorance, not trying to disagree with you.)

The transfer from an individual to living trust is an exemption to the due on sale clause pursuant to the Garn St. Germain Act. The owner is still supposed to be the beneficial owner but the scammers, I mean "buyers", are likely counting on no one checking out who the beneficial owner is.

It varies from state to state but most banks do not write mortgages to a Living Trust, but to individuals. The reason is that most Trusts aren't generating income, it's the individual who generates the income to qualify for the mortgage.

Your mom needs to run, not walk from this deal. It's her credit that will be affected by any missed payments. Also if she wants to get credit down the road that outstanding mortgage is going to affect her ability to borrow.

[bugleheadd]

Why couldn't Bob and Carol put the mortgage under their own name?