FAQs

 

JOINT OWNERSHIP

What does the concept of “Joint Ownership” mean?

The “Equity Share” approach to Real Estate has been around for many years, but not
in the formal structure that now exists. Relatives, usually parents and their children,
have been involved in situations where the parent lends his/her child the down payment for a home, and hopes to some day, have a return on the investment. In the more formal approach, you place the Owner/Resident into a property of his/her choice. The Owner/Resident, and the Investor, must then form a “Joint Partnership” as to their ownership in the property, and what benefits they will get out of their venture.

The Investor will help with a part of the down payment, while the Owner/Resident
is responsible for making all the payments and taking care of the property. However, today’s Real Estate Market has more restrictions on the amount of money contributed,
and the length of the contract.

 

LEASE OPTION CONVERSION PROGRAM

How does the Lease Option Conversion Program (LOC) work?

The Lease Option Conversion Program is a conditional sale of Real Estate with the commitment from the Buyer to meet certain contractual terms such as sales price, option time period and other specified conditions before the sale is completed. All parties must agree that the property in question is being sold under terms and not for cash. The Buyer is basically renting the property from the Seller with a commitment to purchase the property within the agreed upon timeframe.

During the Lease Option time period, the Internal Revenue Service will not recognize
the Lease Option as a sale, since no property has changed ownership. The Buyer does
not receive tax benefits under the Lease Option Program, and the Seller receives normal Investor benefits.

The Lease Option Conversion Program raises this success ratio, because it combines the Lease Option with the Equity Share Program, making the success ratio approximately
70%, versus the usual 30%.

 

CONTRACT OF SALE

Thirty years ago the “Contract of Sale” was used to facilitate Real Estate transactions.
In the old days this type of deal was delegated to the sale of land with $100 down and financing of the remaining balance over a time period agreed upon by all parties.

With the Contract of Sale, Buyers and Sellers in a down-turn economy, seek ways to either sell or purchase property in the most creative ways possible.

Unlike conventional means, the Contract of Sale allows the Seller to create the financing with the benefit of getting a better purchase price—a better return, and a much easier way to market his/her property.

A Buyer who doesn’t have a 10% to 20% down payment, excellent credit, or the capability to close on Real Estate today, can still get into the Real Estate Market with
the current discounted values. The benefits to a Buyer are tremendous. Buyers with
good income can purchase today with all of the tax benefits of “Home Ownership.”

This allows a Buyer time to rebuild his/her credit, save up the necessary money, and
have time to adjust to the market so he/she can achieve “Home Ownership.” And, with
a Contract of Sale, a Seller has the capability to stop the negative cash-flow.

What is a Contract of Sale?

A Contract of Sale is the conveyance of equitable title in a property. Equitable Title is ownership that allows you to benefit in the process of tax advantages, equity build up
and rights of possession. A Contract of Sale does not give you fee title or complete rights.

 

SHORT SALE

In today’s Real Estate Market, where property values have declined by 20% to 40%, and loan obligations on Real Estate have gone up, due to negative amortization, the perfect alternative to a Foreclosure has become popular. The “Short Sale” approach is a sales transaction, subject to a Lender’s approval, in which the Lender consents to a sale of the security interest in a property, for less than what is owed on the Note, and accepts the proceeds in full satisfaction of the loan amount.

The Short Sale, in different variations, has been around for over 20 years, but, because
of the drastic affect with the sub-prime loans, Lenders are now willing to work with the discount process. 

The Equity Share Group has done a number of Short Sales over the past 8 months, and from practical experience, the process is time consuming and not easy. Unlike a Foreclosure that has set guidelines, the Short Sale timeline is very vague, and the Short Sale requires a lot of paperwork and preparation on behalf of the Borrower/Seller. The Borrower/Seller must have a ready Buyer and all of the paperwork prepared to submit
to the Lender.

When a Borrower/Seller is no longer in the position to make the mortgage payment,
is facing Foreclosure, and the current market value of the property, including title costs, commissions, repairs and back taxes, is less than the loan on the property, the Borrower/ Seller may consider a Short Sale. The Lender would consider a Short Sale because of the savings from the expense of Foreclosure, and from having another Real Estate Owned (REO) property on their books. The Borrower/Seller could look at the Short Sale in two ways, one is that it prevents a Foreclosure on their credit history, and secondly, it releases them from an obligation that he/she can no longer afford.

A major reason why Short Sales fail is the length of time it takes to get the Lender’s approval. Most Buyers are not willing to wait for months when trying to purchase a home. The Real Estate Agent needs to put together a complete package when submitting an offer under a Short Sale, thereby minimizing the long delays.

The Equity Share Group has expertise in handling Short Sales, and is able to represent both the Buyer and the Seller in a Short Sale transaction.

What are the hardships required before a Lender will approve a Short Sale?

Most Lenders will require the Seller to provide a valid hardship reason why a Seller must sell at this time instead of staying in the home and waiting for the Real Estate Market to recover. Many Lenders will require the Seller to formally write a hardship letter stating the reasons why they need to sell at this time. Usually, the loan must be in default and the property must be occupied as a permanent residence.

 

FORECLOSURE

           
Any person or entity that loans money secured by Real Estate, that uses a Deed of Trust and Note, has the right of a Non-Judicial Foreclosure. The Foreclosure will be initiated by some sort of violation of the terms and conditions of the agreement.

To understand your rights as a Borrower/Trustor you must understand, and follow, the rules that were set up in the Deed of Trust and Note. Some of the covenants that make
up the terms and conditions are as follows:

            •           Monthly Payments
            •           Insurance
            •           Property Taxes
            •           Condition of Property
            •           Due on Sale Clause
            •           Pre-Payment Clause
            •           Late Charge

As the Borrower/Trustor who borrowed the funds, you agreed to follow certain rules.
The Lender/Beneficiary, either an institution or individual, has the right to be paid back,
with interest, either monthly or deferred. The terms must be legal and follow the standards that are allowed by the law. Unfortunately, most institutional Lenders
will go 3 to 4 months without payments before starting the Foreclosure process.

Who does the Foreclosure?

The Trustee, either the original Trustee or a Substituted Trustee, acts as the agent
to do the Foreclosure.

What does the Trustee need to start a Foreclosure?

The following items are needed to start a Foreclosure:

            •           Authorization from the Lender/ Beneficiary
            •           The Original Note and Deed of Trust
            •           Substitution of Trustee, if needed
            •           Declaration of Default (Reason for Foreclosure)
            •           Fee to start the Foreclosure
            •           Approval to record the Notice of Default

 

BANKRUPTCY

Whereas, the Foreclosure laws are from state-to-state, the Bankruptcy Laws are Federal. Bankruptcy is available to all people, corporations, and other entities. The laws of Bankruptcy have always favored the Debtor versus the Creditor. A few years ago, the government passed laws to tighten up the requirements to qualify for a Bankruptcy,
and put limits on which Creditors can be wiped out, due to the process.

The Creditors, secured and unsecured have certain rights. The Debtor must follow the
rules, accurately list all monies owed, and must be honest with the intent. The Debtor
cannot sell his/her property to avoid listing them as assets, within a certain time period
of the Bankruptcy filing.

The Equity Share Group has expertise in the different types of Bankruptcies, and the process, and has helped several property owners with their Bankruptcies.

What are the different types of Bankruptcies?

Chapter 7, Chapter 11, and Chapter 13. There are more, but they will not affect
the average individual, or private entity.

What is the person who files the Bankruptcy?

The person who needs Bankruptcy relief is called the Debtor.

Who is the person, or entity, that is owed the money?

The person, or entity, that is owed the money is called the Creditor.

Why would a person, or entity, file Bankruptcy?

The reasons for Bankruptcy vary from individuals to corporations. Examples reasons are:

            •           Illness and large medical bills
            •           Foreclosure of primary residence
            •           Job layoff and mounting bills
            •           A lawsuit that threatens to attach all of your assets

 

1031 TAX EXCHANGES

One of the few remaining avenues through which Investors can build wealth, without
the burden of paying taxes, is the use of a Tax-Deferred Exchange. If I could show you
a perfectly legal way to pyramid your wealth into a larger net-worth, without paying taxes, would you be interested?

The benefit of deferring taxes on Real Estate has been around for years, but, since
the 1986 Tax Reform Act, more Investors have taken advantage of using the Internal Revenue Code §1031 in the sale of Real Estate Investment Property. The 1993 Clinton Tax Bill did not affect the benefits of doing Exchanges, but, each year, bills are introduced that might eventually change the direction of the 1031 Tax Exchange.
In 1997, a new “Capital Gains” law was passed, that increased the number of exemptions for a personal residence.

People, primarily, do Exchanges to avoid taxes that erode the equity they’ve earned in their Investment Property. Remember—personal property does not qualify for an Investor Exchange—and the Exchanged property must be held for investment purposes only (intent).

The 1031 Tax Exchange has taken a different path over the past 20 years. Prior to the judicial decisions made in 1979 and 1984, all Exchanges had to be simultaneous. The difficulties in arranging for a series of properties to close escrow at the same time were onerous. Since the Non-Simultaneous Exchange (Starker) case of 1979, Investors have
been allowed a period of time between the sale of one Investment Property, and the purchase of another—and have enjoyed the benefits of more Exchange options.

During our many years in business, our sister company, Network Exchange, has done over 2000 1031 Tax Exchanges.

 

What is an Exchange?

An Exchange is the sale of one or more properties held for productive use in a trade or business, or for further investment. The Seller/Exchanger must acquire other Investment Property or properties, resulting in one continuous investment.

What are the requirements of an Exchange?

The Internal Revenue Service usually looks at the intent of the transaction, the qualification of the property being sold, the Replacement Property(s), and whether
all of the rules, under Internal Revenue Code (IRC) 1031, are being followed.

Why would a Seller want to do an Exchange?

The main reason a property owner would consider doing a 1031 Tax Exchange on his/her Investment Property, would be to save on income taxes. The property owner must also examine the possibility that, by doing an Exchange, he/she could be diversifying his/her property holdings, increasing his/her depreciable basis, and possibly causing the property
in question to be easier to market.