- July 30, 2008
- All New York State Office Counsel, Managers and Agents
- Land Trust
Kindly be advised that a type of "Land Trust" scheme has been created, the sole purpose of which is to circumnavigate the mandates of the Home Equity Theft Prevention Act ("HETPA"). The trust is typically structured as follows:
Homeowner/Equity Seller ("ES") and investor/Equity Purchaser ("EP") arrange a sale of the property to a trust that has been created by ES and EP; occasionally the trust may be called by the homeowner's last name. The settlor of the trust is the ES; the EP is the trustee. The property is then sold to the trust, wherein the property is promptly flipped, typically at the table, to an end purchaser for more money.
By creating a "Land Trust" the parties allegedly are avoiding HETPA by claiming that because it is a trust in the middle, supposedly made by the homeowner, there has been no true change in ownership, and thus there is no change to the "seasoning" on the property. Thus, when EP/Trustee sells to an FHA purchaser (FHA requires 90 days seasoning in ownership prior to purchase by an FHA buyer, in order to avoid flips), they are claiming that seasoning hasn't changed.
The investor/EP is allegedly acting in their capacity as "Trustees" under the terms of the Trust, but is able to sell the property without the knowledge of the homeowner/ES as to what the sale price is on the flip. As Trustees, they also have the power to direct where the money should go.
The HETPA is set forth in Section 265-a of the RPL; subsection 15 of the act states as follows:
15. The provisions of this section shall be liberally construed (emphasis added) to effectuate the intent and to achieve the purposes set forth in subdivision one of this section.
As such it is Stewart's position that Land Trusts are subject to the requirements of the HETPA, and that all of the Act's requirements and Stewart's underwriting guidelines must be strictly adhered to.
Thank you for your anticipated cooperation.
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