Bulletin: NY000364

Date:
July 30, 2008
To:
All New York State Office Counsel, Managers and Agents
RE:
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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THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None