Beneficiary bankruptcy in an EHT Land Trust?

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Beneficiary bankruptcy in an EHT Land Trust?

Postby Buzzbox » Tue Sep 25, 2012 1:05 am

If a beneficiary of an EHT land trust files for bankruptcy what effect does this have on the other beneficiary(ies), when that beneficiary is also the settlor beneficiary who is also on the secured loans (lien) against the real property?
G. David Hill (Dave)
Buzzbox
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Re: Beneficiary bankruptcy in an EHT Land Trust?

Postby Buzzbox » Sat Sep 29, 2012 1:32 am

What if the settlor beneficiary assignor makes an assignment of its beneficial interest to another beneficiary assignee that includes and requires the assumption of the mortgage lien, (to which the lender is not a party) while releasing the assignor from the debt? Then could not the assignor proceed with a bankruptcy without disturbing the other existent beneficiary interests? I think they could, as they would no longer hold a beneficial interest in the land trust, therefore no line item reporting in the bankruptcy filing would be required.

Even if the loan payments are current, this might draw a due on sale action by the lender. Who would then defend against the action to foreclose? I think it would be the assignee. Thus, it would be prudent for said assignee to be an entity rather than an individual. That is an entity formed without any other assets or liabilities except the beneficial interest, which carries with it, responsibility for the mortgage loan.
G. David Hill (Dave)
Buzzbox
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Re: Beneficiary bankruptcy in an EHT Land Trust?

Postby Buzzbox » Sun Nov 25, 2012 7:32 pm

Let me restate the question differently to make it easier to understand. Let’s assume:

Settlor conveys title to the trustee of a Land Trust for a property they must and want dispose of.
There is a mortgage on the property and payments are still current but property is underwater.
Settlor (SB) holds 100% beneficial interest.

Settlor wants out and agrees to assign a 90% beneficial interest to a single asset entity Investor Beneficiary (IB).
This assignment includes and provides for the IB assuming full and unconditional responsibility for performance of the mortgage loan without the lenders knowledge or consent.
Upon assignment the IB immediately notifies the lender it will continue to make the required monthly payments for reserves (taxes and insurance) but will be placing the loan payment amount into an escrow and said payments will not be released until the lender can show it is a holder in due course and demand that until ownership of the note and mortgage are resolved, the lender must not negatively report against the SB’s credit, until or if, the lender can prove it’s case.

The lender will, eventually, respond with no clear compelling evidence of ownership until the matter triggers a foreclosure action by the lender. At this point the IB elects to file BK Chapter 11 because of the foreclosure action, placing the mortgage loan (technically in default) under the control of the BK court.

The affect on the SB’s credit is the issue. I believe such an approach should minimize or perhaps totally limit any negative credit reporting against the Settlor (homeowner). As such it provides a solution against any need for the Settlor to consider a Chapter 13, short sale etc.

Anyone have a view on this?
G. David Hill (Dave)
Buzzbox
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Posts: 246
Joined: Tue Jan 01, 2008 7:08 pm
Location: Mill Creek, Washington


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