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7 Ways to Own a Home - Plus One Best Way

 

7 Ways to Become
Owner of a Home

 

Plus One Best Way

Dean Harris

Realtor, Investor, Author

Lic. Loan Originator

CA BRE Lic. No. 01385246

NMLS Lic. No. 973170

[email protected]

www.deanshomes.com

(949) 290-5348

Visit the book and videos site at

www.bankfreehouse.com

 

Read this paragraph first…

…in case you don’t have time to read every word in this eBook.

To “read” this book more quickly, you may want to check out only the brief “THE BOTTOM LINE” statement at the end of most of the sections below. Each Bottom Line summarizes the paragraph with a few sentences describing the most important points. Remember Cliff Notes? Yes, they still exist and that’s the concept here.

THE BOTTOM LINE

This is an example of a reading “shortcut” that summarizes each section and appears at the end of most sections below.

 

 

Introduction

There are many who still believe that being rejected by a bank means your hope of buying or owning a house is either dead or on hold.

In fact, there are at least a dozen ways to buy a house without relying on a bank or other institutional home loan. This eBook will limit the list to 7 ways that have been proven over time. A few of these methods will require only a small amount of cash to begin to establish your legal ownership of a house. You have probably heard of a few, but may not have understood them well enough to use them.

 

 

Here is One Non-Bank Purchase Solution

The first and most obvious alternative to buying a house without a bank loan involves paying a large amount of money. In fact, this approach requires paying the entire purchase price in cash. Have no fear. Paying entirely in cash is not what this book is about.

 

 

The Other Methods

The rest of this eBook will provide descriptions of seven methods that allow you to avoid having to depend on any bank for a home loan.

There is one additional method that is preferred because it will put you (or your legal entity) on the deed as owner within 30 days of making your accepted offer. After all, you don’t legally own any house until you (or your legal entity) is named on the deed.

The hope of being named on the deed sometime in the future should not be as acceptable to you. When you buy a home, full legal ownership as quickly as possible should be your ideal goal. If you read carefully and make the right decisions, your wait should be no longer than 30 days from your first meeting with the seller.

The following strategies also allow you to buy a house without a bank loan. Although thousands have successfully become home owners, most of the strategies are not highly recommended for the following reasons. Some take too long to have your name appear on the deed. Other methods cannot be depended on to ever finally result in legal ownership. There are also those alternatives can cost more than they are worth, but the huge potential reward is often well worth the risk.

We will begin with a method that is least likely to result in home ownership. That has not stopped people all over the world from using this method. Some have been successful. The future will always attract more who attempt to make it work so they can grab the reward.

With the risk of failure so high, the reward is also very high. Without exaggeration, you can own a house for as little as ten dollars, depending on the governing rules in the area of the house. So what is it called and how is this done?

THE BOTTOM LINE

This eBook describes 7 methods (plus a brief description of bonus method number 8) to use when you can’t get, or don’t want, a bank home loan. The second method on the next page features the lowest cost method, but it is also the least likely to result in home ownership.

Method 2. Adverse Possession

In addition to paying cash in the amount of the purchase price, there is this lesser known method of buying a house without a bank loan. It has several names but is known in many parts of the world as Adverse Possession. Any house in which the owner of record has been absent, the house has been vacant and the property taxes have not been paid is a target.

Thousands of houses worldwide have been “purchased” at $10,000 or less in the last 30 years using Adverse Possession. The houses might be in any condition, from “move-in ready” to trashed. If the hopeful buyer knows what to do, it could be easy.

Anyone who is aware of the property’s situation should do a certain amount of additional research. They can then file the proper paperwork, pay the delinquent property taxes and for as long as the original owner doesn’t show up or pay the taxes, the “buyer” occupant can simply occupy the property.

If the owner never reappears and you, the occupant, have been paying the property taxes for a specific number of years according to the laws in each area (U.S. States are listed in the link below) then those paid property taxes and a small fee that is also paid by you become your total purchase price. You, or your legal entity, then become(s) the legal owner. The entire process can last anywhere from four to seven years.

In one specific case of Adverse Possession, the new owner had done everything required in the proper order according to the laws of the state. He had even recorded the final paperwork with the county which made him the legal owner beyond a shadow of a doubt. However, the bank that held the home loan identifying the previous owner as the borrower was determined to foreclose anyway.

The bank’s attempts were ill advised, since the collateral described on the mortgage was no longer owned by the bank’s borrower. Therefore, the bank could not legally foreclose. The bank was ultimately forced to withdraw the legal action.

Here is the link (active for many years and still valid as of September 2016) that describes the Adverse Possession laws for each state in the United States:

http://statelaws.findlaw.com/property-and-real-estate-laws/adverse-possession.html

THE BOTTOM LINE

 

Adverse Possession is the term used for occupying a vacant house. The occupant must also pay the property taxes in order to legally take title within 4 to 7 years (if the legal owner never reappears).

 

In most cases, your occupancy is likely to be challenged by an interested party, usually with a legal right to the property. You will lose whatever you may have paid in property taxes as well as losing your place to live.

 

Method 8 is a preferred alternative to a bank loan – not this method.

 

 

Method 3. Tax Lien Default

A tax lien that results in default is another method of becoming the owner of a house without a bank loan. It is only marginally more likely to result in home ownership than playing by the rules of Adverse Possession, but it can be highly profitable.

So what is a tax lien?

How and when can the buyer of a tax lien see the lien result in home ownership? Here is the process:

When the current homeowner has not paid the property taxes, the owner will then owe the tax plus interest and penalties until the entire overdue tax bill is paid.

Tax lien “certificates” representing the unpaid amount then become available for purchase, often online, by almost anyone anywhere. The certificates are usually issued by the County Assessor’s office or the County Treasurer. The certificates are often an excellent investment with typical returns between 7% and 50% when purchased properly .

In his book, “The 16% Solution,” Joel Moskowitz describes the process in detail with a focus on the 16% returns in the state of Arizona. Note that parts of Texas offer some of America’s highest tax lien returns.

When the current homeowner finally does pay the overdue property taxes, the investor of the certificate receives that payment, including interest, fees and penalties which is usually mailed directly from the property’s tax office or the county treasurer’s office.

If, after a specific number of months or years, the current homeowner never pays the taxes, the lien actually becomes potentially much more valuable. You, as certificate owner, can foreclose as if you were the only bank holding the only loan, even if one or more banks have existing loans on the property!

The existing banks, if any, would lose. Their loans would be completely erased and most other liens would disappear as well. Although this is rare, you would become the new owner free and clear after having paid nothing more than the property taxes and foreclosure expenses!

The reality is that, in most cases, an existing bank would likely step in and pay the overdue property taxes, interest and penalties.

If there was no bank loan, then obviously no bank would pay the overdue taxes. In those cases, you could be one step closer to becoming the owner of the house, but the odds of getting this far with a decent property are very slim.

THE BOTTOM LINE

 

When the homeowner finally pays the overdue property tax payments and penalties, tax lien certificate owners receive 100% of the combined payment and penalties . Payment comes from the area’s tax agency after the homeowner has paid the agency. If the homeowner never does pay, the owner of the certificate may foreclose and legally become the owner of the property.

 

These certificates have proven to be an excellent investment tool if the owner does careful research. Certificates are capable of safer and much larger percentage returns on principal than most any other investment.

 

What is the downside of tax lien certificates for home buyers? Statistics have shown that these certificates aren’t likely to result in home ownership.

 

Method 8 is a preferred alternative to a bank loan – not this method.

 

Method 4. Lease Option

One of the best known techniques for buying a house without the bank is also the most popular. However, from a tenant buyer’s point of view, lease options are highly overrated for the reasons described below.

For those anxious buyers who can’t wait until they qualify to buy a house using a bank loan, they can talk to the owner about leasing the property directly, with an option to buy at a specific current price that will not change during the lease, even if the property value increases.

The term of the lease agreement usually lasts one to three years. No later than the end of the lease term, the buyer hopes to be able to buy, usually by qualifying at a bank.

One reason this method is not endorsed in this book is because you do not legally own the home during the term of the lease. As is the case with the majority of these alternative purchase methods, potentially your only benefit is that you have temporary use of the house.

Technically you are still leasing as any tenant would, except that you are paying more every month than most renters would pay for a similar property. Why are you paying more?

The owner has given you the option to buy known as “First Right of Refusal.” What does that mean for you?

During the term of the lease, the owner will not be able to accept any other purchase offers. By the end of the term, if you are still unable to buy the house, or if you decide not to buy, the owner has choices. He or she can find another tenant, accept an existing purchase agreement from someone on the owner’s waiting list or put the house up for sale. Many owners decide to offer another lease option to someone else.

Owners who keep offering lease options generally make far more than those who offer their house for rent or lease with a standard agreement and no purchase option.

The most disturbing statistic about a lease option almost always favors the owner of the house. It leaves the hopeful buyer who often never does qualify for a bank loan with nothing to show for his or her one to three years of excessive monthly rent. The would-be buyer usually also suffers the loss of a hefty non-refundable deposit.

How often is the hopeful buyer left without the ability to purchase at the end of the lease term? Statistics compiled during the past 20 years show that 92% never do qualify for th e purchase of the leased house!

Is there any better news regarding a Lease Option? Yes. The buyer who is not sure of his or her capacity to complete the transaction might prefer a Lease Option to a Land Contract. At least when a buyer fails to qualify at the end of the term, the loss is limited to the purchase option and any amounts already paid.

In a Land Contract, failure leaves the buyer on the legal hook for the unpaid loan balance, which will result in a recorded judgment against the buyer and seriously damage the buyer’s credit. Again, this situation strongly favors the owner.

THE BOTTOM LINE

 

In a Lease Option, the seller agrees to a lease and then to sell the property to the tenant at a specific agreed upon price that doesn’t change during the lease term. The monthly payment is usually higher than a standard lease because the seller can’t sell or lease to anyone else during the term.

 

Lease options are more popular than they should be. Statistics collected over 20 years show that only 8% of hopeful buyers actually qualify to purchase at any time during the lease term, including the end of the term.

 

The result: The vast majority of buyers lose their deposit and they lose their place to live. The seller (owner) wins, keeping all of the money the buyer paid and then leases to the next person with the same arrangement.

 

Method 8 is a preferred alternative to a bank loan – not this method.

 

 

Method 5. The Land Trust

This is not to be confused with a Land Contract, which is described in method 6.

Although there are a couple of serious drawbacks to the Land Trust for buyers, a Land Trust can also be beneficial in several ways for both the buyer and the seller. The benefits include:

  1. Privacy – Buyer Does Not Appear in Public Records
  2. Avoids Existing Lender’s Due on Sale Clause
  3. Sell the Property With Far Less Paperwork
  4. House is Sold as Personal Property via Bill of Sale
  5. No Capital Gains Tax on the (Private) Sale
  6. Avoids New Title Insurance Expense
  7. Property Tax Remains at the Existing (Lower) Amount

The seller (as Grantor) creates a Land Trust and also becomes the Beneficiary of the Trust. Legal title is held by the Trustee, but the Beneficiary (seller) has full use of the property. Full use (without legal title) means the seller has equitable title. The seller is able to assign the property’s use rights. If you and the seller agree, those rights will be assigned to you.

The Trustee is generally only allowed to perform one function – to foreclose if the buyer stops making payments. The Trustee can only begin the foreclosure process at the request of the Beneficiary. So the Trustee does have legal title, but since it is limited, it is known as “bare” legal title.

With a Land Trust, banks and insurance companies continue to view the original borrower as the owner.

The Land Trust allows the seller as Beneficiary to transfer the use of the property, and its equity, to you, the new buyer and borrower, by naming you as the holder of the “Beneficial Interest” in the property.

Legal title does not get transferred to you, the buyer, until you have paid the Note in full. As I mentioned earlier, this is one serious drawback of a Land Trust. In fact, this is a drawback of most of the methods described in this book.

Here is one exceptional benefit of a Land Trust. You and the seller close your deal when the seller quietly transfers “beneficial interest” in the Trust to you. It is quiet because there is no requirement to officially record the transfer of beneficial interest. Existing lenders and government agencies do not need to be notified.

Because Land Trusts convert real property to personal property, you receive a bill of sale naming you (or your legal entity) as the buyer. The only records of the event are the documents between the seller and you. The seller stays on as the Beneficiary. Loan payments and insurance can still have the seller’s name on them.

You and the seller should arrange to make monthly payments to an account servicing firm. The servicer then pays the existing debts on behalf of the seller. This means the payment is coming from the original owner. The original bank loan gets paid as usual and no suspicions about a newly closed sale or title transfer are raised.

In general, if the advantages of a Land Trust were better known, it would probably become at least as popular as a Lease Option.

THE BOTTOM LINE

 

The Land Trust is an agreement that offers valuable privacy and security benefits for property owners and investors.

 

The type of trust is not as beneficial for buyers. However, if the house has an existing bank loan that will continue to be due monthly, this method may be combined with method 8 to offer both buyer and seller benefits.

 

Method 8 is still the preferred alternative to a bank loan, although it can be combined with a Land Trust in some situations.

 

Method 6. The Land Contract

A Land Contract, which can also be referred to as an “Installment Land Contract” (ILC) or a “Contract for Deed” (CFD) is another financing tool that does not require bank involvement. It also isn’t required to be officially recorded, so it doesn’t raise any suspicions at the bank that a sale took place if there is a pre-existing active bank loan on the house.

What are the two biggest differences between a Land Trust and a Land Contract? The Land Contract does not offer the benefits of a revocable trust. Also, it does not offer the benefits of converting real estate into personal property which makes it easier to sell and easier to keep the sale private (see Land Trust above).

In a Land Contract, the buyer and seller agree to the terms of the sale in a private Note. The terms feature the seller’s agreement to accept installment payments instead of receiving all of the equity at once.

Sellers should appreciate the tax benefit that installment payments provide. Instead of receiving the entire current market value (or asking price) of the property, the seller will only owe income tax on the sum of the monthly payments received each year minus the deductions. If the seller agrees to this, it may mean the seller prefers to avoid the involved process of a 1031 exchange, which is another method of avoiding capital gains taxes on the house sale.

Remember that, in a Land Trust, as far as the bank and the IRS are concerned, no sale has taken place.

Sellers should be sure the Land Contract contains a forfeiture provision, under which a defaulting buyer may be evicted like a defaulting tenant. Buyers should be aware that if such a provision exists, it should be modified. The contract should instead treat the default situation as a pre-foreclosure in order to make it more much more difficult for the seller to evict you in the unfortunate event that it may become necessary.

Buyers have full use of the property which is similar to a rental, a Lease Option or a Land Trust. Sometimes full use of the property is all you, the hopeful buyer, wants, as long as there is a chance of owning that property at some agreed upon point in the future.

The Land Contract is another method that is not highly recommended in this book. Like the Land Trust, you do not get legal title until you have made all of the home loan payments in the agreement.

THE BOTTOM LINE

Land Contracts are installment house payment agreements. Buyers are essentially tenants until the contract term ends, similar to a Lease Option.

 

In most areas, a Land Contract allows a seller to easily and quickly evict you, the buyer, if you stop paying. The foreclosure process does not apply.

 

As with most of the other methods, you are not eligible to receive legal title until the house is paid in full.

 

Method 8 is a preferred alternative to a bank loan – not this method.

 

Method 7. Private Money and Hard Money

These two types of loans are additional methods of avoiding bank involvement. However, because they usually come at a steep price, they are most often used prior to a bank loan as relatively short term loans that last from a couple of months to five years. They should not be confused with each other but many borrowers (and even some lenders) have a tendency to use the labels interchangeably.

The biggest difference between the two is that legitimate hard money lenders are licensed and regulated. Following the mortgage meltdown, there are far more rules, fines and watchdog agencies, forcing lenders, especially hard money lenders, to be more careful than they have ever been.

In contrast, private money sources are most often family, friends and referrals. When a private money deal is being negotiated, the transaction almost always takes place directly between the borrower and the lender without requiring lender licensing or adherence to any other organizational guidelines.

Both sources share some common traits. Their steep costs begin with higher than prevailing interest rates. Both usually feature large fees as well. Borrowers are generally more desperate when looking at these financing types.

Private money rarely advertises while hard money is actively promoting their lending as a business to attract clients. Since hard money sources are often private money lenders, those hard money lenders would need to charge higher fees in order to make a profit. Ironically, the hopeful buyers these types of loans attract have either been rejected or expect to be rejected for a home loan by banks.

THE BOTTOM LINE

 

These relatively expensive money sources aren’t generally used for long term house purchases.

 

Method 8 is a preferred alternative to a bank loan – not this method.

The Best Method

None of the preceding methods are highly recommended by this book. However, each buyer and seller situation may call for one of those preceding methods to be used in spite of the method’s drawbacks. Be warned that Caveat Emptor applies to those methods, which means Buyer Beware.

Here is an example of one important feature in a method you should look for. How many of the time-tested methods above will result in securing legal title to a house within weeks of your first meeting with a seller when you don’t have a bank loan?

The answer? None of the previous methods described in this eBook can secure legal title as quickly as the next method number 8. In fact, it’s the only method that can provide that critical benefit.

You do not want to fall victim to the grim statistic such as the one described in Lease Option method 4. All of the methods that retain the seller as the owner and you as the tenant for a year or more is too likely to be equivalent to tossing your purchase money in the trash.

Most of those types of buyers are wearing rose-colored glasses. In reality, they are not buyers, but tenants who are paying too much. These “buyers” are desperate enough to convince themselves that the staggering buyer default rate of 92% will not apply to them. If you ask them, they will be quick to arrogantly tell you. “I’ll be the exception who beats the odds against me.”

Avoid the previous methods. The next method really shines.

THE BOTTOM LINE

Look for a bank loan alternative that also gives you immediate legal title.

As a home buyer, you may be tempted to use one of the previous methods 1 through 7. Each of them have benefits and weaknesses. Be very careful. The weaknesses are usually not worth the time, effort and money.

After you’ve done the research, you will find that method number 8 is the clear winner. The pages that follow will explain further.

Introducing Method Number 8

In the early 1980s, the Federal Reserve Bank made big mistakes trying to battle record high inflation. Their mistakes forced them to raise interest rates . Those rate increases affected home loan rates which rose to nearly 19% until few buyers could afford a bank home loan.

Method number 8 is actually a combination of two proven methods that have since produced tens of thousands of happy home buyers beginning in the early 80s and continuing, much more slowly, through today. Tens of thousands of home buyers isn’t many when you consider that many millions buy homes every year in the U.S. alone. So why isn’t this method number 8 more popular than it is?

In the 80s, banks were losing most of their home loan business to sellers, so banks were forced to go into survival mode. The primary bank objective became the prevention of any further loss of business to sellers. One way they could accomplish this was to keep these methods, especially method number 8, as hidden as possible. Banks did this in two ways.

First, in the late 1980s and early 1990s, the government had the Federal Reserve Bank step in to help banks create home loans by reducing overall rates so the home interest rates dropped from over 18% to single digits.

Next, from the late 1990s through 2006, the government encouraged banks to relax the home loan application standards so that many more home buyers would qualify.

Hundreds of banks not only stayed in business, but many were reporting record breaking profits, before and after the record number of foreclosures put a temporary dent in their home loan business.

Even banks must have been surprised at how well their efforts worked. What remains in memory was the overwhelming success of the “no bank” system. Banks are still unable to compete with that technique.

The step-by-step process of this featured technique, method number 8, is described in the 230 page paperback book, “How to Buy a House with No Bank Loan.” The book is also available in Amazon Kindle format. Readers have praised the book as the reason for their home purchase success. By using the book, you too will have the plan and materials you need.

The cover of the book that provides the ultimate guide to your success is shown below. Even when you don’t have a bank loan, you will have everything you need to prepare, identify and purchase your next house.

The Kindle edition is available at:
AmazonKindle-BuywithNoBankLoan

 

You can find the paperback by going to the following URL:

PaperbackBook-BuywithNoBankLoan

 

THE BOTTOM LINE

 

Failed bank policies in the U.S. in the early 1980s led to a new and better source of home loans. This is method number 8, which is the only method outside of paying entirely in cash that allows you to become the legal owner within 30 days of your first meeting with the seller.

 

In the book, “How to Buy a House with No Bank Loan,” you will learn about the importance of the IDT and how to use it to get yourself the best possible loan terms without bank involvement.

 

 

 

 

 

About the Author

Dean secured his first license as a real estate agent in New York City in 1975. He had learned the business from his family as a third generation investor. His father and grandfather were active New York City investors in numerous residential and commercial properties from 1939 through 1974.

Dean has since relocated and is now a licensed Realtor in the Los Angeles California area. In addition to property deals in the U.S., he has completed real estate transactions in Greece and France. For over 40 years, Dean has also helped secure mortgage loans.

When the U.S. mortgage laws changed, requiring certification after 2008, he also became licensed as a Loan Originator. It should be noted that Dean is not an attorney or an accountant. Issues raised in this book should be addressed by your local real estate attorney, tax attorney or CPA.

 


7 Ways to Own a Home - Plus One Best Way

Why do most people believe a house can only be owned by getting a bank loan? Because banks want it that way. After so many decades dominating the home purchase funding process, banks have succeeded in brainwashing the public. Why have their efforts been so intense? The record breaking profitability that banks have enjoyed has depended heavily on generating enormous revenue from home loans. Home buyers need to be aware that there are alternatives to banks that are less costly and less time consuming. This book shows you some of those other ways to take ownership of a house. You may have heard of one or more of the methods, but you may not have entirely understood or actually used them to become the owner of a house. Use the opportunity this book provides to become more aware of the benefits of a "bank-free" home purchase.

  • Author: Dean Harris
  • Published: 2017-06-04 04:05:12
  • Words: 4959
7 Ways to Own a Home - Plus One Best Way 7 Ways to Own a Home - Plus One Best Way