my sister and I are buying a 2-flat with our husbands in Chicago. What type of co-ownership structure should?

Asked by Mary Ellen, Chicago, IL Fri Jun 27, 2008

we consider (tenants in common, etc)

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Mwass, , Chicago, IL
Sat Jun 28, 2008
(by request)

1/ banks do not like to (cannot) make residential loans to trusts or other entities. they want to make loans to "real" people.

2/ some "real" people do not want to hold title to property in their own names. they want to use trusts or other legal devices. this might be for estate planning purposes, privacy issues, or could be for other valid reasons. perhaps they want to establish rights of co-owners in a 2-4 flat building.

3/ the standard form mortgages used in Illinois typically have an "acceleration clause." simply put this gives the lender the right to demand FULL repayment of the loan if the borrower/buyer sells the property or gives it away or otherwise transfers title to someone else. after all, the bank made the loan to the borrower - no one else.

4/ in 1982, the Garn-St. Germain Act created a FEDERAL pre-preemption of this state specific mortgage clause -> acceleration clauses cannot be enforced when a property is transferred from an owner to CERTAIN types of trusts - specifically "inter-vivos" or "living" trusts. (the act also establishes 8 other scenarios where a due-on-transfer clause cannot be enforced).

5/ getting to Greg's point, the most common work-around is for a buyer to purchase property and sign for a loan in his/her/their own name and then promptly transfer the property into the (qualifying) trust

6/ as a practical matter, i get calls from clients on a regular basis asking me to help them transfer title back out of a trust into their own names in order to re-finance, and then to transfer into the trust yet again once the loan is refinanced.

7/ as another practical matter, a significant number of buyers/borrowers take their chances and transfer title to properties for "non-protected" reasons to - and hope that the bank/lender never notices or complains. at best, this is a craps-shoot. i've had to defend claims presented by lenders intent on enforcing their rights to accelerate the loans. as with most litigation of this sort, the only clear and certain winners tend to be the lawyers.....
1 vote
Bob Brandt, Agent, Schaumburg, IL
Mon Jun 30, 2008
Realtors are not supposed to answer questions about how to hold title and we can not give legal advice. You should ask your attorney.
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Greg Zaccagni, , Illinois
Fri Jun 27, 2008
Did someone say mortgage lender? Trusts can be challenging to obtain mortgage for. Michael I wounder if you would mind commenting about the common practice of quitclaiming to a trust after closing in the owners name relative to mortgage acceleration clauses?

Thank you for your consideration...
0 votes
Mwass, , Chicago, IL
Fri Jun 27, 2008
you have multiple options here, the most common are:

tenancy in common
joint tenancy
land trust

your decision can have significant legal and tax consequences. you should definately run this past your lawyer and tax advisor.

sorry., but you do not give enough facts about the transaction to allow for any meaningful types of recommendations

one critical factors is whether or not any of you intend to live in the property as a principal residence or if this is an investment property/. another is whether a mortgage lender will be involved.

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