Using Trusts and JVs for Buying, Funding, and Holding Properties
From UREWPS™ Business Plan: Appendix C
UREWPS™ (the Company) is not a lender. We are a funding partner. Because we are a partner, along with the REI and the DRA, the assets of each deal will be invested in a joint venture (JV) between the three partners. On the public record the ownership of the subject property will be held in a trust with the JV as the sole beneficiary with the Company as the Trustee. This arrangement will keep the trust simple and allow for ownership interests within the JV to be altered, if needed, without any changes to the public record.
Within the JV, the legal constructs of partnership terms will exist along with all provisions of default, etc. This will allow the Company to take possession of a property in the case of REI default without reliance upon foreclosure proceedings.
Bringing every deal into a trust facilitates tokenization of all property interests.
Table 1 Fix and Flip Traditional Funding v CuBitDeals™
Traditional Funding | CuBitDeals™ |
Fix and Flip | |
REI finds and negotiates a purchase agreement, | REI finds and negotiates a purchase agreement Affiliate vets the property, the REI, and the deal and recommends purchase |
REI obtains funding | Company agrees to fund the deal |
REI closes the purchase generating a promissory note and deed of trust for the lender. | Affiliate closes the purchase, buying the property into a trust which is managed by the Company, and which is specific to that property. The property and associated rights are tokenized. The funding associated with the property is tokenized into a smart contract inside of the JV. |
REI gets a hard money loan for purchase and rehab of a property. The note and deed of trust specifies all terms · fees · points to be paid up front · interest only payments during the construction period · payouts during the construction period according to proof of work · and a payment of principal and interest once construction is complete · amortization, interest rates, amortization, repayment term, etc. · conditions of default · recourse | The smart contract spells out the obligations of all three partners. The JV specifies all terms which the REI, Affiliate, and the Company must meet to maintain or alter the disposition of beneficial interests of the JV. · fees · points to be paid up front · interest only payments during the construction period · payouts during the construction period according to proof of work · and a payment of principal and interest once construction is complete · amortization, interest rates, amortization, repayment term, etc. · conditions of default · recourse |
REI holds title to the property on the public record. | Trust has title to the property |
Lender gets a deed of trust / mortgage. | No deed of trust needed. |
When rehab is complete REI either sells the property and repays the lender or refinances and repays the lender. | When the conditions of the rehab have been fulfilled the REI will have opportunity to either buy out the beneficial interests of the Company and the Affiliate, or to negotiate a new JV smart contract that is equivalent to a refinance. |
Lender relinquishes rights. | If the REI buys out the interests of the Company and the Affiliate, the REI can decide whether to keep the property titled to the Trust (while changing the Trustee), or to take title in another name. |
REI gets a new loan. New lender obtains deed of trust / mortgage. | No changes will occur in the public record until the property comes out of the trust. This will occur only if: · The REI fulfills the smart contract. As the sole beneficiary of the JV at that point, the REI can request to have the property title changed out of the trust. · At the direction of the JV, the Trustee sells the property out of the trust. · Beneficial interests in the JV will routinely be constructed so that if the property is sold at a loss, the loss comes first out of the beneficial interest of the REI, then out of the beneficial interest of the Affiliate, and finally out of the interests of the Company. |
Table 2 Real Estate Investor (REI) Loan (without rehab) v CuBitDeals™
Traditional REI Deal | CuBitDeals™ |
REI finds and negotiates a purchase agreement. | REI finds and negotiates a purchase agreement Affiliate vets the property, the REI, and the deal and recommends purchase. |
REI obtains funding. | Company agrees to fund the deal. |
REI closes the purchase while generating a promissory note and deed of trust for the lender. | Affiliate closes the purchase, buying the property into a trust which is managed by the Company, and which is specific to that property. The property and associated rights are tokenized. The funding associated with the property is tokenized into a smart contract inside of the trust. |
REI gets a hard money loan for purchase and rehab of a property. The note and deed specify all terms · fees · points to be paid up front · payment of principal and interest · amortization, interest rates, amortization, repayment term, etc. · conditions of default · recourse | The trust and JV smart contract spells out the beneficial interests of the REI, the Affiliate, and the Company. The JV specifies all terms which the Borrower must meet to maintain or alter the disposition of beneficial interests. · fees · points to be paid up front · payment of principal and interest · amortization, interest rates, amortization, repayment term, etc. · conditions of default · recourse |
REI gets title to the property. | Trust has title to the property. |
Lender gets a deed of trust / mortgage. | No deed of trust is needed. No mortgage is filed. |
When REI decides, REI either sells the property and repays the lender or refinances and repays the lender. | As the conditions of the smart contract are met the beneficial interests of the JV may be adjusted. The REI will have opportunity to either buy out the beneficial interests of the Company and the Affiliate, or to negotiate a new smart contract that is equivalent to a refinance. Revenues from the property (if rented or leased) will flow into the JV through the trust. The JV (smart contract) will disburse the revenues according to the terms of the JV. Typically, this will mean payment of principal and interest to the Company happens first. Then payments of operating expenses. Lastly, the remainder will be paid out to the partners according to their equity interests in the JV. |
Lender relinquishes rights. | |
REI obtains new loan. New lender obtains promissory note secured by a deed of trust / mortgage. | No changes will occur in the public record until the property comes out of the trust. This will occur only if: · The REI fulfills the smart contract. As the sole beneficiary of the trust at that point, the Borrower can request to have the property title changed out of the trust. · At the direction of the beneficiaries, the trustee sells the property out of the trust. · Beneficial interests in the trust will routinely be constructed so that if the property is sold at a loss, the loss comes first out of the beneficial interest of the REI, then out of the beneficial interest of the Company. |
The trusts will be set up so that when the beneficial interests are materially changed, the sovereign authority is notified, and transfer taxes are paid. The JV will also address how insurance and property taxes are to be handled. Those will be embedded in the JV smart contract. The REI may have the responsibility to keep insurance in force with a forced-placed option available to the JV if they lapse. Likewise, the REI will be responsible for payment of taxes and sovereign liens with the option for the Company to pay them and take the sole beneficial interest in the property. This latter will have nearly the same effect as a tax foreclosure or other form of foreclosure, only without all the expense of courts and attorneys.
While it is expected that such a foreclosure action within the JV could result in a legal challenge, we anticipate that our requirement that all borrowers be a business will ensure that all actions remain as commercial contracts between legally sophisticated participants, so no consumer protection laws come into play.
All of this will have the effect of significantly mitigating legal risks, schedule risks, and costs associated with foreclosures when an REI fails to meet the obligations associated with acceptance of funds from the Company.
