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SEP/IRA ManualSEP/IRA ManualPage 1 INTRODUCTION: REAL ESTATE IN IRAS AND KEOGHS: A GUIDE Exercising Your Options for Tax-Free, Tax Deferred Income This manual shows you how to achieve tax-free or tax-deferred income from real estate investments using our self-directed retirement plan. It provides a detailed, step-by-step guide to making active or passive real estate and real property investments. It will give you a better understanding of your self-directed plan and how it works, so you can take maximum advantage of investment opportunities. The purpose of any retirement plan or account is to provide a vehicle for making investments on a tax-deferred or tax-free basis to supply an income for the future. It is worthwhile to consider that your plan might also be regarded as a wealth accumulation vehicle. This book encourages you to think expansively on the subject, and to explore the possibilities; for instance, there are methods to access tax-free or deferred funds prior to the time when it becomes mandatory under the law. You'll learn how to: Decide where to open an account Open a self-directed account Contribute or rollover money into your account Make the investments you want Throughout the guide you'll find pointers on reviewing forms and documents, examples that illustrate what to look for, and methods to assure that the processes are handled correctly. It's Easier Than It Looks At first, a subject like this one can seem overwhelmingly complex and difficult. Like any subject involving financial and legal matters, the language and the paperwork required make it appear to be a huge undertaking. However, if you invest a relatively short amount of time reading through the guide and looking at the examples, you'll gain a good understanding of the basic processes and the subject in general. When you wish to proceed in a specific area, you can return to that subject for detailed information. In short, the first time you filled out a Note or reviewed an Escrow Instruction form, it probably seemed hard to understand. The second time was easy. This is true of reviewing and learning from this material, and the potential benefits make it worth the effort! Page 2 TYPES OF PLANS COVERED This guide is for everyone who has, or wants to have, an Individual Retirement Account or other pension plan with the most investment flexibility. The tax deferred and tax free vehicles are: Individual Retirement Arrangements Simplified Employee Plans Keoghs, and other qualified plans Individual (K) plan Individual Retirement Arrangements These are plans which are established for use by individuals, including tax deferred plans such as Individual Retirement Accounts (IRA), Roth IRAs, and Simplified Employee Plans (SEPs), (to which employers make contributions to employee's IRAs). A Savings Incentive Match Plan For Employees (SIMPLE Plan) is a written salary reduction arrangement that allows a small business to make elective contributions on behalf of each eligible employee. A SIMPLE Plan can be set up using IRAs (SIMPLE IRA Plans) or as part of a Qualified 401(k) Plan. Qualified Plans (Employer Provided Plans) Qualified Plans are those retirement plans, other than IRAs, which are approved by the Treasury Department. While it is not required that a retirement plan be approved, it is advisable to have a determination be made by the Internal Revenue Service whether the Plan is suitable to be qualified under the Internal Revenue Code. Qualified Plans discussed in this manual are Defined Benefit and Defined Contribution Plans. Defined Contribution Plans include Profit Sharing and Money Purchase Pension Plans, including 401(k) Plans and SIMPLE 401(k) Plans. Asset Purchases and Sales Covered in This Book This manual will deal with those assets which are real estate related ("non-standard" assets), as opposed to "standard assets," which are less complex. With standard assets, such as stocks, you can place an order with your stock broker or IRA administrator to purchase shares for your IRA of XY Corporation listed on a stock exchange at a given price and a given time; the transaction will take place without further documentation from you. That's very different from a real estate transaction where you may be buying five properties, selling two, and carrying back a note. You will need specific instructions about legal descriptions, price, title insurance, closing instructions, filings, insurance, note preparation, payment terms and collection, and more. Permitted Investments You can make any investment you want with your Plan provided that you follow the rules set out in Treasury Regulations and the Internal Revenue Code. The regulations define prohibited investments (transactions). Truly self directed plans allow investment in all assets which are legally permitted. The Internal Revenue Code does not specify what is legally permitted, it only states what you can't do. Page 3 HOW TO USE THIS GUIDE We suggest that you carefully read the first three chapters, and review each of the examples. Each example contains information which may be used for any number of investment possibilities, and they are designed to be as non-repetitive as possible. The last chapter is for reference purposes. Because there is no intent to have you read the entire IRS Code, ERISA, or Treasury Regulations, the reference section is a synopsis only. This Guide is divided into an introduction and three chapters: 1. How to Get Started 2. Deals 3. Reference This Introduction has provided you with a general overview of tax-deferred and tax-free accounts, the types of assets that are covered in the manual, and what you may and may not do to ensure the qualification status of your account. The First Chapter, "How to Get Started," provides a more detailed view of IRAs, Roth IRAs, SEP IRAs, SIMPLE Plans, Education IRAs, and Qualified Plans; how to open each account type, how accounts are funded and how to do real estate transactions in a tax-free or tax-deferred environment. The Second Chapter, "Deals," gives you examples of actual transactions using Plan funds to buy and/or sell various assets in and out of your Plan while retaining their qualified status as tax-deferred or tax-free. The Third Chapter, "References," is a synopsis of government regulations and information from various sources about Individual Retirement Arrangements and Qualified Plans. These include rules regarding plans, what you may or may not invest in, examples of plan documents and unrelated business tax information. A Bibliography follows. The information provided herein is for example only and is not intended as investment or tax advice. We strongly recommend that you seek and use the services of professionals in those respective fields. Page 4 CHAPTER I: HOW TO GET STARTED INDIVIDUAL RETIREMENT ACCOUNTS AND QUALIFIED PLANS: There are four steps to making self directed investments in tax deferred or tax free accounts: Find someone who can help you retain an administrator, custodian, or trustee who provides self directed plan services. Open a self directed account Fund the account Buy assets through your self directed account These steps are similar for IRAs, SEP IRAs and Qualified Plans, but there are some important differences, which are noted below. SELF DIRECTED IRAS AND SEP IRAS: SELECTING A TRUSTEE, CUSTODIAN OR ADMINISTRATOR The Custodian or Trustee A custodian or trustee is required for all individual account arrangements. The Income tax regulation clearly indicates that for the purposes of IRAs, the term "custodian" and "trustee" are synonymous. Section 1.401 (12) (n) specifies who qualifies as a trustee or custodian. "The trustee or custodian must be a bank, federally insured credit union, savings and loan institution, or another entity approved by the IRS to act as trustee or custodian. An individual cannot qualify as trustee or custodian. The trustee or custodian is the entity which is responsible for receiving and holding contributions and plan assets; maintaining accurate records of contributions, earnings, distributions and other relevant records; making distributions to beneficiaries, and providing annual statements to account holders." Self directed accounts may also be offered through an administration and record keeping firm, which contracts with one or more banks to provide self directed services where the bank acts as custodian or trustee. The custodial bank has FDIC insurance for deposits which protects the un-invested cash you have in your account, up to $100,000. Your other assets are not insured by any government plan. Chapter 1 Page 5 Self Direction When you select the administrator, custodian or trustee, you will also receive an IRA custodial or trustee account disclosure and agreement that contains several important items in plain non-technical language. One Article contains the self direction feature of the Plan. The following example of Plan language is typical of completely self directed plans: "Direction of Investment: You have the exclusive responsibility for and control over the investment of the assets in your IRA. You shall direct all investment transactions, including earnings and proceeds from securities sales. Your selection of investments, however, shall be limited to publicly traded securities, mutual funds, money market instruments, and other investments that are obtainable by us* and that we are capable of holding in the ordinary course of our business. In the absence of instructions from you or if instructions are not in a form acceptable to us, we shall hold any un-invested amounts in cash and we shall have no responsibility to invest un-invested cash unless and until directed by you. All transactions shall be subject to any and all applicable Federal and State laws and regulations and the rules, regulations, customs and usages of any exchange, market or clearing house where transactions are executed and to our policies and practices...." * "...obtainable by us and that we are capable of holding" means that the administrator can purchase the investment you selected on your behalf, and that title to that investment can be perfected in the name of your trustee/custodian for your benefit. Page 6 Section 2 QUALIFIED PLANS: SELECTION OF A TRUSTEE FOR YOUR SELF-DIRECTED QUALIFIED PLAN The Trustee If you are an employer, even if you are the sole employee, you may act as the trustee for your Keogh or Qualified Plan, provided that you can have and want such a tax deferred vehicle. Unlike IRAs and SEP IRAs, there is no mandate to have a bank or other institution fulfill such a role, although such institutions usually offer such services. You may select yourself, another individual or individuals, or corporation or a combination, as Trustee of the Plan. The appropriate choice of trustee depends very much on the type of plan, who the Plan administrator is, what the scope of the Plan is, and to what extent investment discretion is permitted. Large contributions of funds can be completed into your Individual (K) plan under recent tax law changes. Self Direction The section which permits complete self direction is in the investment section of the Plan document provided by the Plan sponsor. The Plan sponsor may be a bank, another financial institution, or an administrator. The Plan defines what you may invest in. A common clause reads as follows: "If so indicated in the Adoption Agreement, each Participant may individually direct the Trustee (or Custodian, if applicable) regarding the investment of part or all of his or her Individual Account. To the extent so directed, the Employer, Plan Administrator, Trustee (or Custodian) and all other fiduciaries are relieved of their fiduciary responsibility under Section 404 of ERISA." Specific rules are also shown in the Plan document, which govern the establishing of individual accounts. Page 7 Section 3 OPENING IRA AND SEP IRAS Once you have determined who will be handling your IRA or SEP IRA, the next step is the opening of an account. An Individual Retirement Account is a depository account from which you buy or sell assets. The account will contain "assets" such as cash and the investments you make. All such assets are placed or "vested" in the name of the trustee/custodian for the benefit of your name and/or your account. The information required to open an account is straightforward. For example: All IRAs require your individual name. This cannot be you and your spouse, or the name of any trust. Only an individual may have an Individual Retirement Account. SEPs require the employer name. Address and Social Security numbers are required. Note that an Employer Identification Number is not required on the standard IRS form 5305-SEP document, as each participating individual must have an IRA. The type of account must be specified: IRA, SEP, regular/traditional or Roth. In every case, rules of eligibility must be met, as noted in previous sections. You may not have a SEP connected to a Roth IRA. Many trustee/custodians have merged the beneficiary designation with application forms, which in community property states include spousal consent forms. Beneficiary designation may be complicated and is subject to each individual case situation. Beneficiary designation is not required at the time an account is opened, but it is encouraged. It is always important to keep beneficiary information updated as personal situations change. You may be asked to provide certain contribution and investment information on some forms. This needs to be completed only if you make a contribution, transfer or rollover assets to your new account. Most providers ask that you sign an agreement with them. The agreement is not required by the Internal Revenue Service, as a condition of opening an IRA, except that the provision for a backup withholding clause must be certified by you, and is generally included in the application or agreement. Page 8 Section 4 OPENING A QUALIFIED PLAN Both Qualified Plan types - Defined Benefit and Defined Contribution - are intended as employer plans, and provide tax deferred benefits to employees and employers simultaneously. Only employers may open Qualified Plans. All employees, including the employer, may participate in the Plan. Qualified Plans are sponsored or provided by any number of organizations, which do not have to be banks, brokerages, savings associations, or trustees/ custodians. Qualified Plans are usually chosen on the basis of how much the entities opening such plans wish to defer and in what manner. These plans are oriented as much to employers as they are to employees, and therefore the uses involve not only business and tax planning issues, but also retirement programs for both employer and employee. Generally, Qualified Plan applications are called Adoption Agreements. The Adoption Agreement provides all the necessary information about the detailed functioning of the Plan. The Plan Document contains all of the terms and conditions of the Plan. Such plans are not generally individually designed, but provide most of the flexibility needed by most companies. These plans are also know as prototype or mass submitter plans, as they present plan types approved by the IRS. The Plan be may individually designed by a qualified Plan professional, such as an attorney. Individually designed Plans generally do not have an Adoption Agreement, as all the features and functions are included in the Plan itself. Qualified Plans do not have to be approved by the IRS, but approval, in the form of a determination letter, provides some comfort that the tax deferred status of your account in the Plan will be maintained. An example of the features of an adoption agreement include: Effective dates of the Plan. Eligibility requirements, such as years or service, age at which one becomes eligible; classes of employees who are eligible or ineligible, such as union workers who are covered under another Plan - or non-resident aliens; times of the year when employees may enter the Plan. Employer contribution information, such as when the employer makes contributions, and whether the employer wishes to allocate based on integration with social security. When participants, including the employer, become eligible to receive certain percentages of the amount contributed (Vesting), generally when they leave employment or retire. When normal retirement age begins. How many hours of service one must complete to begin being eligible. If loans are permitted (only for "C" Corporations), or if in service withdrawals are permitted. If participants may self direct their Plan assets. Employers have the option of directing all investments for all employees. There are certain rules under IRS code section 404(c) which must be followed in the case of employer directed investments. Primarily the rules are about diversification into at least three areas: stocks, bonds and money markets, and provision for education and information to employees on an at least semiannual basis regarding the investments. The acceptance or rejection of annuity payments. Trustee or custodial and administrator information. Plan sponsorship. Page 9 Section 4 OPENING A QUALIFIED PLAN continued Because each plan type differs significantly, one must become familiar with those which suit their needs. From the point of view of self direction of investments, each plan will have specific sections which define the level of direction. Typically banks and brokerages will limit the investment section to products they sell. Most Individually designed Plans will leave the investment section as flexible as possible. One should carefully read all information in the Plan documents to ensure that the Plan meets not only their tax deferred intent, but also the flexibility in investment capabilities. Page 10 CHAPTER I: HOW TO GET STARTED Section 5 FUNDING YOUR ACCOUNT: CONTRIBUTIONS, TRANSFERS AND ROLLOVERS Contributions Once you have established your Plan and account, the next important consideration is having funds in the account. You may make annual contributions to your IRA, SEP IRA, in accordance with amounts and manner established in the IRS Code. For qualified Plans the similar rules generally apply. IRA rules permit you to transfer, tax free, assets (money or property) from other retirement programs (including IRAs) to an IRA. The rules permit the following kinds of transfers: Transfers from one trustee to another. Rollovers. Transfers incident to a divorce. Transfer From One IRA Trustee to Another A transfer of funds in your IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. Because there is no distribution to you, the transfer is tax free. Because it is not a rollover, it is not affected by the one-year waiting period that is required between rollovers (discussed next). Rollovers Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you will contribute to another retirement plan. There are two kinds of rollovers to an IRA: In one, you put amounts you receive from one IRA into another IRA. In the other, you put amounts you receive from an employer's qualified retirement plan for its employees, such as a profit sharing (401k) plan into an IRA. You cannot deduct a rollover, but you must report the rollover distribution on your tax return. You must make the rollover by the 60th day after the day you receive the distribution from your IRA or your employer's Plan. You may only rollover assets once in a twelve month period. Transfers incident to a divorce Also referred to as QDRO or Quadro (Qualified Domestic Relations Order), such transfers are subject to court order. QDRO Transfers are covered in detail in the appendix. Page 11 Section 6 TIMING AND MECHANICS OF FUNDING Timing The most challenging part of opening a self directed account is rolling over or transferring assets to the new account. A transfer may take days-to months- depending on the assets and the capabilities of the institutions involved. Cash usually takes up to ten business days. One should allow at least thirty days to transfer assets other than cash. If you are rolling over from a qualified Plan, and assets are not stocks, bonds and mutual funds, but are deeds of trust, real estate or privately held instruments, it may take months. The Plan document for a qualified Plan usually states the time period required to complete a rollover or distribution, which may be up to 18 months from the date you terminated employment. From that point forward, re-registration and clerical issues can take additional time. Although a long wait of 18 months is the exception, note that it can happen. In the case of annuity product in qualified Plans, insurance carriers have a completely different set of rules and jargon on which they operate. Usually, insurance carriers do not impose surrender charges on assets being rolled over to an IRA, but the time required to roll over may be lengthy. You can, in many cases, shorten the time of transfer by having assets distributed to you directly, and then rolling them over in the 60 day time period mandated by law. This works particularly well with assets held as cash, stocks, bonds or mutual funds. It is less effective with all other assets. If you have a deal which you want to make quickly, liquidate that part of the portfolio which is easiest to liquidate. Then transfer or rollover those assets to your self directed Plan, or have them distributed and then roll them over to your self directed Plan. MECHANICS OF FUNDING YOUR ACCOUNT Contributions When you make contributions to a new or existing IRA or qualified Plan, you may do this using cash. Cash is defined as cash, checks, money orders, wire transfers. Rollover and Transfer It is always important to carefully complete transfer and rollover forms. These forms are provided by the company you are transferring to. Page 12 Section 6 Rollover and Transfer Continued You need to be certain that the assets will be accepted by the new custodian. In the case of truly self directed plans, this is generally not a problem, except: IRAs may not accept life insurance policies from qualified Plans. Some IRA custodians will not accept collectibles, which were once legal, or even bullion. Some investment product providers will not transfer or rollover the type of investment, such as a certain type of annuity or a certain class of mutual fund, to a new Plan which is not offered by them. Rolling over or transferring deeds or trust (paper in general) and real estate: Prior custodians or trustees will generally not provide the history of payments or other documents on a timely basis. Payers will often make payments to the old trustee or servicer and it can take time to correct such problems. Tax and assessor information is often incorrect for up to a year or two, and notices of default are not always received. Your current provider will normally marshal the assets into your account, but the cooperation of the old provider is always important. Signatures must generally be medallion guaranteed. The medallion guarantee is an insured signature guarantee, somewhat similar to notary acknowledgements. In almost all cases this is required on your signature and that of the accepting institution. When in doubt have your signature medallion guaranteed. If you wish to transfer or rollover all of your assets, usually you can do this by marking an appropriate box on a form - otherwise, list the assets you wish to transfer or rollover. There are restrictions regarding minimum distribution requirements if one has taken distributions or is in the year in which distributions must be taken. The specifics are usually part of a transfer or rollover form. The restriction language includes information on the nature or method of calculations and beneficiaries. If this data is not included and you are in a minimum distribution year, your transfer may be rejected. If you have received a distribution from your retirement plan, whether it is a qualified Plan or an individual retirement arrangement, and are rolling the assets over to an IRA or another qualified Plan, you are responsible for making the rollover within the 60 day time period as indicated above. In addition, if the rollover is from a qualified Plan, you may wish to designate the IRA as a conduit IRA, which permits the subsequent rollover to a qualified Plan in the future if you wish. This also means that you cannot make contributions to the conduit IRA. (You may of course make the contributions to contributory IRAs). Page 13 Section 7 BUYING AND SELLING ASSETS WITH FUNDS IN YOUR RETIREMENT ACCOUNT The assets which you direct the administrator, trustee or custodian to purchase are placed in your Plan and account for your exclusive benefit. For the purposes of this manual, references made to trustees and custodians and administrators are interchangeable, and refer to both IRA and Qualified Plan trustees or custodians. When you choose diverse investment opportunities, such as real property, deeds of trust, paper, leveraged transactions, private placements, mobile homes, options, limited partnerships, stocks, bonds, mutual funds, certificates of deposit, viaticals, and all the other types of assets available, the most important information you start with is knowing the about the investment you are making. This manual will cover only the most complex purchases and sales involving real estate, notes, and related investments. You must find the asset you wish to purchase. The trustee of a self directed Plan is usually not a product provider, unless that has been disclosed to you. For the purposes of this manual, we will deal only with truly self directed Plans, where you are responsible for finding your own assets to buy. Following are examples of the information needed for Purchases of Real Estate and Notes, and Sale of Real Estate. This is intended only as a guide. All the information contained therein is given to the administrator. Page 14 Section 8 REAL ESTATE PURCHASE Timing When you locate the investment property you wish to buy, inform your trustee by completing a buy direction letter, and confirm receipt with a phone call or e-mail. Most trustees will accept a direction letter to begin the purchase transaction. (Please note that such direction letters are not required by any law or rule. You may, depending on your provider, use any method acceptable to perform your purchases and sales. Direction letters provide an easy guide to make your wishes known and avoid problems later.) When you complete the Buy Direction Letter (For Real Estate) the following page lists items which are significant (see numbers on the form that follows). Page 17 Section 8 REAL ESTATE PURCHASE Significant Items 1. Although it may seem obvious, Name is a very important aspect of the purchase. Often people will have funds in several accounts, which may have different account names. For example, one may have a Keogh, a SEP IRA, a traditional IRA and a Roth IRA from which they wish to provide the funding of a purchase. In such cases, each Plan will receive a proportionate interest in the asset purchased. 3. Property Address: always helpful in locating the specific property one purchases and great for documentation purposes. 4, 5 and 6. County and State assist in identification of the property. Including the Assessor Parcel Number when available. In some jurisdictions, APNs are not used and so any other assessor identification is very helpful. If an APN is not available, a complete legal description is necessary. 7. Legal Description is always essential. When all else fails, the legal description provides a source of identification which can be subsequently used for any purpose. 8, 9 and 10. If an attorney, escrow and title company are involved, they must be identified. 11. Total purchase price: this is how much you are paying the seller. As noted, there are usually additional charges listed in escrow, such as closing costs, and the inevitable miscellaneous adjustments. 12. Deposit Amount is the amount that the trustee has advanced on your behalf. Sometimes this is referred to as the earnest money deposit. 13. Your percentage of ownership for this account is the proportionate amount you own of the property purchase with money coming from this account only. If you have funds from other accounts (your own and/or other account holders) a direction letter needs to be completed for each account involved in the transaction. If you are funding 100% from this account, whether it is a total cash (No leverage) or leveraged transaction (Down Payment) it’s 100%. If you are splitting this between this account and friends Keoghs at a total of 50% and 50%, this is 50%. If you are going to own 50% and this account owns 50% in a simultaneously closing transaction, it’s 50%. Remember, if you are going to personally own a percentage of the asset (in addition to purchase by your account), the close of both transactions must be at the same time. 14. For leveraged transactions, payments will be made accordingly. 15 and 16. The names of lenders (when applicable) and property manager (also when applicable). These are essential names and are required to ensure who to make payments to, and who is collecting rents to be forwarded to this account. Page 17 Section 9 SALE OF REAL ESTATE When you sell Real Estate from your Plan assets, the process is the same as for a non-plan sale, except that the administrator is handling the transaction on your behalf. You always direct the process and approve the various transaction steps along the way. Assets may not be sold without your permission. When you sell Real Estate, a Sell Direction Letter (For Real estate) is used for this purpose. 1. As in a purchase, while it may seem obvious, Name is a very important aspect of the sale. You may have more than one account which owns undivided interests in a property, and you may just wish to sell one portion of the property, and retain the proportionate interest in the others. 2. Property Address: which of your Real estate Assets do you wish to sell. 3, 4 and 5. County and State assist in identification of the property, as does is 6. Include Assessor Parcel Number when available. In some jurisdictions APNs are not used and so any other assessor identification is very helpful. If not available, a complete legal description is necessary. 7. Legal Description is always essential. When all else fails the legal description provides a source of identification which can be subsequently used for any purpose. 8, 9, 10 & 11. These provide basic buyer information. 12. Total Sales Price. If and when this changes, an addendum will be needed. As you proceed with your sales transaction, addenda are customary in escrow, and your review and approval of those documents will be required. 13. The possibility of a Carry-Back note is indicated. This means that if you (through your Plan) are financing part or all of the sales, you are "carrying back" a note. When this is the case, you will also need to complete a BUY Direction Letter for Real Estate Notes. 14. Escrow charges and administrative fees are to be paid by either you or the buyer, or divided between both. These costs can be important in the transaction, and these instructions will be examined against escrow instructions to ensure your intentions are carried out. 15. If there is an escrow, this must be completed along with 16 and 17. The actual work is then completed among your designated representatives, including your administrator, escrow company and title insurance carrier. Page 17 Section 10 REAL ESTATE NOTE PURCHASE You use a Buy Direction Letter for Real Estate Notes when you carry back a note for Real Estate, as well as when purchasing an existing note, or creating a new note. When you complete the Buy Direction Letter for Real Estate Notes, the following page lists items which are significant. Section 10 REAL ESTATE NOTE PURCHASE Significant Items 1 and 2. As in any purchase or sale, "Name" is a very important aspect of the purchase. Often people will have funds from several accounts that they wish to make part owners of the asset being purchased. For example, you may have a Keogh, a SEP IRA, a traditional IRA and a Roth IRA from which you will provide the funding of a purchase. In each case, the Plan will receive a proportionate interest in the asset. Mark the appropriate box for "Buying" an existing note if you are purchasing a note from a third party. This is also for purchasing notes at discount or purchasing a stream of payments from a note. When you create a new note, you will provide all of the documentation, including the note. This may also be done through escrow, title company, or attorney, or a combination. A "Carry-Back Note" involves your financing of a transaction from a sale of your real estate asset in your Plan. 3. Property Address: almost always available for improved properties, it is not always readily available for unimproved properties. If the property address can be obtained for unimproved properties, it is always helpful in identifying the specific property being purchased without this information, assessors often send tax bills without sufficient identification or address, and all such information is helpful to insure prompt payment of taxes. 4. Legal Description is always essential. Legal description provides a source of identification which can be subsequently used for any purpose. 5. The Borrower Name or names must be shown. 6 and 7. The address where mailings and payment coupons (if applicable) or notices are to be sent is the address needed in this space. Telephone numbers are helpful in contacting borrowers in the event of any problems with payments. 8. Social Security Number of the Borrower of the note is required for 1098 mortgage interest reporting. The IRS is strict about reporting such numbers. Fines are levied in certain cases for not reporting information without social security numbers. 9. Percentage of ownership of the note is for this account only. In this case 100% is owned by this account. 10 and 11. If the note is being purchased at discount, the amount should correspond to the amount of the payment for the note and is differentiated from 11, the Face amount. 12. through 20 are necessary for the administrator to know to compare information as well as to ensure proper recording of information. The Position the account owns, along with rate, maturity date, principal balance, payment amount and when payments are due are critical. Often when notes are purchased the terms of the deal may change between the original purchase intent and the final result. The trustee may only fund transactions that you have approved. Your trustee is looking after your interest at all times to ensure what you have directed is what is performed. You must approve any changes in writing. Page 18 21. Loan servicer information must be provided. If you are a broker you may service your own loans for a fee, or if you provide loan- servicing as part of your normal occupation, the same holds true. Some trustees and administrators will collect payments and provide all the record-keeping functions needed (as loan servicers provide). Because many trustees are not legally set up as mortgage brokers, they may not provide true mortgage servicing services as defined by individual state law. However, the record-keeping services provided by a Plan trustee or record-keeper may be very similar. Your selection of servicing options is largely dependent on costs and personal choice. 22. Escrow charges and administrative fees are to be paid by either you or the buyer, or divided between both. These costs can be important in the transaction, and the instructions will be examined against escrow instructions to ensure your instructions are carried out.
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