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🚩 Subject-to under siege by AZ AG

Real estate investors, title agencies, and law firms are swept up in the action

Joseph Seagle
March 14, 2025

Trust This. 

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By Joseph E. Seagle, Esq.

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👋 Happy Friday! Today is National Potato 🥔 Chip Day. Dip ‘em if you got ‘em.

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❗️Situation Awareness: It’s Spring Break time in Florida, and many of our crew members are taking advantage of the good weather and school closures through the first week of April. Please allow for extra processing time on your orders and requests during this period of reduced bandwidth in our offices.

1 big thing: Arizona AG goes after “subject-to” real estate investors, title companies, and law firms

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The State of Arizona rocked the real estate investment world this week, filing a lawsuit against a group of investors, title companies, and law firms alleging their involvement in fraudulent “subject-to” transactions. The case exposes how improper or just sloppy use of subject-to purchases and trust structures can lead to serious and expensive legal consequences.

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For Florida investors who routinely purchase distressed properties subject-to the existing mortgage using land trusts, this lawsuit serves as a critical warning. Done correctly, subject-to transactions using land trusts can be a powerful investment tool. Done improperly, they can land you in court, facing allegations of fraud, racketeering, and consumer protection violations.

🧐 What Happened in the Arizona Case?

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In State of Arizona v. Cameron Jones et al, the Arizona Attorney General accused a network of investors of engaging in a scheme to strip equity from distressed homeowners through misleading subject-to transactions.

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Key allegations included:

• Failure to Disclose Material Terms – Homeowners were misled into believing they were completely off the mortgage when, in reality, their names remained on the loan.

• Fraudulent Use of Subject-To Agreements – The investors failed to properly notify lenders, leading to due-on-sale clause violations and eventual foreclosures.

• Use of Nominee Trustees & Alter Ego Entities – Investors used multiple trusts and LLCs to conceal true ownership, making it difficult for homeowners to challenge the transactions.

• Unlawful Evictions & Litigation Against Homeowners – Some homeowners who realized the scam were sued to force sales, while others were evicted after unknowingly renting back their own homes.

• Title Companies Ignored Red Flags – Title companies closed questionable transactions despite internal concerns that FHA and VA-backed mortgages prohibited such transfers.

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Florida investors should pay close attention because this case highlights practices that could trigger similar legal action in the Sunshine State.

Lessons for Florida Investors Using Land Trusts in Subject-To Deals

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Florida law offers robust tools for legally structuring subject-to transactions using land trusts, but investors must operate ethically and legally to avoid being the next lawsuit target. Here are the key takeaways:

👍🏻 The Right Way to Structure Subject-To Transactions in Florida

1. Use a Properly Drafted Land Trust Agreement – Ensure the trust agreement explicitly states that the borrower remains the beneficiary until the investor fulfills all agreed-upon obligations (i.e., keeping the mortgage current, paying taxes, insurance, etc.).

2. Full Disclosure to Homeowners – Never mislead the seller into thinking they are off the hook for the mortgage. Instead, provide a clear written explanation that their name remains on the loan and that a mortgage default will harm their credit while the outstanding mortgage can also prevent them from getting another loan (think too-high debt-to-income ratio).

3. Notify the Lender – While some investors try to avoid triggering the due-on-sale clause, failing to disclose a transfer when required could constitute fraudulent concealment. The best practice is to notify the lender that the title has been transferred at the time a change of mailing address is submitted to the servicer. It has been our experience that more and more lenders are flagging the transactions anyway when they receive insurance or tax bills where the name doesn’t match their borrower’s name. So it’s better to “draw the sting” early on before spending a lot of money on property renovations. Also, providing the notice may provide the defense of waiver if the lender, months or years later accelerates and forecloses the loan under the due on sale clause.

4. Ensure Seller Retains Legal Protections – A best practice is to include conditional assignments of the beneficial interest so that if the investor defaults on payments, ownership reverts to the seller without costly litigation. At that point, the trustee would transfer title back to the seller so the seller can re-sell the property.

5. Work with Ethical Title Companies – Only use title and escrow agents who understand land trust transactions and are committed to compliance.

6. Be Transparent About Exit Strategies – Investors must clearly explain their long-term intent (i.e., whether they plan to hold, sell, or lease the property). This ensures sellers are not misled into thinking they have rights they do not. Also, sellers should be clearly informed that, should they get the property back, it may have tenants or additional mortgages or other liens on the title, leaving no equity.

7. Avoid Unlawful Leasebacks – If the seller remains in the home, the agreement must be a legitimate lease with clear terms rather than a disguised eviction trap.

8. No Government-Backed Loans — Do not purchase properties subject to FHA, USDA, or VA mortgages. Downpayment assistance mortgages should be paid off at closing the purchase of the property as those too are often backed by federal funds.

🚩 Practices to Avoid That Could Lead to Legal Trouble in Florida

• Hiding Behind Trusts to Evade Liability – If you use a trust solely to conceal ownership or mislead parties, it can be deemed an alter ego entity in court, piercing any asset protection.

• Violating the Due-On-Sale Clause Without Legal Strategy – Some subject-to deals are flagged by lenders, leading to foreclosures and lawsuits. Investors must have a plan in place to mitigate this risk (think: hard money or private lenders to refinance and pay off the outstanding mortgage).

• Using Fraudulent Affidavits to Cloud Title – The Arizona case included investors who recorded fraudulent title affidavits to manipulate ownership rights. We’ve talked about this before. Florida law provides harsh penalties for fraudulent recordings. Memoranda or affidavits of agreement that aren’t signed by the property owner traditionally aren’t enforceable, and lawsuits based on them could get the law firm in hot water like it did in Arizona.

• Improperly Assigning Beneficial Interests – If you sell or assign a beneficial interest in a land trust without clear documentation, courts may find the deal fraudulent.

• Predatory Tactics Against Distressed Homeowners – If a deal’s structure is intended to confuse, deceive, or take advantage of a seller, it will likely be deemed fraudulent.

Final Thoughts: Do Subject-To Deals the Right Way in Florida

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🎯 Subject-to investing via land trusts is legal and effective — when done properly. The Arizona lawsuit should serve as a wake-up call to investors who cut corners. While the real estate investors, title companies, and law firms named in the Arizona Attorney General’s lawsuit may have sufficient defenses, and a jury may find that everything they did was legal, they are David fighting a Goliath with unlimited resources. A defendants’ victory in the lawsuit could be Pyrrhic.

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⚠️ Be careful in doing subject-to closings outside Florida. While it appears that subject-to transactions are almost as prevalent in Arizona as they are in Florida and other states, Arizona and most other states don’t have Florida’s land trust statute that enables independent third-party trustees who can help protect distressed sellers from equity stripping by returning the property to the seller if the buyer fails to pay the mortgage. If the investor’s own LLC or corporation is acting as the trustee — like happened in Arizona — claims of equity stripping would be easier to prove since there’s no guarantee that the trustee would give the property back to the seller.

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🕵️‍♂️ Attorneys General across the country share information and resources. While Florida’s AG may never bring such an action except for the most egregious cases of equity stripping, Legal Aid and other consumer protection legal associations pay attention to cases like the one in Arizona. If it proves to be lucrative, punitive, and productive by bringing about a safer real estate market for distressed sellers, don’t be surprised to see similar cases popping up around the country.

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☀️ By fully disclosing risks, properly structuring contracts, and ensuring ethical dealings, Florida investors may avoid regulatory scrutiny while still leveraging the power of subject-to transactions.

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In this week’s impromptu video, I discuss “tree law” from my own backyard.

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Tune in exclusively on Facebook for this one.

2. Catch up fast

1. Falling Citizens Insurance rates can’t stop premiums from rising. Sun Sentinel

2. Housing downturn alarm raised for U.S. cities. Newsweek

3. Colorado is menaced by MV Realty, too. Moneywise

4. US will start requiring Canadians visiting for over 30 days to register fingerprints and photo with Department of Homeland Security. Bloomberg (gift link)

5. Canadian travel to U.S. plummets. Bloomberg (gift link)

6. These are the top housing markets most vulnerable to decline. MPAMag

7. Senate approves Pulte to head Fannie and Freddie. Says he won’t be focused on privatizing either of them. Reuters

8. Homebuyers are fed up with high mortgage rates. MarketWatch

9. How a 26-year-old agent closed over $100 million last year. HousingWire

10. CoreLogic finds that 1.1 million homeowners had negative equity in 2024. CalculatedRisk Blog

3. Closing Thought:

Azaleas are in full bloom in Orlando this week.

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Entrepreneurs possess something that many of those who work for others don’t have: a “soul purpose.”

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📌 Why it matters: For real estate professionals and entrepreneurs, a mission isn’t just a marketing tagline—it’s the soul of your business. When your mission aligns with your deeper purpose, you build a brand that attracts the right clients, partners, and opportunities.

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🛠 The big picture: A well-defined mission:

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✔️ Provides clarity in decision-making.

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✔️ Aligns your crew around a common goal.

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✔️ Differentiates you in a crowded marketplace.

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💡 Reality check: Many business owners focus on short-term profits without anchoring their work in a deeper purpose. This leads to burnout, inconsistent branding, and a lack of long-term impact.

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🔑 Key takeaway: Your mission should answer:

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🔹 Why does your business exist beyond making money?

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🔹 Who do you serve, and how do you change their lives?

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🔹 What impact do you want to leave in your industry or community?

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📈 Real-world application: Top real estate leaders operate with mission-driven clarity:

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🏡 A developer revitalizing distressed neighborhoods sees beyond profit margins to community transformation.

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📈 A private lender prioritizing ethical lending helps investors grow sustainably.

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🤝 An entrepreneur creating generational wealth for clients builds a legacy, not just a business.

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🔎 The bottom line:

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Your mission is the soul of your business. Define it, live it, and watch it become your competitive edge.

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💭 Ask yourself:

• What drives me beyond financial success?

• How does my work create real impact?

• Is my mission clear to my clients and team?

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🚀 Align your business with your soul’s purpose, and success will follow.

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We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.

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Be on the lookout for our next issue! 👋

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