I own several residential properties and I wish to protect my assets from litigation.
I am having trouble finding a way to transfer title into a limitied liability entity without triggering the lenders due-on-sale clause.
I have looked into Land Trusts but they do not appear to be formally recognized by the Texas courts and 99% of lawyers here won’t touch them.
How does one go about protecting their real estate assets in Texas?
Surely I am not the only Landlord who has come across this problem.
After reading more of John Hyre’s excellent posts it seems to me now that ditching the land trusts is the way to go. That said I have two options for getting title to my rentals under LLC(s).
Just do it and the lender DOS clause be damned.
Ask the lender for permission (pretty please) to transfer title to an LLC I control.
As a side note, my LLC(s) will be property management companies. In Texas my understanding is you need a brokers license to manage property for consideration. My spouse is eligible and will take the test soon.
If a tenant sues wouldn’t the property management company be liable even if I still held title to the property?
I don’t think you have heard all of what John has said. Land trusts are good to fly low under the radar but do not give the liability protection. Once title is in the the land trust the beneficial interest can be assigned to any entity you want privately.
As long as you are reading go to http://maxpages.com/law
They are allowed and 99% of attorneys are not who I want to hire to defend me.
LLC in Texas have franchise tax issues. Consider a Family limited partnership. Do not put all your eggs in one basket. A suit against that owner can force sale of all those assets. It can only get charging orders against other LLCs or partnerships.
Most definately have business liability insurance in the $1mill+ range.
Consider that nevada corp to encumber assets.
Yes I have already read Brian’s paper thank you. I also understand Land Trusts do not provide liability protection. I am just trying to circumvent the DOS clause to get title into a limitied liability entity.
I have spoken to two other lawyers who were against Land Trusts mainly because there are no precedents in Texas so what happens if you do get sued and this goes to court. No body knows…
What I am really asking is how all the other investors in Texas protect their assets. Do they use Land Trusts or just damn the DOS clause? ???
One last thing regarding LLC and LLP. My understanding is that franchise tax doesn’t kick in until gross receipts are over $150K. Also if you set up a LLP you still need a general partner to take the fall, this is usually another limited liability entity such as a… LLC. Back to square one.
You are correct in re franchise taxes. LLC’s for small buy-and-hold operations work fine in TX, though you WILL blow the $150k exemption if & when you sell.
The attorneys are probably looking at the precedent issue in too narrow of a fashion. They should be looking at revocable trusts that own land, particuularly at “dry trust” issues. Same thing as a “land trust”, really, just a different way of describing them.
In any event, I am not a fan of using the land trust to hide the DoS breach - concealing anything from a bank is a bad idea based on state “Deceptive Business Practice” statutes and the potential for federal fraud issues. My opinion is disclose, disclose, disclose - most banks won’t care.
As Bud intimates, there ARE reasons to use land trusts, such as avoiding transfer taxes and anti-assignment clauses. There is some privacy provided in quick-flip situations, but little in buy & hold cases, at least for most small investors. Zero asset protection, in my opinion, contrary to the claims of many.
John Hyre
I’d like to add a question to asset protection in TX. I have several short sales in the works and have picked up the deed, but not recorded it. I placed the property in a land trust. I did that to keep my name or my company name out from the chain of title and to avoid seasoning issues. Then I do a double closing. Am I exposing myself to litigation? Is there a better way to “wholesale” the property or FSBO it and keep my name off the chain of title to avoid seasoning issues and future litigation from something like lead paint?