Hello to everyone reading this post, I will like some feedback on the following subject. I have been reading information concerning land trust and the subject to transaction on this site. I am still trying to understand how investors utilitze the land trust without violating the due on sale claues. These are the ideas that I have gathered from the posts:
- The due on sale clause can be evoked if it involves one party transferring 100% of their beneficiary interest into the land trust
a) If the trust is a Nars Trust, the seller retains a 10% beneficiary interest in the trust. The investor retains a 90% beneficiary interest in the trust. This makes the investor and seller co-beneficiaries in the trust. The investor can then offer 50% of his beneficiary interest to his tenant buyer and retain 40% of his interest in the property. This is known as a triple net lease
b) If the trust is not a Nars Trust (regular Land trust), the investor can obtain deed from seller and the investor and his L.L.C will be the co-beneficiaries. The investor will retain a beneficiary interest of 10%. The L.L.C. will retain the beneficiary interest of 90%. The seller that originally provided the investor with a deed will have retain or possess no beneficiary interest in the trust.
c) The trustee owns the property. The investor and seller (if seller retains beneficiary rights are only entitled to beneficiary rights)
d) It is not necessary to create a trust to execute a subject to transaction with a seller.
Questions: If the seller deeds the property to the investor and a land trust is created, is it necessary that the seller retain beneficiary rights in the land trust? [If the trust is a regular Land Trust]
Question: Am I correct in the assumption that the trustee or trust techincally “owns the property” which implies that the seller and investor are only entitled to “beneficiary rights”?
If I am off in the information I have presented, my apologies. Any feedback to assist me in my understanding will be appreciated.
Hi,
You are correct about the NARS trust and the beneficiary interests are as flexible as you want them to be. A Triple Net Lease is a separate occupancy agreement in which the tenant takes full responsibility for payments including taxes as well as maintenance and repairs.
You posted: “c) The trustee owns the property. The investor and seller (if seller retains beneficiary rights are only entitled to beneficiary rights)”. The Trustee MUST act upon the direction of the beneficiaries.
The third party trustee in a land trust can be virtually any company or individual nominated to act in that capacity. However when possible, the trustee would ideally be an independent trust company (e.g., title and trust company), a bank and trust company or a non-profit corporation acting on behalf of its members. Although the land trust trustee is the full legal and equitable owner of the property, a land trust trustee may act or intercede in the affairs of the property only by direction from the trust’s beneficiary/ies.
An individual agent (e.g., an attorney) may not be a bona fide agent for the beneficiaries and the trustee at the same time, and should not be an agent for multiple beneficiates with different positions and points of view at the same time (e.g., New v. New, 148 Cal. App 2d 372 (1957).
An individual as trustee, though permissible under the law, may create undue risk for the beneficiaries by not knowing the laws or details of land trust administration (filing responsibilities, leeway in responding to inquiries, etc.). A professional corporation as trustee, on the other hand, is well versed in such matters and cannot die and embroil the trust property in affairs of its Probate.
You’ve done an excellent job. You are correct in that the Trustee “owns” the property, but the beneficiaries are considered owners by the IRS.
Da Wiz
Thanks alot mtnwizard for the information. You have been very helpful and detailed in your responses. I think I may finally understand the dynamics of the standard intervivios land trust and the NARS Land Trust. One item that is still unclear is the seller’s role in the land trust structure. Correct me if I am wrong, but if a seller gives the deed to an investor, and the investor plans to place the seller’s deed in a land trust. The seller does not necesarily have to be a beneficiary in the land trust. (in a standard, non-NARS land trust) If the seller elects not to be or have any beneficiary rights in the land trust, it can prove detrimental to the investor and the seller. The seller not retaining any or transferring all of his beneficiary rights to the investor and/his entity may cause a lender to evoke the DOSC.
Gentlemen,
I am an investor in TX and looking for a way to put a deal together. I would’ve tried to use a lease option, but now that’s not possible. I am interested in the possibility of using a land trust and have a few questions about the mechanics of it.
How would a down payment be handled, or defined in a land trust/ NARS Pac trust?
How would payments be structured; is it possible to realize profit on a monthly (i.e. cover my payment on my loan plus a little more)?
I realize these are basic questions and I am looking for a little insight from people who may have been through the process. I have a motivated buyer and would like to close the deal as soon as possible.
Thanks.