There is a guy out there, Bill Gatten, whos “thing” is getting the buyer to get the seller to create a Land Trust in the seller’s name. The deed to the house gets transferred into the LT. The Buyer is named as a co-beneficiary of the LT with a 90% interest in it. The seller retains a 10% interest in the trust. The Power of Direction of the trust remains with the seller, with the agreement to forfiet this interest to the buyer at the termination of the LT. (It is set up for a specific time period). The Buyer makes payments to the seller for the duration of the LT.
This has the benefit of providing the seller the security of retaining the title; it does not trigger the DOSC, because the property isn’t sold until the end of the LT; the property taxes don’t get recomputed until the end for the same reason. The Buyer is given 100% of the use and all tax benefits and write-offs during the LT. And since the title is in the LT it is protected from liens, judgements, etc. levied against either the seller or the buyer.
It is actually more complicated than this…but it sounds pretty cool.
Anyone ever tried this?
Anyone ever tried this with a piece of commercial property?
I have all of my apartment buildings in land trusts. The beneficial interest of the trust is then owned by my LLC. You need to check to see what the law is in your state about the specific structure. In some states, an LLC can be the trustee. In some states like Ohio, the trustee must be a real live person. If a person, the trustee should be someone you trust. This person should not have the same last name as you.
Land trusts provide absolutely no liability protection. Land trusts do provide privacy, because the owner’s name is never on the deed and there is an additional level of difficulty trying to determine the owner of the property (going through the trustee). Land trusts are an excellent part of a multi-layered asset protection program because of the privacy. Having a LLC as the beneficial interest of the trust is the liablilty protection. Finally, insurance makes up the final layer of defense.
I would absolutely not set up a trust where the seller retains a legal interest in your property. What happens when the seller won’t sign over the remaining 10% to you? These things happen in the real world and they happen more often that you might think. Also, it is very dangerous for the beneficial interest as individuals. I’m not a lawyer, but if 2 individuals are holding the beneficial interest, I think that you could be judged to be general partners. If the 10% seller was involved in a car accident, you could be sued because you are the general partner.
If you’re going to buy a property, buy it all. You don’t want someone with a little 10% interest holding you hostage.
Yes, I have my risky apartmentl buildings in land trusts with the LLC as the beneficial interest. Pat Tarr has an excellent course on this entire asset protection subject. I think that it’s now about $800, which is probably cheaper than having an attorney do it even once. Her course is called Armour and Cammoflage - you could google it.
As I explained in an earlier thread, using this entity structure saved me from a lawsuit this past summer.
One of the main reasons that I bought her course is that it includes all the trust documents, forms, etc. EXACTLY how to do it yourself.
The land trust does not protect the property from ad-valorem tax liens. Thats just an FYI. Also to bank can activate the DOSC with a land trust. It is considered a transfer of title. Although, many time the banks won’t activate the clause as long as the mortgage is being paid on. Here is a definition for you.
Transfer Of Ownership
Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership.
I have been getting education lately on land trusts. I have found some investors friends using actual land trusts for the reasons you specified earlier. I also have other investor friends using Land Contracts, which appears to be very similar. The land contracts seem to be much easier to create. Does one of these serve or protect better that the other? Are they both the same?
Land Contract, also called Contract for Deed, is a method of selling a property with owner financing and offers no protection. A Land Trust is a legal entity that owns a property through a trustee. A land trust is often used for privacy purposes, because it keeps the true owner’s name off the public records. They are completely different. Apples and oranges.
But only if a transfer of beneficiary takes place, I believe. It was my understanding the Garn-St. Germain Act of 1982 prevented lenders from triggering the DOSC as long as borrower was the beneficiary of the trust:
i A lender may not exercise its option pursuant to a due-on-sale clause upon–,
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property[/i]
Samantics, we both know the seller never keeps the right to occupy. Let that seller try to reoccupy with his rights. That investor would never have it. Not to mention soon checks will be paid on the mortgage from a different name than the one on the note, and most likley from a company. Do, you honestly think that it would be hard to prove what really happaned. All, I am saying is that the investor with no credit can get burnt fast.
All I was saying is that you can use a land trust without triggering the DOSC as long as the beneficiary is the same as the borrower. Nothing more - nothing less. A lot of gurus say you can then simply fill out a Transfer of Beneficiary form to change the beneficiary to your company, etc., since this does not have to be recorded. However, like you said, this IS transferring ownership which DOES trigger the DOSC, however, it won’t be triggered because of this form, but because of insurance changes or something else.
You are right. In theory, the lender could exercise the DOSC. However, in reality the lender will not normally exercise the DOSC if the loan is being paid on time. It does not benefit the lender to foreclose on a property that has a loan in good standing.
I have done several deals where I have taken over the buildings sub 2 and put them into land trusts. I do not play the silly guru game of buying the beneficial interest - I simply transfer the deed to the new land trust and my LLC is the beneficial interest. Then, I send the lender a letter saying that the property has been put in a trust and ask them to change the name and mailing address on the account. This usually requires a letter from the previous owner authorizing me to represent the account. I also put new insurance on the property and send a copy to the lender. I have not had a single lender call the loan due or threaten to foreclose on me. You’ve got to remember, the person receiving these letters are simply employees. They could care less. Their job is to process paperwork, not track down owners and cost their company money with unnecessary foreclosures.