Land Trust 101

I need some help. I’ve found a small property to rehab. I don’t have the money to purchase the property and do the rehab. Someone told me to set up a land trust, have the owner quit claim the property into the trust. My LLC would be the trustee. I would give the current owner $5000 down, the balance of the purchase price upon sale to a third party. Does this make sense? It seems that I would need the following:

LLC (I have already formed it)
Land Trust (with LLC as Trustee)
Quit Claim Deed
Document that spells out terms of the deal (purchase price, % down, who trustee is, what improvements the trust will make to the property, what seller gets upon sale to third party, under what conditions the trust is revoccable etc.)

I just don’t know. I’m also having trouble finding a lawyer to even speack with about a land trust. I’m in Atlanta

Please help. Any advice would be appreciated.

I would not put any money into rehabbing a property I do not own. If your seller transfers property to a trust that he creates, even though your LLC is the trustee, the seller is still the beneficial owner. Your LLC could spend a lot of money in improvements only to have the seller decide later to keep the property for himself.

Your strategy sounds like is has some serious flaws.

In addition to Dave’s sound advice, a “quit claim” does NOT transfer anything…it just ‘quits’ any ‘claim’ that an owner may or may NOT have…I can go to the courthouse and execute a legal quit claim to the Brooklyn Bridge. It won’t mean anything but it would be valid…

Keith

OK then, how should this be done? I thought if I were the trustee of the property, the current owner couldn’t sell it without my consent.

he who puts property into revocable trust can just as easily take it out.

you’re making it more complicated than it is.

you need an airtight contract between you and the seller whereby you agree to purchase the property for x amount, plus one half of [future selling price minus x] or whatever. it should also specify who will pay for what, and when, and what will happen if a future buyer doesn’t come along (exit strategy) along with liquidated damages. get an atty.

Seller sells you the property and takes a promissory note from you for x. You do the rehab on the property you own, sell it and pay off Seller with interest. then you split the remainder according to the contract. no cash needs to change hands until the final sale.

You are happy because Seller can’t screw you - you own the property. Seller is happy because he holds promissory note & mortgage on real property, plus a contract for some future cash. everybody’s protected. even the bloodsucking atty gets a cut.

Current owner has a mortgage on the property for $68,500. He agreed to sell it to me for $80,000 (we think we can sell it fixed up for about $105,000). How can he sell it to me without paying off the first mortgage or triggering DOS clause? He doesn’t want the property nor does he have the money to fix it up. I am trying to avoid going out and getting a loan for the purchase.

he can’t.

but as long as 1) the payments are being made and 2) the deed isn’t recorded, how will they know?

let me throw something in here:

land trust blah blah blah…is exempt from DOSC.

HOWEVER.

if something goes wrong (mortgage doesn’t get paid) and the bank goes to foreclose…you’re going to tell me that a land trust will protect seller from losing his home?

i don’t think so.

this is how i see it.

any THIRD PARTY TRUSTEE MUST demand that they receive X in escrow to cover the mortgage payments or something.

what THIRD PARTY TRUSTEE would be involved in a deal where NO MONEY is exchanging hands until after X Y Z blah blah blah.

it ain’t gonna happen unless there’s some kind of cash on the table.

dude, do yourself a favor, look into wholesaling.

FORGET ABOUT LAND TRUSTS.

you’re going to rack your brain with this sh*t and become more frustrated with it.

get into real estate investing, learn it DO IT for like 5 years…then check out land trusts (because they are a viable option) but DEFINITELY NOT for the new investor.

that’s just my two SENSE.

I didn’t think my scenario is as whacky as you guys make it sound. I am trying to avoid having to pay for hard money. Don’t have the money to pay big $$$$ for a loan AND fund repairs. The current owner doesn’t have the money to fix it up to sell it, but has agreed to the following:

I pay him $5000 to transfer the property into a trust that I create and I am trustee of (the $5000 is part of the purchase price - I will owe him $7000 more when the property sells). I make the repairs to the property and pay the mortgage (which is low) until the property sells. When it sells, I give him $7000 out of sales proceeds.

I will write the contract so that the current owner can only revoke the trust if I breach my fiduciary duty (i.e. not paying mortgage). He can’t sell it without my consent because I am the trustee. If I breach, he revokes the trust and walks away with my $5000 and his condo which is in much better shape than when we started. He’s happy. Yes, I lose money if I breach or if it sits on the market for too long. It seems fairly simple and I think I understand the pitfalls if I fail to do what I promised.

Can my LLC be the THIRD PARTY TRUSTEE?

BTW, I’m not a dude. I’m a 40ish woman who’s got 20 years experience as a paralegal, who has a husband who can fix, build or remodel anything and who has a burning desire not to spend the rest of her life in an office park working for someone else.

Advice please.

forget the trust. too complicated. straight up purchase contract with delayed double closing and settlement.

That sounds great. I write the contract so that it gives me the right to renovate. What are the current owner’s rights during the period before the property sells?

Many Thanks

that’s an atty question.

Again, thanks. I’ll be meeting with him next week.