My partner and I are in the process of buying 2 fourplexes. We close on March 30. The mortgage company is requiring the loan to be in my partners name. What we would like to know is what is the best way to hold these properties to limit our liabilities? From our research so far it seems like we should place them in land trusts and then have the beneficiary of the trusts be our LLC? Is this correct? If so, is it possible for us to do this ourselves? What would be the procedure for doing this? I will be at the RICH Club meeting this weekend if anyone would prefer to meet in person to answer this. Thank you.
Once the loan closes, your partner can place the property in a land trust, keeping a 10% beneficiary interest himself, and deeding 90% to the LLC. If you are the Managing Partner of your LLC, you can place 100% interest in the LLC.
The LLC will protect your personal assets and the trust will shield you from liens, creditor judgments, even IRS liens. Remember, title is held in your trustee’s name.
Your trust is personal property and if two unrelated people have beneficiary interests, the trust cannot be penetrated.
[i]I do not recommend land trusts for several reasons.
Very few Texas judges, if any, know what a land trust is. I would recommend a Texas LLC or LP, but not a land trust.
I am not convinced that a land trust does not violate a due on sale clause in a note. Many investors from other states ask about land trusts as a way to convey the property to a different entity without violating the due on sale clause in the note. I am not aware of any case in Texas that has upheld this idea.
Due to these 2 facts, I do not draft land trusts. I routinely advise clients that they may convey their non-homestead assets to a LLC or LP, with the risk that the due on sale clause may be exercised by the lender. However, most clients believe the added protection of the LLC or LP outweighs the risk of the loan being called due. If the loan is called due, the property would have to be refinanced very quickly, which is the risk. [/i]
“Why aren’t there more attorneys who know about land trusts?
“Because very few know how to use them and even fewer recognize all the benefits.” - Mark Warda, Attorney, Florida
“If you can’t find the expertise [when seeking a competent attorney re. land trusts], you have no choices but to keep on looking, or take upon yourself the task of trying to educate your advisors and counselors.” - Jay Douglas Swob, Attorney, Cincinatti
“Another problem with using attorneys is that most have a negative attitude. They will probably advise against using a land trust because they [themselves] don’t understand it.” - Bill Bronchick, Attorney, Denver
“In that the ‘land trust’ is less frequently used outside of Illinois where it was first created [1891], it is unlikely that many will be immediately familiar with its benefits or structure.” - Henry W. Kenoe, Attorney, Chicago (Dc’d) (Keno on Land Trusts, IICLE, 1989)
“There is no person on earth who is more apparently knowledgeable about the law than an attorney who doesn’t know what the hell he’s talking about.”
Bill Gatten, Seminar Leader, Northridge, Ca.
This guy you talked about says he is not aware of any cases in Texas that uphold land trusts. That means he has never heard of a case that doesn’t. We write literally hundreds of land trusts in Texas. If there are no cases that simply means that nobody has ever successfully challenged it. I suggest you contact attorney Bryan Dunklin in Dallas who is very knowledgeable about land trusts and their legality. His website is www.maxpages.com/law
Give Drew Miles a try… He is a real estate attorney who specializes in asset protection and business tax savings. My sister recently paid for his services and is very pleased. If you want more information, I can find out more for you.