A land trust is exempt ONLY if the Seller retains a beneficiary (ownership) interest in the Trust. He should always use a non-profit corp as Trustee. THE SELLER IS NEVER LISTED AS A TRUSTEE.
The investor is also a beneficiary (owner) of the trust and the seller cannot revoke the trust without approval of his partner, the Investor. TRUE.
The property is then transferred to the investor by the “seller” conveying their remaining interest in the trust after they have been compensated for the agreed upon amount. THAT IS CORRECT.
Your question is, "if the lenders view ANY change in ownership as a violation, and its left to their discretion, can the addition of a trustee (the investor) be viewed as such? NO. THE INVESTOR IS ADDED AS A BENEFICIARY, NOT A TRUSTEE – AND THE LENDER HAS NOTHING TO DO WITH THIS BECAUSE IT IS NOT A CHANGE OF OWNERSHIP OF THE REAL ESTATE. IT IS A TRANSFER OF A PORTION OF OWNERSHIP OF THE TRUST (PERSONAL PROPERTY). TITLE IS NOT AFFECTED.
You asked: “isn’t the addition of another party with an equitable interest in the property a violation IF THE BANK WANTS IT TO BE? Or is that also protected by law?” THE ONLY EQUITABLE INTEREST IN THE REAL PROPERTY IS HELD BY YOUR TRUSTEE SO THERE IS NO VIOLATION AND THE BANK CAN DO NOTHING. THERE IS NO SUCH THING AS EQUITABLE INTEREST WITH THE LAND TRUST – IT IS PERSONAL PROPERTY.
Tony likes to slam land trusts because he uses Locke’s way of “subject to” which is to tell his students to just ignore the DOSC, hide the insurance and pray. Very reckless and irresponsible.
The Land Trust is legal because banks chose to exempt it. Why? Because its wealthy depositors have used land trusts for over 100 years. They are not only legal, but smart and you bet I use them to acquire and manage properties.
I don’t understand how why its stated though that its concealed from the lender. Although the trust is not recorded, it is seen. I currently work for HSBC and see trusts ALL DAY LONG from all over the country when people attempt to refi. It’s common practice with us that when title is vested in a trust we obtain a copy for verification purposes. Because we do not want to take the risk of securing a loan that has certain issues we cover all bases. Granted that some of the “premier” clients somehow get their trusts to “slip through the cracks” unseen, but the majority of average refi’s seen on my end with land trusts are verified.
Whether the “Higher Powers” choose to invoke the DOSC is another story.
With a land trust, we conceal NOTHING from the lender. We don’t have to. I notify the lender when I change the insurance from homeowner to landlord. As to refis, as you know, most lenders require an individual to dismiss the trust, then refi, then reinstate the trust. I have done this many times. The “higher powers” are prohibited from invoking the DOSC.
What Tony refers to is his mentor, John Cash Locke’s method of doing a “subject to” whereby he assumes the payments and the seller transfers title to him. That is the DOSC violation. He doesn’t report the transfer of title to the lender and hopes they don’t find out.
The case he is asking me about involved an investor in Michigan who took a property subject to, then sold it on a land contract to his tenant. The lender found out about the title transfer and called the loan due. He didn’t have enough money to pay it off in 90 days as the comps didn’t cooperate and his attempts to refi fell short. His tenant was kicked out and is suing him. The bank has foreclosed.
Wiz, I just did my first sub2 and have a technical question related to it. I need to correct it now if I screwed it up. I set up the trust in the family name of the sellers and then transferred the beneficial interest to my company (an LLC) and listed myself, a CPA, as the trustee. Anything wrong with that structure? I am in Texas if that makes a difference.
WRONG! The “true” ownership is NOT concealed. The Trustee is the TRUE owner. How difficult is that concept for you to understand? The ONLY concealment is yours when you take over payments subject to and don’t inform the lender who has a right to know since his loan is based upon the property being owned by a certain person(s).
In your transaction, ownership changes. In the land trust, the seller retains ownership. No secrecy – no violations.
Congrats on seeing and utilizing the benefits of a land trust. You did a great job. As to your question, I ALWAYS recommend using a professional non-profit corp as Trustee. Here are potential problems with naming yourself as trustee:
An individual trustee’s failure to charge a fee would not support the land trust’s validity in court. The attempt to charge a fee would not be seen as adequate unless the party were a bonded entity.
If a trustee is also a beneficiary, a merger of title is created (see Doctrine of Merger), invalidating the trust if challenged in court as being a bona fide land trust.
An individual would most likely never be bondable as a trustee and would likely not have the resources to provide a completely separate, free and bonded collection and bill-paying service.
An individual would not be seen by the courts as a standard trustee, charging fees “commensurate with industry standards”: therefore severely impairing the integrity and structure of the land trust.
One’s own personal appointment would not be seen by a 2nd or 3rd co-beneficiary as a mutually trustworthy holding entity. Such likely bias obviously would not be in the best interests of any of the co-beneficiaries.
Land trusts are armor plated asset protection. The ONLY way the trust can be broken is if it is not carefully constructed. I would recommend that you switch to a non-profit corp as Trustee. Best of luck to you.
That’s the beauty of it. I do make a living, but I am not on any loans or title. I simply provide sound asset management principles for a seller to improve his financial situation, and I assist people acquire the benefits of homeownership without bank or credit qualifying or a down payment who may not have otherwise been able to do so. I do it all legally, ethically and morally and both seller and tenant are always happy. I should feel bad about that?
This is getting completely stupid at this point. Bottomline boys and girls, is that the Doc is NEVER going to admit that his system is anything less than perfect and he is NEVER going to convince the people that don’t believe that that it is.
Doc says that he tells the lender EVERYTHING. I wonder, does he tell the lender that the property that is being put into a land trust was actively being marketed to sell before the land trust was created? Does he tell them that the owner is putting the property into a land trust for “asset protection” or does he tell them that they’re putting it into a landtrust so that the Doc can gain 90% of the ownership rights?
So Doc, just to clarify, this is the rub. WHEN the property is put into a land trust. If you were to purchase the property, setup the landtrust yourself, and then do your thing, I wouldn’t have a problem with it. However, you coach the seller to setup the landtrust, THEN you enter into the picture. Now, you can call it anything you like that makes you sleep better at night, but the reason that you do it this is way is to conceal the sale (or transfer or whatever else that you want to call it, I’m done arguing semantics with you) from the lender. THAT’s why the there is no DOS violation. The lender is NEVER informed that there is anybody BUT the original homeowner as a beneficiary. Kinda like you harping on the Sub2 people about never informing the lenders of this or that, don’t you think?
“So Doc, just to clarify, this is the rub. WHEN the property is put into a land trust. If you were to purchase the property, setup the landtrust yourself, and then do your thing, I wouldn’t have a problem with it.” WHY WOULD I DO THAT IF I WANT TO ACQUIRE THE PROPERTY SUBJECT TO?
“However, you coach the seller to setup the landtrust, THEN you enter into the picture.” WRONG. I ADVISE THE SELLER OF HIS ASSET PROTECTION ALTERNATIVES AND THEN I PAY FOR HIS TRUST. … but the reason that you do it this is way is to conceal the sale (or transfer or whatever else that you want to call it. WRONG. I DO IT THIS WAY BECAUSE IT IS THE BEST POSSIBLE SCENARIO FOR THE SELLER AND IT ALLOWS ME TO TAKE THE PROPERTY SUBJECT TO.
“… but the reason that you do it this is way is to conceal the sale (or transfer or whatever else that you want to call it, I’m done arguing semantics with you) from the lender.” READ MY LIPS: THERE IS NO SALE. THERE IS A LEASE. THERE IS NO SALE UNTIL AND UNLESS MY TENANT DECIDES TO PURCHASE. NOTHING IS CONCEALED FROM THE LENDER
THAT’s why the there is no DOSC violation, BECAUSE THERE IS NO SALE AND BECAUSE THE LAND TRUST IS EXEMPT.
“The lender is NEVER informed that there is anybody BUT the original homeowner as a beneficiary.” WRONG. I NOTIFY THE LENDER AND CHANGE HOMEOWNERS INSURANCE TO LANDLORD INSURANCE. THEY ARE FULLY INFORMED THAT THE PROPERTY IS BEING LEASED TO A TENANT/BENEFICIARY AS IS ALLOWED IN LAND TRUSTS.
“Kinda like you harping on the Sub2 people about never informing the lenders of this or that, don’t you think?” NOT EVEN CLOSE. I ADVISE PEOPLE TO NOTIFY THE LENDER, Sub2 people advise to ignore the DOSC and TELL THE LENDER NOTHING.
And there you go again. You simply can’t hold a civil conversation can you Doc. Always have to have the smart mouth little witties, huh?
Not that you care, we may not have agreed on this before this topic, but at least before this thread, I still had some respect for you.
Not only can you not speak civil about your own system, now you revert to bad-mouthing other people’s systems that you know as little about as you claim that I do yours. As you’re fond of telling me, stick with what you know.
Willy,
From what I understand, the Lender is not notified of the change in ownership. Thus leading to the “concealment” of transfer= violation of DOSC.
Da Wiz & Raj,
Due to the LARGE differences in opinions on this subject, it seems as though everyone has their different idea’s on how to handle “Subject-2’s”.
With that it mind, it might be a bit better to suggest some materials that everyone can educate themselves on and make their own determination of how to handle the situation. Still being “green” myself I admit that I got lost NUMEROUS times (mostly within the legal “Jibberish”) in the posts.
Being that the two of you seem to have an extensive knowledge of the topic, what woud you suggest to some of the newbie’s on the board about learning how to do it FROM YOUR POINT OF VIEW. What books,websites, etc… should we check out? What are the best resources for REALLY learning about Land trusts (Gary, that third-party non-for-profit part really threw me off), or REALLY learning about how to structure a “Sub-2” (Roger, I noticed your not a fan of “coaching” the seller. I would be interested to learn your tactics being that I don’t want to confuse or swindle people)?
To be honest I think it’s only fair to both the newbie’s and the seasoned investors to provide options for them to educate THEMSELVES as opposed to providing a public debate which seems to be at a stalemate…Excuse me if I sound bored with the post, but following all of the experienced investors quotes on the forum (including the both of you) “don’t follow the ‘Guru’s’, learn for youself.” Or to be simple about it, “PROVE IT”.
DISCLAIMER: This messages was provided by “THoward”. “THoward” is in no way an expert or experienced investor. “Thoward” would also like to apologize ahead of time for all of the following (but not limited to) that may occur from reading this post: Headaches, Hurt Feelings, Stubbed Toes, Loss of Hair,Hell Freezing over, DOSC Violations, Rise in Interest Rates, etc. Good Night and God Bless….
I’m not so sure you could say you are concealing. When you record a deed you are announcing to the world , via public record, that a sale has taken place. This is the means recognized by law.
There’s no requirement to track down a lender and request they review their contract to see if a sale might conflict with a clause in one of their notes.
It is this very act of recording that worries some investors that the bank will call the loan. Because you are in effect notifying the lender… if they care to look.
(I guess I’m just objecting to the term “Concealment” since this implies something illegal)
Question for WIZ
There is a property I’m looking at that may have a cloud on it’s Title. It was part of an affordable housing program and these usually carry re-sale restrictions. i spoke with the seller and he said the restriction expired 2 years ago. The Title company is looking into it.
However, this leads me to ask… Could this property still be transfered into a Trust even if there were a cloud such as this one on the Title?
Enjoyed your response. The reference was to the selection of a Trustee. Land trusts are great asset protection as long as you don’t get cute and try to tweak the system. The importance of the selection of your trustee is critical. While almost anyone can be named the “trustee” of a land trust, there are definite benefits to use a Corporate Trustee as the trustee of your land trust. Appointing a trustee other than a corporation would allow the property to fall into the trustee’s probate and other legal problems. In virtually all states, any corporation used as a holding company must be either: 1) one’s own corporation, 2) a chartered depository trust institution (e.g., Bank and Trust, Title and Trust, etc.) or, 3) a non-profit, charitable corporation established solely for the purpose of holding titles to real estate in trust for the benefit of its members.
There are very good reasons why you should not use your own corporation as Trustee. A privately or closely held corporation would not charge legitimate fees and therefore would not likely be seen by the courts as a bona fide holding company, whose business it is to hold titles in trusts and charge fees commensurate with industry standards. One’s own corporation would not be seen by a co-beneficiary as a mutually trustworthy, and wholly unbiased third-party holding (“escrow”) entity. Such a bias would not be in the best interests of co-beneficiaries. As well, using one’s own business entity would create a merger of title invalidating the land trust model.
Da Wiz
Willy, you just asked me a question I have never been asked. I will check with Bill Gatten and get back to you on that one.
Wiz,
One more quick question, what (if any) is the difference between a “PACtrust” and a “NARStrust”? I noticed The Bill gatten link on the site speaks of a PAC trust. Is this basically the same system YOUR referring to in your posts? I’ve haven’t quite read through the entire book, but it seems failry similar (if i’m understanding it right). ???
