Melissa,
I should have been more clear…Who’s name or person would I put the trust in because in NY it stipulates that the person must have an active role in managing the property,collecting rents etc…I know that the LLC is the primary beneficiary of the trust though…
There are much more qualified people here to speak on this, but does it state ‘person’ in the NY guidelines or does it say ‘entity’…I believe either one is good. Now, this is my understanding. YOU would be the Beneficiary. OR, if you prefer…another corporation or partnership. So, you could let the Beneficiary be your LimitedPartnership and the Trustee your LLC. Or have two LLCs one for the Beneficiary and one for the Trustee.
The Trustee is the one who ACTS for the Beneficiary who is generally ‘silent’ and doesn’t appear on any public records short of a judicial act. but the Trustee acts on behalf of the Beneficiary, so when the Beneficiary wants a bill paid on time, the Trustee does so.
I hope this is clear, if not I am sure the more qualified people here will clarify. Please let us know what you finally do.
Melissa,
You were right the first time, I think…The guideline says that the trustee must have active duties such as collecting rents and profits and exercising discretion…So like you said my LLC is the trustee so that answers that problem…Now I just have to find someone that to be the name on the trust…The book I’m reading clearly says that the person who’s name is on the trust can sell the property contrary to what I’ve read here…So I’m going to ask my lawyer if she would do it…Scary thought that I have to trust a lawyer but I’m sure we will have pages of contracts to insure no problems…Any thoughts on that??
Thank you for all advice,it’s truly appreciated…
Usually my online mentor propertymanager leads the way on the trust issues…
Melissa and RookieNYC,
You don’t quite have this right. First, you should not personally be the beneficial interest of your land trust. If you do this, you have absolutely no asset protection. Sean’s Wikipedia reference backed up exactly what I said earlier, land trusts provide absolutely no asset protection. They only offer privacy, which is the first line of defense. Trusts to provide other benefits such as ease of transfer, etc, but that’s not what we’re talking about in this thread.
Your multiple-member LLC should be your beneficial interest (the true owner of the property). The LLC has the control and you and your spouse (or someone else) are controlling the LLC. The LLC is what gives you the liability protection and this protection is granted by statute.
The Trustee IS the legal owner of the property. They can sell it, sign contracts for it, etc. If you read something different, that was wrong. For that reason, the trustee must be someone you trust and should be someone with a different last name (a married daughter can be a good choice).
I am not a lawyer nor do I play one on the internet. It is IMPERATIVE that you determine from someone who knows the laws of your state. My opinion is that the trustee certainly does not have to personally manage the property. I would think that the trustee could sign a contract with a manager or management company (you or your management company).
Finally, I hear people say all the time that they don’t need a trust or an LLC because they have insurance and/or a balloon policy. If you read almost any insurance policy for rentals, you’ll find that they specifically exclude mold, lead paint, asbestos, and all other environmental hazards. These are hot spots for lawsuits in rentals and can wipe you out if you’re not protected. I personally know 2 landlords who have been involved in lead paint claims.
Good Luck,
Mike
Thoward,
I can see where you are coming from, but you have to understand the lender’s view for this whole thing to make much sense.
First some basics. Residential mortgage loans made to individual homeowners and to individual investors are called consumer loans. The typical loan has a thirty year payoff and requires mortgage insurance for an LTV greater than 80%. The interest rate charged for these consumer loans is determined by the prevailing rate for the 10-year Treasury. These consumer loans have specific underwriting guidelines that emphasize the borrowers creditworthiness and are often sold to Fannie Mae and Freddie Mac if the loan “conforms” to these agencies’ underwriting guidelines. This is the basis for the term “conforming” loan.
The LLC is a business entity. Loans made to business entities are called commercial loans. Commercial loans may have a 15 year amortization schedule with a balloon in five years. There is no mortgage insurance with a commercial loan, instead the underwriting guidelines will limit the loan amount to 80% LTV. Unlike the consumer loan, the commercial loan emphasizes the underlying property’s expected income by limiting the loan amount such that the Debt Service Ratio is no less than 1.25. The interest rate for a commercial mortgage is determined by the prevailing prime rate. I don’t know for sure, but I do not believe that Fannie Mae and Freddie Mac purchase commercial loans.
Every year, a certain percentage of a lender’s loans get audited. When the audit discloses that a lender has too many “bad loans” – too many underwriting violations – that lender may be barred from selling to Fannie Mae and Freddie Mac for awhile. If your entire business is the consumer loan market, and your primary source of income is from servicing the loans sold to Fannie Mae and Freddie Mac, you may want to take steps to insure that you don’t get barred from doing business. If calling your “bad loans” due is the required step, then you do it.
Just the way I see it.
Wow, I couldn’t even post yesterday! Lost all my PMs…Mark, please resend me your information, please.
Mike,
If You are personally the Trustee to the Land Trust Your name will appear on Public Records thereby defeating an important function of the land trust. The Trustee can place into the care of another party or entity the daily operations of managing the property.
Can any one recommend a good Land Trust attorney and a good investment CPA in Los Angeles that they used or know of?
Thanks, Jagsterr
Pat Tarr is one of the best land trust attorneys in the country and she’s right here in Ohio (Newcomberstown).
Mike
yes, she’s very good
Thanks I’ll look her up.
Jag