7 Reasons to Use Land Trusts

7 Reasons to Use Land Trusts


The land trust is a very powerful tool for the savvy real estate investor.  A land trust is a revocable, living trust used specifically for holding title to real estate.  Each property is titled in a separate trust, affording maximum privacy and protection.


Here are seven reasons to use land trusts:


1. Privacy.  In today’s information age, anyone with an internet connection can look up your ownership of real estate.  Privacy is extremely important to most people who don’t want others knowing what they own.  For example, if you own several properties within a city that has strict code enforcement, you could end up being hauled into court for too many violations, even minor ones.  Having your real estate investments titled in land trusts makes it difficult for city code enforcement to find who the owner is, since the trust agreement is not public record for everyone to see.


2. Protection from Liens.  Real estate titled in a trust name is not subject to liens against the beneficiary of the trust.  For example, if you are dealing with a seller in foreclosure, a judgment holder or the IRS can file a claim against the property in the name of the seller.  If the property is titled into a trust, the personal judgments or liens of the seller will not attach to the property.  This effectively separates the owner or seller from the property.


3. Protection from Title Claims.  If you sign a warranty deed in your own name, you are subject to potential title claims against you if there is a problem with title to the property.  For example, a lien filed without your knowledge could result in liability against you, even if you purchased title insurance.  A land trust in your place as seller will protect you personally against many types of title claims because the claim will be limited to the trust.  If the trust already sold the property, it has no assets and thus limits your exposure to title claims.


4. Discouraging Litigation.  Let’s face it, people tend to only sue others who appear to have money.  Attorneys who work on contingency are only likely to take cases which they can not only win, but collect, since their fee is based on collection.  If your investment properties are hard to find, you will appear “broke” and less worth suing.  Even if a potential plaintiff thinks you  have assets, the difficult prospect of finding and attaching these assets will discourage litigation against you.  This is a huge benefit!


5. Protection from HOA Claims.  When you take title to a property in a homeowner’s association (HOA), you become personally liable for all dues and assessments.  This means if you buy a condo in your own name and the association assesses an amount due, they can place a lien on the property and/or sue you PERSONALLY for the obligation!  Don’t take title in your name in an HOA, but instead take title in a land trust so that the trust itself (and thus the property) will be the sole recourse for the homeowner’s association’s debts.


6. Making Contracts Assignable.  The ownership of a land trust (called the “beneficial interest”) is assignable, similar to the way stock in a corporation is assignable.  Once property is titled in trust, the beneficiary of the trust can be changed without changing title to the property.  This can be very advantageous in the case of a real estate contract that is non-assignable, such as in the case of a bank-owned or HUD property.  Instead of making your offer in your own name, make the offer in the name of a land trust, then assign your interest in the land trust to a third party.


7. Making Loans “Assumable”.  A non-assumable loan can become effectively assumed by using a land trust.  The seller transfers title into a land trust, with himself as a beneficiary.  This transfer does not trigger the due-on-sale clause of the mortgage.  After the fact, he transfers his beneficial interest to you.  This latter transaction does trigger the due-on-sale, but such transfer does not come to the attention of the lender because it is not recorded anywhere in public records.  This effectively makes a non-assumable loan “assumable”.


As you can see there are many creative and effective uses for the land trust, limited only by your imagination!  What has been your experience with land trusts?


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


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I know you have heard about Land Trusts and you know that you should be using them. But I know you and you haven’t gotten around to using them yet. You believe that Land Trusts are too complicated and you just haven’t had time to learn and completely understand them, but you will get around to it one of these days.

Trusts have been around for centuries and there are tools that the rich use regularly to protect their assets. Land Trusts are a very special type of Trust that was created to protect your real estate investments, whether you are a landlord who holds real estate for the long term or a wholesaler flipper who only owns the property for 5 minutes.

There are several reasons why people use Land Trusts, but the most important one to me is the Privacy. No one knows what I currently own or what I have owned in the past and that is comforting to me to know that no one will ever be able to find all my assets if they get the bug to sue me for any frivolous reasons. 

My assets are protected, or shielded from discovery because I have taken the time to set up my business that way. However, Land Trusts only provide you with the asset protection and privacy you want if you set everything up that way in the beginning and continue to use them in the future. Land Trusts cannot help you if you have waited too long and then scramble to hide all your assets using Land Trusts at the first sign of trouble. If you suddenly transfer everything to Land Trusts, any lawyer will be able to find them and then petition a judge to have those transfers reversed and put back into your own name if the lawyer can convince a judge that you placed everything into Land Trusts to try and avoid a law suit.

As our economy and the real estate industry change, it will be more important today to start learning and implementing Land Trusts as part of your own privacy and asset protection program than it has ever been in the past. I urge you to stop procrastinating and start leaning and implementing Land Trusts right now!!!

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