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 trust for titling property to real estate.
1. 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 trust, the personal judgments or liens
of the seller will not attach to the property.
2. 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 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 litigtation against you.
3. 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 title 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
itnerest in the land trust to a third party.
4. 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
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.
5. 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.
6. 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 asseses 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.
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 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!