By William Bronchick, Esq.
In Part 1 of this article we talked about the fact that you wouldn’t walk around with a financial statement taped to your back, would you? Then why are you holding title to your real estate in your own name? Whether it’s your personal residence or your rental properties, you are a “sitting duck” for disgruntled tenants, ex-employees, ex-spouses, the IRS and their attorneys. Real estate is very public, and ownership is public record for anyone to view online.
Land trusts are 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.
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 the title in your name in an HOA, but instead take the 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 the property is titled in trust, the beneficiary of the trust can be changed without changing the 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 the 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!
Do you still have questions? Here is a short video on Land Trusts: