The key to anonymity is not listing your name as the trusteewhen taking title in the name of the trust.”
DUE ON SALE PROTECTION The primary reason for many investors utilizing a land trust is “due on sale” clause avoidance. This used to be an issue, but most lenders write Freddie/Fannie conform- ing loans. Under recent Freddie/Fannie lending guide- lines, a transfer or residential real estate to an LLC will not constitute a violation of the mortgage acceleration clause. Despite Freddie/Fannie new guidance, if mort- gage acceleration is a concern, then a workaround is to place the property in a land trust and assign your bene- ficial interest to an LLC. Although the transfer to a land trust is not exempt from acceleration, most lenders tend to look the other way and assume the trust is part of the borrower’s estate plan. FACILITATION OF PROPERTYTRANSFERS Many investors will group several properties within one LLC when their overall equity exposure is minimal. However, their risk exposure will grow in proportion to the increase in the value of the real property and its debt reduction. There will come a point when the grouping of several properties in one LLC is unwise and additional LLCs are warranted to reduce overall exposure. If the real property was in the name of the first LLC and the investor desired to transfer any of these to a new LLC, it would require the recording of two deeds — one from the first LLC to the investor and then from the investor to LLC #2. This is expensive and possibly fraught with errors. If each of these properties are held in a land trust, the process is simplified by merely preparing two assign - ments of beneficial interests — one to the investor and then from the investor to LLC #2. •
If you do not have sufficient resources to make a cash purchase, then consider working with a local lender and ask if the lender will permit acquisition in the name of a trust (do not tell the lender this is a land trust. Refer to it as a grantor trust). In this scenario, the use of an attorney or LLC as the trustee is not an option because the lender will require the purchaser be listed as the trustee. The key to anonymity is not listing your name as the trustee when taking title in the name of the trust. If you are questioning why an attorney is often recom- mended as your nominee trustee, the answer is greater protection. Situations have come up when investors uti- lize a good friend as a trustee on their land trusts only to have everything unravel when the friend is hit with a tax lien and every property the friend’s name appears on is encumbered by the lean. This is a costly mistake. PROTECTION FROMJUDGMENTS If a creditor obtains a judgment against an investor who owns real property in his own name, the creditor will either apply for a Writ of Execution to force a sale of the investor’s real property or file the judgment with the county. A filed judgment will attach to the debtor’s real property and be paid when the debtor attempts to refi - nance or sell the property. If a judgment is entered against a trust beneficiary, the judgment will not attach to the real property held in his land trust. (Remember, the judgment only attaches to real property held in the debtor’s name.) Thus, the real prop - erty held in a land trust can be conveyed free and clear of the judgments against a beneficiary. However, an aggres - sive creditor can enforce a Writ of Execution against the beneficiary’s beneficial interest in the land trust.
As a founding partner at Anderson Business Advisors & Law Group, Clint Coons is a real estate asset protection expert and an avid real estate investor. He wants to help every investor create a well- balanced plan so they can continue to grow their portfolio and have
their capital and investments protected.
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