One of the most common questions I receive after a person views my video training called Subject-To 101: The Basics Of Subject-To Investing is: “Do you use or recommend the use of land trusts with subject-to transactions?”
Frankly, that question is a bit out of sequence, as there’s a lot more to know about Subject-To investing before land trusts become relevant in any way. But I’ll go ahead and answer that question now since it’s so common.
First you should know that a “Land Trust” is nothing but a legal document. Basically, the land trust is a way to hide who the real owner of the property is. The general public thinks that some person (the “trustee”) owns the property, but in reality, the trustee has a “boss” who controls everything the trustee does.
Don’t misunderstand: I’m 100% for financial privacy, and I am a proponent of using land trusts. But don’t let any of the guru’s make this more complicated than it really is. Land trusts hide property ownership, and that’s really about it. (Yes, there can be some estate planning value as well, but that is rarely the motivation for using a land trust.)
This is relevant because subject-to transactions always trigger the lender’s right to foreclose per the Due-On-Sale clause. For a quick primer on the Due-on-Sale clause, watch this (then continue reading below it):
So the idea of using a land trust in a Subject-To transaction is really for two reasons:
1. Land trusts serve to hide who the real owner of the property actually is, giving lenders a plausible reason to believe that the borrower to whom they lent money may actually still own the property
2. Many investors think that the Garn-St. Germain Depository Institutions Act gives them the right to use Subject-To transactions without repurcussions, so long as the property is placed into a land trust. (By the way, this is false.)
Having said all of that, I am a big fan of land trusts, regardless of whether the context is Subject-To deals or any other deal. They are very inexpensive to set up and make it truly easy to maintain your financial privacy, which can not be understated in our litigious society.
But don’t make the mistake of thinking that land trusts offer any asset protection in the event of lawsuits. They don’t. But they may well keep you from ever facing a lawsuit in the first place.
Within a few days, I’ll post my own land trust paperwork that my attorney gave to me, and I’ll give you a video explaining how to fill it out. Then it’s up to you to take it to your own attorney to have it approved.
Questions and comments are welcomed below!
15 Comments So Far»
Thanks for the paperwork, bring it on! This is great!
I’m getting the video recorded as fast as I can, but I’m glad you’re excited! Remember, you’ll need a password to get the Land Trust paperwork. The password costs nothing and you can get it (or retrieve it if you’ve lost it) by joining the FreeRealEstateTraining.com e-Update list using the subscription area in the upper right section of this page. — Bryan Ellis
Just wanted to add my two cents worth in on the Land Trust topic.
I’ve done several and although they can be intimidating at first, once you master them, they’re easy! …and an important real estate investing tool. Looking very forward to your video!
Thanks for your generosity,
Lyn
This is interesting but I still like to know who you make the payment to the person you’re purchasing the property from or directly to there bank ???? If I start paying the bank directly would that trigger a due on sales clause The act of paying a bank isn’t what triggers the due-on-sale clause. I always recommend directly paying the lender since there’s no guarantee that the lender will receive your payment otherwise. — Bryan Ellis
Hi Bryan, may I ask you a question about land trust? I wanted to know If the land trust agreement must be prepared and executed before we buy each property? Also, I heard that it is much better using a land trust for each property we intend to invest in, taking contract to purchase and title in the name of trustee by using the address of the property itself, then attach the trustee name? Is that true? Please let me know if the trust agreement must be prepared and executed before we buy each property and can we use land trust even if we’re planning to flip the contract?
Thanks for your time
Sam
Sam - excellent questions. Generally you should take title to any new property in a land trust initially rather than taking the property personally/corporately and transferring it later. And yes, it’s a good idea to use a separate land trust for each property. A land trust generally isn’t necessary if you’re just flipping a contract, since the property will never be held in your name anyway. It is up to the person to whom you flip the property to set up a land trust. Hope this helps - let me know if you have more questions! (Also confirm all of this with your own lawyer.) — Bryan Ellis
Hello again Bryan, Thank you for your quick reply, you must be living in New York to get back to me that quick. -:). I would also like to know if the land trust agreement itself, must be signed, dated and executed, before we intend to put any property under a contract?
Thanks again and I appreciate your valuable time.
Sam
Hi Sam - Actually I’m in Atlanta, but same time zone as NY. As always, consult with your attorney first, but my recommendation is as follows: Enter into an assignable contract in your (or better yet, your corporation’s) name, and at closing assign the contract to a land trust and close it that way. This will work most of the time for creative transactions and some of the time for traditional transactions. For traditionally financed deals, the lender may require you to take title to the property directly first and then transfer the property later. I recommend that you use the Monster Purchase And Sale Agreement (available free) as a model for the type of contract to use. I’m working on finishing up the video training for the Monster Purchase and Sale Agreement right now. Additionally, I’ll provide a sample Land Trust and instructions on filling it out in the very near future also. —
Sam on 21/06/2008 in 11:21
Thanks a lot for your time and info Bryan. That helped a lot. I’m looking forward to see and hear all your videos.
Take care and best wishes to you
Sam
I’ve been told by a few lawyers that Land Trust are not Legal or even recognized in MI Bryant what’s a legally creative way to handle this that will stand up in court! Thanks Rico.
Hi Bryan:
Did you say that you were going to post your Land Trust paperwork and video how to fill it out?
If so, how can I access that, as I am very interested in learning more about this issue.
Thanks
Masood Kureshi
Working on it - near the list of the top of things to do! — Bryan Ellis
Hello,
how can I access your land trust paperwork and video? I did not see it posted online.
Thanks
Masood Kureshi
Bryan-What is the difference between a Land Trust and a Living Trust?
A “living trust” is just a broad category of trusts, and a “land trust” is a type of living trust. Frankly, a land trust is like nearly any other trust, except that its primary (and usually only) asset is a piece of real estate. — Bryan Ellis
Hi Bryan, What forms do I need to change both the trustee(s) and beneficary on a land trrust, and where can I obtain a copy of. Many thanks, you’re the best.
Oz
I’m way behind on getting paperwork ready. I’ll put some of this together for you this week. — Bryan Ellis
Best explanation I have read on Land Trusts.
And the DOS clause will be dead for the next several years I am betting as a practiacal matter.
Thanks again.
is a lawyer the only one that can hold a trust? prob not but still learning
thanks willie
While I’ll defer this to your own legal counsel, my unlicensed opinion is that a lawyer is not necessary to hold a trust. — Bryan Ellis
ok good deal thanks for the info is it possible to give a date for your info on the land trust i am going to an attorney on friday afternoon the 27th and i think it would be neat if i walked in there filled out form in hand
thanks
willie
Hi Bryan,
This maybe way off the subject of “land trust” but lately I’ve been hearing so much about the “option contract” and that the land trust is a thing of the past. If this is so and the title companies frown on such then why should it be used?
Thanks In Advance
Virg
The land trust is far from a thing of the past. There’s no better way to own property while maintaining your privacy. I’m not sure what specific issue you’re referring to, but land trusts are as viable as ever for their intended purpose: To maintain privacy. — Bryan Ellis
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