Using Land Trust in Real Estate
Many people are not aware of what a land trust is, let alone the countless benefits it holds. In fact, investors have been reaping the benefits of land trusts for a very long time.
What Is A Land Trust?
A land trust is the entity some people use to hold title to a property. Land trusts are revocable and may be used to buy or sell a property just like a person would. For example, Jane Doe wants to buy a house. Instead of Jane Doe buying a house in her own name, she creates the “JD Land Trust” and names herself as the trustee. The Trust then buys a house, and the deed shows the Trust as its owner. Jane controls the house as a trustee, but because a Trust is not filed in public, Jane’s name is not on the house. Furthermore, any liens or lawsuits against Jane cannot be attached to the trust. Therefore the so the house is protected.
A Land Trust Is Not the Same as a Land Contract
Many people often use the term land contract and land trust loosely. Both can be helpful in real estate transactions, but they are not the same thing. A land contract is an agreement between a property buyer and seller using installment payments to buy a property. The property remains in the seller’s name until all the installment payments are paid in full.
Selling a House with Land Trust
The possibility of assuming an otherwise unassumable loan is one benefit of a land trust. For example, John Smith may transfer a house to a land trust. He then assigns himself as a trustee. John enjoys the same benefits in Jane’s situation. After a few years, John decides to sell the house. Since the house is in a land trust, he has the ability to transfers the trust a new trustee, the buyer. This removes himself as trustee, which will most likely not raise a due-on-sale flag since the trust is private and does not have to be filed in public. The mortgage company does not know that a new trustee exists even though the loan’s payments have been assumed by the new trustee.
Caveat
Although there are many benefits with using a land trust to buy real estate, there are some concerns as well. Transfers to trusts are allowed in most states, but if a mortgage holder learns of a new trustee taking control of a trust and its assets, due-on-sale rules can be enforced. Also, while most trusts are governed by state laws, federal laws or laws of another state may govern one depending upon how it is used. Consult your local land trust attorney before entering any agreement.
Steve Tlapek of We Buy Ugly Houses St Louis is a successful businessman, owning and operating several businesses over the past 20+ years. He has a tremendous amount of experience in the real estate field, especially when it comes to buying and selling houses and distressed properties in the St. Louis area.
