Using Land Trusts...I Am A Little Confused
Hi (from Florida),
I am a little confused about Land Trusts because what I have read only discusses how to buy real estate with land trusts not selling them. Plus, I have read conflicting info...
So to buy, I have the owners set up a trust in their name; then transfer deed to trustee; then buy benefial interest....right? If not please let me know where I am wrong.
I have sources which say transfer only 90% of the beneficial interest to prevent Due on Sale clauses, and to keep the property taxes from being re-assessed. Is this good practice, I have seen people in these forums talking about transfering 100%. If you leave 10% to the seller your obligated to give them 10%...and if holding costs and everything your might end up losing money (given poor planning and/or poor market conditions).
I have read that having beneficial interest in a land trust with a mortgage can be used as a tax deductions? anyone aware of the tax benefits/liabilities (property taxes and IRS taxes)associated with land trusts?
Who should be trustee? Should I refrain from using my company as trustee?
Lastly, when you sell the property to a thrid party, what do you do? Dissolve the trust? Since trustee has the deed how do you transfer it to the buyer? Do you deed it back to the beneficiary then to the buyer?
Thanks, I kow I asked a lot of questions but I appreciate any advice I can get. -M
maybe you should post this question under legal or subject to.
BTW when selling just deed the property directly to the buyers name if its a retail deal..In other words yes the trust is dissolved.
Thanks for answering my post. That did help to to a degree. I just find land trusts very confusing when it comes to when to use them, what to record and what not to record. The 90/10 and 100 was one of the issues that confused me.
If you or others can you confirm my conceptual understanding, and answer a few more questions that would be great it will be greatly appreciated?
With “Sub to” deals I set up the trust, then transfer title to trustee, then transfer beneficial interest. The trustee should be a specially created LLC, or my LLC/Corporation, or the name of someone I trust with a different last name. If in the name of someone I trust...I should get a Resignation of Trustee just to be safe should they decide to go rogue. I also need a letter to notify Mortgage companies, Insurance companies, est. that the property is being put into a trust and that all correspondence should be to the trustee…right?
I keep the original Trust Agreement, Resignation of Trustee, Assignment of Beneficial Interest 100%, and Assignment of Beneficial Interest 90/10% in my files….and all I record is the Memorandum Concerning Trust Agreement.
To get the tax benefits, do I just provide my CPA with a copy of the Assignment of Beneficial Interest? Which one…90/10% or 100%?
How do I lease/sell the property to a third party (my buyer sub to or my tenant buyer) and provide them the tax benefits associated with the property?
When would I use the Option to Purchase Beneficial Interest in Trust Property or Purchase Agreement for Beneficial Interest in Trust Property?
When do I establish a Trust and with whom when doing a Short Sale? There is no split…as banks don’t want to see the owners as having any beneficial interest, right?
Anyone heard of an Environmental Risk Affidavit? One of the sources I read said something about using one.
Wow!, I know I asked a lot of questions. It is just that I have spotted a lot of inconsistencies in my readings and/or incomplete explanations of concepts, so I begin to wonder if the information is correct. I imagine the best way to confirm its validity is to consult the experts (journeymen). Hopefully, I will be able to return the favor or at least pay it forward. Thanks again for you help. -Michael
I have a question about the deed to transfer title into the land trust by the previouse owner. As commented above, it was stated to use a warranty deed. I had read that you should have the current owner sign a quit claim deed to put the property in the land trust. Reason being that the current owner is putting the property into a land trust where they are the beneficiary. By doing this, the title insurance that they got when they purchased/refinanced the property would still cover the title. Is this true? Any thoughts would be appreciated.
About what ypochiris said. A warranty deed is better than a quit claim deed anyday. A warranty deed means you are assigning you interests and will defend them in a court if necessary. A quit claim deed says your are assigning interests you may (or might not) have.
For example, say you and Mr X have the same name. Someone who meant to contact Mr X to buy his lot contacts you instead because you have the same name. If you use a warranty deed be prepared for some jail time. If you use a quit claim deed it is easier to skive off the fraud charge because of how the deed conveys properties.
And as a title agent I can tell you we much, much prefer Warranty Deeds. We find a lot of times the underwriters will insist we go back and get a warranty deed if the person wants title insurance
Jim,
If we look at the word “violation” in legal sense we find that it means:
An Infraction (minor offense, minor violation, petty offense, or frequently a citation, sometimes used as synonymous with violation, regulatory offense or contravention is a "petty" violation of the law less serious than a misdemeanor.
Would this word actually best describe a Subject To deal, when speaking about the DOSC and an investor taking the sellers property Subject To.
What law would they use to give someone a “Parking Ticket” for taking a property Subject To?
In part from TITLE 12 –CHAPTER 13 § 1701j–3:
1) the term “due-on-sale clause” means a contract provision which authorizes a lender, at its option, to declare due and payable sums secured by the lender’s security instrument if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent;
Even the North Carolina HB 1708 was revised to say if the seller receives permission from the lender, the Subject To deal can go through. Whereas the first draft said the loan must be paid off. I guess they had some help from someone in reading what the DOSC really said about “at it’s option” and “written consent”.
John $Cash$ Locke
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