Does Land Trust equal a way to assume a loan? - Posted by RussJ

import · January 20, 2001, 7:52pm

Posted by RussJ on January 22, 2001 at 20:38:53:

Thanks

import · January 20, 2001, 7:52pm

Posted by RussJ on January 20, 2001 at 20:52:23:

I have been reading a lot of information on RE investing and am having trouble digesting what is happening by doing a Land Trust to get around a “due on sale” clause. Is this basically a way of creating a kind of assumable loan?

The concept is not sinking in and hope that someone can drive it home so I can move on.

This is a great site and I am constantly impressed with the time the pro’s take to help us beginners.

Thanks!
Russ

import · January 20, 2001, 9:16pm

Re: Does Land Trust equal a way to assume a loan? - Posted by dewCO

Posted by dewCO on January 20, 2001 at 22:16:48:

More accurately, the land trust is a means of holding title, regardless of how the property is obtained. But if you take over the payments (a.k.a. subject to, getting the deed) and put the propety into your land trust, then the lender does not know if title has actually transferred (thus harder to call the loan). It could be the owner’s seller’s trust, lender doesn’t know. That’s why you’ll see folks here saying the lender asked to see the trust docs. And the answers are to just give them the recording of the land trust which only shows the trustee (which is NOT you, but a trusted friend—you are the beneficiary).

import · January 20, 2001, 8:42pm

Re: Does Land Trust equal a way to assume a loan? - Posted by Monique

Posted by Monique on January 20, 2001 at 21:42:28:

Russ,

You’re right, there is ALOT of great information at this site to digest. The short answer to your question is yes – using a land trust helps you to take over the payments on a non-assumable loan.

Here are two articles by William Bronchick that go into greater detail:
http://www.creonline.com/articl53.htm
http://www.creonline.com/articl71.htm

Here’s to your success!
Monique

import · January 21, 2001, 3:35pm

Re: Does Land Trust equal a way to assume a loan? - Posted by Bill Gatten

Posted by Bill Gatten on January 21, 2001 at 16:35:34:

Hi Russ,

The simple answer is that, taking title into a land trust (your own trust with someone else still on the loan) does indeed violate the lender’s due on sale clause; and the lender could easily find out about it, as they might demand a copy of the trust when they are checking the title to verify insurance coverage or property tax shortages.

BETTER…

Taking a beneficiary interest in a pre-existing trust (the seller’s) is much simpler, and the lender is considerably less likely to ever find out (if they did care). I.e., you set up the trust first with the seller as the only beneficiary, then, after recordation, he silently assigns his beneficiary interest to you.

BEST…

However, taking a ‘partial’ beneficiary in that pre-existing land trust and leaving a partial interest with the seller (to be forfetied to you at termination) does NOT violate the lender’s due-on-sale clause. And they can be given the trust agreement, if they want it. As well, this process very comforably hides the transfer to you from the lender: and if they did find out (or care one way or the other) there’s nothing they could do about it, as such a transfer by the mortgagor is clearly exempted under the 1982 FDIRA (Title 12 of the U.S. Code Sec. 1701j-3). As as long as the seller remains in control and remains a beneficiary of the trust, his naming you as “a” remainder agent or beneficiary is not prohibited. As a matter of fact so naming a co-beneficiary in any land trust is a prudent estate planning and asset protection device.

Bill Gatten

import · January 20, 2001, 9:56pm

Re: Does Land Trust equal a way to assume a loan? - Posted by RussJ

Posted by RussJ on January 20, 2001 at 22:56:52:

So, in a land trust, there is the seller (trustee?) and the buyer (benificiary?)

Is the seller stuck being connected to the property until the loan is paid?

import · January 22, 2001, 5:31pm

Re: Does Land Trust equal a way to assume a loan? - Posted by RussJ

Posted by RussJ on January 22, 2001 at 18:31:02:

Thanks for the comments.

In the last two scenarios, would I ask the seller to create the trust?

In the “BETTER” scenario, once the seller assigns his beneficiary interest to me, then he no longer has any interest in the loan?

Thanks SO much for the information!
Russ

import · January 21, 2001, 10:04pm

Grantor, Beneficiary, and Trustee - Posted by Monique

Posted by Monique on January 21, 2001 at 23:04:57:

Russ,

In a Land Trust there are three roles:

Grantor (the Seller of the property who is putting the title of his/her property into a trust)
Beneficiary (the Seller again)
Trustee (an individual that YOU trust who will be involved with the property until you sell it, typically NOT the Seller)

Once the Seller puts the title into a trust, then you (as Buyer of the property) have the Seller “assign the beneficial interest” in the trust with a separate document outlining the same three roles:

Grantor (Seller)
Beneficiary (you this time)
Trustee (same trusted individual as above)

Russ, check out the articles by Bronchick that I gave you the links for earlier. He goes through the flow in detail.

Monique

import · January 22, 2001, 6:26pm

Re: Does Land Trust equal a way to assume a loan? - Posted by Bill Gatten

Posted by Bill Gatten on January 22, 2001 at 19:26:28:

In all cases, he is still on the loan. That’s the reason you use the land trust…so that you can make use of the existing financing.

It doesn’t matter who creates the trust, as long as the seller cooperates in signing the docs and remains on it as a beneficiary (unless you’re doing a fast flip and coudn’t care less about the legal shielding).

Bill Gatten

import · January 22, 2001, 5:30pm

Re: Grantor, Beneficiary, and Trustee - Posted by RussJ

Posted by RussJ on January 22, 2001 at 18:30:48:

The clouds are clearing, Thanks! The articles were also definitely helpful!

One other question. Who would be the Trustee? Do you put a friend, spouse, or third party as a Trustee? and if so, what liabilities does the trustee hold? (did I say “one” other question?!)LOL

import · January 22, 2001, 6:36pm

Re: Grantor, Beneficiary, and Trustee - Posted by Bill Gatten

Posted by Bill Gatten on January 22, 2001 at 19:36:04:

Russ, legally virtually anyone can be a trustee; however, you should be careful in appointing someone who doesn’t know the law…the can be intimated into releasing confidential information; they can fail to file notice of fiduciary responsibility; they can misunderstand their role in complying with direction, etc… and…they can die and get your property wrapped in their probate.

The best trustee is a corporation (bank or trust company who charges for its services, and which is a professional at handling land trusts. If the corporation is not your own, then it needs to be a non-profit corporation, acting only at the direction of its members.

Feel free to click on our banner ad above (PACTrust)…and there’s a considerable amount of information on Bill Bronchik’s site about land trusts as well. In addition, at our site you can, if you choose, set up a corporation or an LLC ($99 and $199 respectively).

Bill Gatten