Land trust and Due on Sale Clause - Posted by Marcus Miller

Posted by Don Dion on August 21, 2005 at 20:38:32:

Please explain to me why you would want to put the properties into an LLC. Unless you have additional investors in a group where you want to pay out dividend’s there is no reason to put the property into an LLC. You will have no more protection from law suit’s using an LLC then you will by just putting the properties into trust. With a trust even if your other investment’s were to go south and you were about to be filed on all you would have to do is file with the trustee an assignment of beneficial interest in the trust to another family member.
If you just use an LLC then all the properties are at risk if the corp unbrella is pierced by a law suit.
You would be better off since your an investor running all this past your real estate attorney. He will be able to advise you on the best way in your state to hold and protect property.

Land trust and Due on Sale Clause - Posted by Marcus Miller

Posted by Marcus Miller on June 13, 2005 at 07:06:35:

I am writing to get some information about land trust. I have 8 properties all of which are in my name and on my credit. This is killing my credit score.

I have read this board for years and know about the dangers of the DUE ON SALE CLAUSE in the mortgages. Many people have posted saying if you transfer into a land trust this will trigger that clause.

I purchased the Ron Legrand tapes at a yard sale last week, and while listening to them he talks about Land trusts. He states on the tapes a Federal Law in 1982 allows you to transfer ownership back to yourself. He says that because of this exception in the law the banks can’t call the loan due.

Does anyone know anything about this law or has anyone put houses they now have into a landtrust. Did you have problems from the bank. Any feedback would help. Thanks for the time…

Re: Land trust and Due on Sale Clause - Posted by Don Dion

Posted by Don Dion on June 29, 2005 at 10:21:19:

Since the loans are in your name currently. Transfering the properties into a land trust will have no effect on your credit score. I dont want this to be legal advice so I will tell you to check with an attorney in your area. That said start an LLC then refinance the properties using the LLC and a blanket mortgage. This will get the mortgage’s off your personal credit report.

Re: Land trust and Due on Sale Clause - Posted by John Corey

Posted by John Corey on June 19, 2005 at 18:40:17:

Steve B is correct.

The logic is a specific exemption was allowed for estate planning
purposes. In the normal estate plan the assets go into a trust. Then
some part of the beneficial interest would be spread around to family,
etc so to lower the tax exposure. The transfer might take place at
death or upon some other event.

Hence there is a barn door that is very wide to drive through.

None of this will help your credit score as you are still the borrower on
the loans.

John Corey
Chelsea Private Equity LLC

Re: Land trust and Due on Sale Clause - Posted by Steve B

Posted by Steve B on June 13, 2005 at 17:34:54:

Lenders can’t call the loan due because you put your property into a land trust, but the mortgage obligations are still going to show on your credit report.

Re: Land trust and Due on Sale Clause - Posted by Ben Carmona

Posted by Ben Carmona on August 21, 2005 at 15:14:26:


I am researching methods of how to put properties into an LLC for asset protection without triggering the “due on sale” clause. So far, I have learned that a purchase transaction can be set up as a ‘land trust’; but this is not the goal of my clients. We want to be able to move these properties away from the individual. One commentor noted investment properties could be refinanced into a LLC. Most lenders will not originate a loan for a LLC. There are some portfolio products available or commericial/bank loans which could accomplish this but your rates, terms, and parameters will not be as favorable. Many investors who do not know about the ‘clause’ move their properties back from the LLC to individual vesting just to get refinance transactions completed. Then they will again take their chances of putting back into the LLC when completed. It is my goal to find a way that this can safely be done? Thanks for your help.

Ben Carmona

Re: Land trust and Due on Sale Clause - Posted by Don Dion

Posted by Don Dion on August 21, 2005 at 16:53:56:

I dont understand why you would want to put property into an LLC unless you were involved in a group purchase of property and wish to have an easy, less taxing way to distribute the dividend’s to the shareholders. For a single investor trying to protect his assets from creditors the land trust is the vehical of choice since it triggers no additional tax burden either from the irs or local county real estate tax. You might want to put each property into it’s own trust to avoid attachment if a creditor law suite were to find out the true owner of the trust and win in court. This raises another bad issue with your use of the LLC in the manor your talking about in that a law suit would attach to all properties owned by the LLC. Which could cause great loss.

Re: Land trust and Due on Sale Clause - Posted by Ben Carmona

Posted by Ben Carmona on August 21, 2005 at 17:50:54:


Thank you for the quick reply. In the past hour I’ve read quite a bit about the Land Trust. Most everyone agrees with you that this is the vehicle to use. I draw the conclusion that after a property is purchased or refinanced in the individual’s name that a warranty deed will need to be used for changing into the Land Trust with Bennificiary being my client. A seperate assignment of bennficiary to the LLC will then take place. Somebody had mentioned even using several LLCs if plausible or even a Nevada based LLC for additional protection. Durring this process I believe the insurance must match up with the title vesting as well.

My concern is whether or not lenders will allow title to be put into a Land Trust. They will allow a Revocable Living Trust after review of the documents. So if they do not allow and an investor does so anyway, would the change at the insurance company trigger a red flag.

It’s important for me to pass along this information to clients I work with.

Thanks again,