Posted by David Butler on April 09, 2007 at 16:35:37:
This is question is probably more suited for the Main News Group Forum (real estate investing related) at:
as the Cash Flow Forum is related primarily to questions and issues related to buying and selling privately held debt instruments and related cash flows. But we always like to try to help, at least a little bit, whenever we can!
I preface the following comments with the admonition that what I know about Land Trusts has come mostly from extensive reading of Bill Bronchick’s Land Trust course (which is available in CREOnline’s bookstore - that’s where I got the two editions I have, over the past few years), and Bill Gatten’s PAC/NEHT materials, which I have reviewed over the past three years - and more particularly during the past year. I have found both to be very helpful. I have also gained some practical experience due to my relationship with Tom Standen, who’s Equity Holding Corporation is the national trustee for Gatten’s Land Trust program users - and meeting with some of his Land Trust clients over the past few years.
I’ll start by mentioning that careful reading of whatever materials you have in hand, and careful contemplation of that reading, will help you immensely in sorting out what is what with regard to land trusts. Gaining at least a basic “conceptual” understanding goes a long way in learning the topical material much better - and much faster. Additionally, you will be able to have a more intelligent discussion when discussing land trusts with attorneys… many of whom are not truly up to speed in the area of land trust law. You will pose better questions and they will understand you better. You will understand them better too (however, unless you are close personal friends with an attorney who is taking your questions and your knowledge seriously - it is hard to get reliable answers without putting them “on the clock”). It also a good way to give yourself more confidence - while being able to look past many oft mistaken advice/opinions/conclusions about law from people who know even less than you do about the topic.
Okay… as to the asset protection possibilities - though some attorneys do not feel a land trust will “bulletproof” the asset in the same manner as a corporation, LLC, FLP, or similar devices might, and they believe that the “asset protection” benefit of land trusts is more in the vein of “masking” or “cloaking” the relationship between the asset and the actual owner - the reality is Land Trusts do hide prima facie property ownership, which often may help stop a lawsuit before it ever gets started. And they can create complications with regard to charging orders or partition orders - which works to the effected land trust beneficiary’s (ies’) interest(s). I am not an attorney, nor am I fully versed in trust law or asset protection to make a conclusive answer as to the Land Trust’s role in a comprehensive estate plan. In any event, no entities I am aware of, allows or encourages the owner of any interest in one of these entities to lie under oath to direct questions related to their ownership of THOSE entities.
So far as using Land Trusts to avoid Due-On-Sale clauses. I don’t see any ethical qualms whatsoever, so long as such usage complies with the law as written. In terms of the DOS, it is first important to understand that a Land Trust’s value in that regard only applies to residential properties of 1 to 4 units. This is because of the fact that the provisions of the Garn St. Germain Act (found in Title 12 of the USC , more specifically in Sec. 1701-j-3), were written specifically with regard to residential property of 1 to 4 units. So a land trust doesn’t necessarily “immunize” a DOS clause in a commercial loan agreement, if any.
As with many regulatory statutes, the Garn-St.Germine rules have very articulate exemptions identified. Too many people ignore these, or don’t look carefully at what is actually said. In short, so far as the DOS avoidance issue is concerned, two of the exemptions are clear, with regard to how Land Trust vehicles are promoted. First of these is the exception if transfer of title is made to a trustee in an Inter Vivos trust wherein the [original] borrower remains “a” Beneficiary of the trust; the trust is revocable by said borrower; and, the trust does not relate to the transfer of Occupancy rights.
This last point, regarding the Occupancy issue, is where many become confused, and with good reason. However, the occupancy issue is not so confusing when considering that another of the clear exemptions includes "the granting of a leasehold ‘for less than three years’, that does not involve an option to purchase.
It is important to note that many folks erroneously refer to Title 12 CFR Sec 591 (vi) in discussions of land trusts, without understanding the difference between the Code of Federal Regulations (CFR) as opposed to the United States Code (USC). While certain titles of the CFR have been enacted into positive law, the other titles of the CFR are NOT law - nor always an accurate reflection of the laws referenced - and are instead prima facie evidence of the laws referenced by those titles, found in the USC. One of these CFR titles that have NOT been enacted into law is Title 12 of CFR, according to the Office of the Law Revision Counsel, U.S. House of Representatives. What IS law is Title 12 of the USC.
In any event, in my experience, I’ve not seen evidence of so-called “Land Trust” gurus “… counting on the resolution of these transactions and the loans being paid off without the lender becoming aware…” as an operative imperative, or methodology.
The area of Land Trusts is fairly comprehensive, and really can’t be done much justice in a forum such as this. But hopefully the above discussion does help clear up a few important concepts, and a few legal issues too. For more detailed information, you might consider obtaining William Bronchik’s course; or perhaps better yet, look into attending one of Bill Gatten’s FREE 2.5 Day Workshops, which also includes FREE helpful materials. Either way, best wishes for your success, and…
Have Fun For A Living
David P. Butler