Posted by Bill Gatten on April 05, 1999 at 16:00:20:
Jeff,
Sorry 'bout the confusion. We’re basically talking apples and ping pong balls here (my fault, I’m sure, not yours). But, to reduce the confusion, let me further expound thereupon hereinafter (so to speak, as it were)…
With an unrelated-party co-beneficiary [land] trust, the beneficiaries must always act in concert (i.e., neither can do anything without the other’s agreement, unless it’s written into the agreement or agreed to in advance). Should they both choose to borrow money, and both sign for it, then a lender doesn’t have to worry about partionablity restrictions… its only when the beneficiaries haven’t acted in accord that a creditor’s claim against the trust’s asset(s) would be frustrated. They will, of course, pick the co-ownership in the title search and refuse to make the loan anyway, unless all parties were to sign.
In keeping with your analogy, Jeff, you would not normally be able to borrow as a co-beneficiary in a multiple beneficiary land trust (unless other arrangements were made): so a lender’s collection problems would never be an issue; however, if you and the other beneficiary/ies borrowed the money together, then non-partitionalbity would not be an issue for the lender. The 3rd party arrangement (and its protections) is designed to STOP (prevent) the parties from trying to borrow money, getting clouds on title, getting in trouble, getting the property tied-up, etc.–unless they both want it to be).
We haven’t really recommended that this device be used in short flips (though maybe we’re too humble): were all parties to be aware and in full agreement up front, the first beneficiary can give you its Power of Direction (PO Atty) to do whatever you want to on your own, without his/her input (though if challenged by a creditor claim, the trust would likely fail when the POA was discovered).
Jeff, in some states (Illinois in particular, and to a lesser, but growing, degree in Florida, Arizona and Hawaii) the preferred method of financing real estate, or lending on real estate, is to take an Assignment of Beneficiary Interest in a Land Trust as one’s Security Vs. a mortage or note and trust deed position in the property. This is because doing so eliminates the standard time, legal and cost renstraints and burdens of traditional Trustee Sale and Foreclosure (e.g., shortens the NOD period, avoids the redemption period and rights, eliminates publication periods, avoids required auction postings, etc.).
When a loan is made to a land trust, so doing also allows the lender to enforce its Due-on-ale Clause re. future sale or disposition of Beneficiary Interest re. Garn St.Germain–the borrower being the trust, and therefore not a “natural person” (It’s when the borrower IS a natural person that the GSG Law allows assignment of Beneficiaol Interes.).
Hope the helps clarify things a bit. Feel free to drop me an e-mail with any other questions you might have.
Bill