Trustee for Land Trust Question... - Posted by BRnBA

Posted by Bill Gatten on April 06, 1999 at 17:41:01:


Interesting question.

As a matter of fact, if someone were seeking total and complete squeaky clean “perfection” in the process of avoiding a lender’s Due-on-Sale Clause, this is the way they would do it. The substitution is never recorded anyway, unless the trust is to be re-written and the property re=deeded to a new (Vs. a substitute) trustee…

The appointment of one’s self as trustee removes all doubt from the mind of the “less than fully knowledgeable” bank clerk, as to whether or not Garn St. Germain [12USC 1701(b)] is being strictly adhered to. Then the subsequent (silent) Substitution of Trustee would be done strictly to create an unbiased arms-length corporate trusteeship for the parties.

The thing we’ve given thought to, but have never worried about (because we’re more than ready to defend our position in court), is that a lender might not realize that a land trust is beneficiary directed, and in so much as GSG states that the borrower must be the “trustee,” presume their security interest had been compromised. The assumption would be that if the borrower were not the trustee, the Power of Direction, and therefore the control over their security, would have been relinquished (this is why in a PACTrust we insist that the non-resident beneficiary retain a nominal beneficiary interest and 50% of the voting rights… unless ceded by a silent Power of Attorney).


Jim, keep the question coming… you’re writing my new book for me.

Trustee for Land Trust Question… - Posted by BRnBA

Posted by BRnBA on April 05, 1999 at 10:45:44:

In a post a few days ago Rob FL mentioned that he appoints a friend or relative as trustee (different last name) and records it as such. He then has them resign as trustee and appoints himself or his wife as successor trustee but doesn’t record it. Quite Clever, seems to me. YOU have COMPLETE control and anonyminity. I suppose you must school the former trustee just in case they get an inquiry about the trust. Can anyone see any problems arising from this situation?

Re: Trustee for Land Trust Question… - Posted by Rob FL

Posted by Rob FL on April 05, 1999 at 17:56:49:

Actually, I learned that idea from a seminar I attended a few years back.

2 possible problems that could arise.

(1) If the old trustee was someone dishonest they could try to deed or mortgage the property without your knowledge. Of course the title company would probably want a copy of the trust or at least proof of who the beneficiaries are before they handed over the check.

(2) If the property got involved in a lawsuit, the old trustee might very quickly spill the beans on who the real owner is. But of course the plaintiffs attorney would probably have the court make you produce a copy of the trust anyway.

Re: Trustee for Land Trust Question… - Posted by Bill Gatten

Posted by Bill Gatten on April 05, 1999 at 16:56:30:

As long as no one else is to receive tax or ownership benefits, it works well this way, and doesn’t present a problem (and Rob knows what he’s doing… a pro). The process, does however, effectively convert a Land Trust into a Grantor’s Trust; but that really doesn’t matter if Rob is the Grantor anyway (See Black’s Law, l996, 6th Ed. re. Grantors Trusts).

Minor issue: a Form 56 (Notice of Fiduciary Responsilbity) should be filed when a trustee changes; however, about half of ours come back from the IRS, in that they don’t know what to do with them, since the trustee in a land trust has no other reporting responsiblities and they haven’t created a pidgeon hole for 56B’s yet.


Re: Trustee for Land Trust Question… - Posted by JPiper

Posted by JPiper on April 05, 1999 at 17:14:09:


One other question regarding this.

How would you view deeding the property to a trust naming the seller as trustee…then subsequently (moments later) having the seller sign a “substitution of trustee” naming my trustee, which I would hold unrecorded?

Thanks for any response.