Posted by Brad Crouch on July 30, 2003 at 20:37:05:
Jeff,
> Which would be a better strategy on a pre-foreclosure taken in a land
> trust?
> 1) A two party Land Trust with a Special Power of attorney giving me
> complete control over the disposition, sale and proceeds of the property,
> and giving them reclamation rights in the event of any default, with their
> proceed rights limited to the balance of the underlying Note(s), or
All trusts involve at least two parties. I think you mean two beneficiaries, so I will talk about that.
It has been said that certain legal protections are enjoyed by a co-beneficiary. It has also been said that the beneficial interest of a trust cannot be partitioned to satisfy a judgement creditor . . . even the IRS. And further, that the IRS “really doesn’t want the ‘masses’ to know about this”.
Sounds really good, doesn’t it? I’ve come to a conclusion about this . . . in my opinion, it’s just “hype” and has no basis in fact.
I have been looking for a statute that confirms this type of thinking, for about two years. And in my opinion, it simply doesn’t exist. I am hoping I am wrong, as I would LIKE it to exist. If anyone knows of a “on point” cite, please post it. Cites that may be “close”, don’t count. If the cite does not specifically address this issue. It does not count.
It is my opinion that you should disregard such unsubstantiated statements as “opinion” or “wishful thinking” unless they are backed up by a legal citation that is “on point”.
I should point out that “Power of Attorney” has the ability to be revoked unless it is of the “un-revokable” variety.
And exactly why would you want the original seller to have the feeling that he still has some control over the property and the process, by leaving him with any portion of the beneficial interest in the trust that now owns his old house? A revokable power of attorney? That he “promises” not to revoke?
With regards to giving a seller recourse to get their property back (if they still want it) in the unlikely event that you default on a “subject to” transaction . . . I would advise that you either look in the archives or ask JohnBoy directly, for the way he handles this issue in the documentation of the transaction. It is the best I have seen.
> 2) A single member land trust with an assignment of beneficiary interest?
Do you mean single “beneficiary”? LLCs have “members”, but not trusts. They have grantors, grantees, trustees and beneficiaries. Please don’t confuse Land Trusts as a Liability avoidance plan. That would be a corporation, LLC, Limited Partnership, etc.
Really depends on how afraid of the Due On Sale Clause you are. And on how much you have in cash reserves. It is a bit simpler to simply deed the property into a trust you have already created. If the lender becomes aware of what has transpired, you may have 90 days or more to come up with the cash to pay off the loan, or find a buyer who has the cash.
If you want to do things the “traditional” way, you will have the seller be the only beneficiary, in the beginning. The seller can then assign you his beneficial interest (should really be the next day).
> What hazards exist taking title in a land trust if
> the seller intends to declare Chapter 7 soon after?
The bankruptcy trustee has the power to “unwind” a transaction that has taken place within one year of the date the bankruptcy was filed. Sometimes they won’t “unwind” a transaction that has taken place within this time frame if there is little or no equity involved. The bankruptcy trustees job is to get the creditors paid. There is nothing to be gained for the creditors by unwinding a deal where no equity was to be had.
Hope this helps,
Brad