Are land trusts dead and missing in real estate?

For many years we have been short selling land trusts. We stopped working on the short sales process about seven years ago simply because it was faster and more profitable for professional negotiators to do all the work. Some investors will disagree because they believe that no negotiator is working “enough” in their best interest; however, that depends on the skill of the negotiator.

Recently, some students kept saying that Realtors® and lenders would not accept land trusts as buyers. Because some were complaining so much, I was almost led to believe this. These listing agents told Students to put the purchase in their individual name or in the name of the entity. All students who were asked to make the change complied, and there were generally no further problems with the deal.

The problem with land trusts as buyers is that they allow the beneficiaries of the land trust to be transferred or replaced at any time before or after closing. This transfer of ownership remains anonymous in the public record, so the seller or lender has virtually no idea that the trust ownership has changed.

WARNING – if you close a property in a land trust and then transfer beneficial interest after closing, you are legally responsible for paying transfers and / or documentary stamps to your county. If you transfer the beneficial interest before the initial closing, you will be paying the transfer taxes at the closing and will not be required to do so again until you transfer the beneficial interest or title at a later date.

In the event that the trustee changes, you will only need to pay the applicable registration fee. Don’t try to use land trusts to take advantage of the county to save a few dollars in registration and transfer fees thinking they won’t get caught because they could and the fines can be costly.

A few days ago, a new student, who had a six-figure income last year doing only short sales, called me and asked me a question about an offer she made. As we talked, I brought up the subject of the Homeowners Association Estoppel Charter. With homeowners associations (HOAs), they often want the buyer to be approved, and for investors that means doing an approval for buyer “B” and buyer “C” – a double whammy. This problem of homeowner approval by the HOA has been a deal breaker for many investors who don’t know of a solution to the problem. Some homeowners associations only meet quarterly, so the time between approvals for letters of impediment can be extreme.

In short, if you use a land trust as a buyer of an HOA property, the HOA Application can be submitted to the beneficiary of the trust – your ultimate buyer. There’s nothing exciting about this concept unless you didn’t know it, but we’ve been doing it for years.

What is very interesting is that the student who had a 6-figure income in short sales last year made 100% of her offers in land trusts and almost all of them were approved with land trusts as a buyer. Only Wells Fargo and Bank of America were reluctant to allow land trusts to be buyers, but the issue was resolved by allowing them to view the land trust itself. In some scattered cases, a closing agent will ask the land trust to see that the trustee has the legal power to buy the property and that’s okay.

The feedback I get from students is that the agent / seller / lender will not accept land trusts, while I suspect that most, if not 98%, of all offers submitted with land trusts agree with the sellers. We have never been turned down an offer from REO on a land trust. At best, the loss mitigation representative or asset manager can ask to see the land trust document and that’s fine. Our biggest obstacle has been the list of agents who believe that land trusts are illegal and, by their own admission, do not submit offers.

Another thing to keep in mind is how you title your bid as a buyer. The old school, dating back 10-15 years, was to use the property’s address as the trust name. This creates red flags for anyone viewing the Buy and Sell Agreement. This may or may not matter to some buyers / sellers, but it has killed deals.

Think about the name you want for your trust so that the purpose of the trust is not so obvious; Be creative with your choices. Remember though, the Trustee’s name will appear in the public record, which will compare it to open links on other properties. If your trustee has liens or code violations with other properties, ask him to resign and replace him at the time of his resignation, on the public record.

For your unlimited success!

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