Many private lenders will loan and like to loan in a land trust, but the land trust should be drafted differently than a typical land trust. For example, there should be a primary beneficiary and a secondary beneficiary with the primary being the lender and the secondary being the borrower. The trust should state that the primary has complete control over the trust until all terms of the loan have been satisfied. This gives the lender a lot of protection against waste, junior encumbrances, securing and maintaining the property if borrower defaults, etc. A common misconception is that the land trust helps the lender circumvent foreclosure- it does not.
When its time to refinance, most conventional lenders will just require that the property be deeded out of the trust at closing.
Unless he is looking for non-recourse loan he probably won't be able to get financing for the land trust if it does not have any credit established on it's own.
Interesting. I would want to know what does he gain from using a land trust vs an LLC? Protection from the lender?
I just ran across a lender that uses land trusts exclusively where the lender and borrower are both interested parties, but the borrower loses interest if the mortgage payment is delinquent 60 days. I doubt this would hold up in NJ courts, but the lender seems successful.
I don't know how this works in NJ, but as you know NJ is one of the two worst foreclosure states, so I would be cautious around what he wants in terms of protection.
You would have to see how the Land Trust agreement is drafted. If the Trust agreement resembles a typical Revocable Living Trust, then perhaps banks will lend on it. If there is creditor protection in the Trust, and the grantor does not have any power over Trust property, then most banks wouldn't lend.
I have several properties in Land Trusts and I have to deed them back to a series LLC when refinancing. Haven't found a bank that will loan to a trust but I do have a private lender that will as long as I sign a personal guarantee. To my knowledge they provide no asset protection but do provide anonymity.
Many private lenders will loan and like to loan in a land trust, but the land trust should be drafted differently than a typical land trust. For example, there should be a primary beneficiary and a secondary beneficiary with the primary being the lender and the secondary being the borrower. The trust should state that the primary has complete control over the trust until all terms of the loan have been satisfied. This gives the lender a lot of protection against waste, junior encumbrances, securing and maintaining the property if borrower defaults, etc. A common misconception is that the land trust helps the lender circumvent foreclosure- it does not.
When its time to refinance, most conventional lenders will just require that the property be deeded out of the trust at closing.
I have several properties in Land Trusts and I have to deed them back to a series LLC when refinancing. Haven't found a bank that will loan to a trust but I do have a private lender that will as long as I sign a personal guarantee. To my knowledge they provide no asset protection but do provide anonymity.
Hi @Rocky / @ Laura,
Will you be able to help me understand
How to create Land Trust (using standard online templates or agents) and
Deed them back to a LLC.
As you have multiple land trusts, Do you use same templates again and again or use agent every single time?
@Raj Gott I have a standard land trust and a mortgage land trust. I use the same forms over and over depending on which one fits the deal. There may be supplementary docs if the deals calls for them (powers of direction, assignments, etc). When it't time to get a conventional loan where lender requires that title be in your personal name the trust just deeds it back to you via a warranty or quit claim deed depending on what the lender prefers.
@Raj Gott I have a standard land trust and a mortgage land trust. I use the same forms over and over depending on which one fits the deal. There may be supplementary docs if the deals calls for them (powers of direction, assignments, etc). When it't time to get a conventional loan where lender requires that title be in your personal name the trust just deeds it back to you via a warranty or quit claim deed depending on what the lender prefers.
I know I'm reviving an old thread, just wanted to post as an update the Freddie Mac now purchases land trust mortgages, so lenders can no offer it as a conventional product. I haven't tested this yet but plan to in the next 6 months. Here is a link to their Land Trust Mortgage page: http://www.freddiemac.com/singlefamily/land_trust_mortgages_faq.html
Is the trust the record owner, or does the trust own an LLC that then owns the land? Does your state make trusts separate legal entities like an LLC or is it still traditional tripartite ownership? If the trust is the owner, is the borrower just wanting his name out of the land records? I.e. "ABC Trust" instead of "John Does, as Trustee of the ABC Trust"?
In TX, owning land in a trust and then making an LLC the beneficiary is not the best way to protect the property or the people managing. Best way generally in TX is trust owns LLC which then owns the land. But, your state may have different rules on the trusts.
In regards to a HELOC, one thing is for certain, it can be done as long as it is a revocable trust, but truth be told, the trust almost becomes obsolete or breached as the borrowers (aka Beneficiaries) have to disclose every bit of information that ties them to the property. So for example, once the IRS Transcript request is made, the borrower and address is relayed, it will be on record and anonymity will be breached and exposed. The Warranty Deed will still be titled in the trust name, however exposure to the beneficiaries and their equity will be exposed, The banking system is tied to the Federal Reserve who is tied to the IRS. If IRS was an issue. The point, regardless if you have it in a trust, all parties will be exposed. Yes, you can obtain a line of credit or loan through the banking system, but at what cost?
On a different note: To consider an LLC as a beneficiary, it would be best to use Private (anonymous ownership) LLCs: "The most popular states for anonymous LLC's are Delaware, Wyoming, and New Mexico. Disadvantages to Delaware and Wyoming- In Delaware, ownership information is disclosed to the state, though not published."
I am not a CPA, attorney, or financial advisor and the information in these posts shall not be construed as tax, legal, or financial advice from a qualified perspective. If you need such advice, please contact a qualified CPA, attorney, or financial advisor.