If you are a savvy real estate investor, the land trust is a great option for you. It’s a powerful tool that can serve you well in terms of making money. It is a revocable, living trust that is used for holding the title of real estate. Each property you own will be titled in a separate trust, which affords you maximum protection and privacy. Below are seven reasons why you should use one.
The first reason is privacy. The Internet has made it extremely easy for anyone to look up your real estate ownership information. Privacy is vital if you don’t want others to know what you own. Real estate titled in land trusts makes accessing this information more difficult. This is because the trust record is not public so not everyone is allowed to view it.
Reason #2 is land trusts provide protection from liens. Here you won’t be subject to liens against the beneficiary of the trust. So, if you are dealing with a particular seller in foreclosure, a claim can’t be filed against the property in the seller’s name.
Reason #3, you will receive protection from title claims. Should you sign a warranty deed in your name, you will be subject to title claims being filed against you should a problem with the title to the property arise.
Reason #4, a land trust discourages litigation. If your properties are difficult to locate, it will appear you don’t have money so others will be less likely to sue you.
Reason #5, you will receive protection from HOA claims. When you take title to a property in a HOA, or homeowner’s association, you will become personally liable for all assessments and dues pertaining to the property and association. So, if you purchase a condominium in your own name and the association assesses a certain amount as being due, a lien can be placed on your property or you may be sued. Instead of taking title in a HOA, take title in a land trust so the trust itself and the property will be the only recourse for the debts of the association.
Reason #6, taking title in a land trust will make contracts assignable. The ownership of a land trust is called the beneficial interest. This ownership is assignable in much the same way as stock would be in a corporation. Once a property has been titled in trust, the beneficiary of the trust can be changed without changing the title to the property itself.
Finally, reason #7, land trusts make loans assumable. A non-assumable loan may become assumed through use of a land trust. Here, the title is transferred by the seller into a land trust with him or herself as the beneficiary. This transfer does not trigger the due-on-sale clause of the mortgage. After all is said and done, the beneficial interest is transferred to the buyer which then triggers the due-on-sale clause. This transfer, however, is not brought to the attention of the lender because it has not been recorded in public records. This is what makes a non-assumable loan assumable.
The seven reasons above illustrate the creativeness of a land trust. Before making the decision to use this option, make sure you know what it is and how it works. This is what will make you a more effective investor over time.