For many years we have done short sales in land trusts. We stopped working the short sales process about seven years ago simply because it was faster and more cost effective for professional negotiators to do all the work. Some investors will disagree because they believe that any negotiator is not working "enough" in their best interest; however, that depends on the skill of the negotiator.
Recently, a few Students kept saying that RealtorsÂ® and lenders would not accept land trusts as buyers. Because a few were complaining so much, they almost had me believing this. These listing agents told the Students to put the purchase in their individual names or entities' name. All of the Students that were asked to make the change complied and usually there were no more problems with the deal.
The issue with land trusts as buyers is they allow the beneficiary(s) of the land trust to be transferred or substituted at any time before or after the closing. This transfer of ownership remains anonymous in public record so the seller or lender has virtually no idea that the ownership of the trust has been changed.WARNING
- if you close on a property in a land trust and you then transfer the beneficial interest after the closing, you are legally liable to pay transfer and/or documentary stamps to your county. If you transfer the beneficial interest before the initial closing, you will be paying the transfer taxes on the closing and not required to do it again until you transfer title or the beneficial interest at a later date.
When and if you change the trustee, you should only have to pay the recording fee that is applicable. Do not try using land trusts to take advantage of the County to save a few dollars in recording and transfer fees thinking they will not catch you because they might and the fines can be costly.
A few days ago was a new Student, who had a six-figure income last year doing only short sales, called me and asked a question about an offer she made. As we spoke, I brought up the issue of the HOA Estoppel Letter. With Homeowners Associations (HOA), often they want the buyer to be approved and for investors that means doing an approval for the "B" buyer and the "C" buyer - a double whammy. This issue of owner approval by the HOA has been a deal killer for many investors who don't know a solution to the problem. Some HOA's only meet quarterly so the time between Estoppel Letter approvals can be extreme.
In summary, if you use a land trust as the buyer of an HOA property, the HOA Application can be submitted for the beneficiary of the trust - your end-buyer. There isn't anything exciting about this concept unless you didn't know about it, but we have done it for years.
What is very interesting is the Student who had the 6-figure income in short sales last year did 100% of her offers in land trusts and nearly all were approved with land trusts as the buyer. Only Wells Fargo and Bank of America were reluctant to allow the land trusts as buyers but the issue was resolved by allowing them to see the land trust itself. In some scattered cases, a closing agent will ask for the land trust to see that the trustee has the legal power to buy the property and that's OK.
The feedback I get from Students is the agent/seller/lender won't accept land trusts while I suspect most if not 98% of all offers submitted with land trusts are OK with the sellers. We have never had an REO offer in a land trust rejected. At most the Loss Mitigation Rep or Asset Manager may ask to see the land trust document and that's OK. Our biggest roadblock has been listing agents who believe land trusts are illegal and, by their own admission, they then do not submit the offers.
One other thing to be aware of is the way you title your offer as buyer. Old school, going back 10 - 15 years, was to use the address of the property as the name of the trust. This sets up red flags to anyone looking at the Purchase and Sale Agreement. This may or may not matter to some buyers/sellers but it has killed deals.
Think about what name you want for your trust so the purpose of the trust is not so obvious; be creative with your choices. However, remember, the Trustee's name is going to appear in the public record which cross-references it with open liens on other properties. If your trustee has lien or code violations with other properties, have him resign and replace him at the time of his resignation - in the public record.
To your limitless success!
About the Author:
Dave Dinkel has over 40 years experience in Real Estate Investing which has given him a unique perspective into the Market. Learn the proven methods of today's successful Real Estate Investors. Visit Dave Dinkel's site to get you started as a Real Estate Investor today! Click the link Now http://www.davedinkel.com