John Locke and Land Trusts
Cashman,
I have looked and looked but I cannot find your view on land trusts. Your book is on my short list. Is it in there? 
I would greatly appreciate your views as I will be forced in this Wisconsin State, to use these. They look like a safe deal, and I am looking at working with Bill Gatten as well to learn the trust and then use your marketing system.
From everything I have read so far, the Land Trust will slow down the Sub2 deal but may make it safer because trust law kicks in to save the day in an emergency.
Thanks in advance for your awsome thoughts 
Until John chimes in, I'll give you a little info.
I believe John's sub2 technique concentrates on buying sub2 and selling retail. Which is probably what I would recommend as the first part of your strategy as that is where you will make the most money and it's all up front. For this technique, there is no need for a trust.
For those deals that you can't sell retail fast enough, you may want to consider selling on L/O via a land trust or Gatton trust. With these techniques you get a little of front, a little per month and most of it on the backend.
Best of luck!
atplack,
Glad to meet you.
The main purpose for using land trusts is privacy of ownership. No one will know who owns the property but you and the trustee. This trust is a very simple method to hide ownership, nothing fancy, the forms to create one are readily available. Even if you have to purchase your first one you can use it over and over.
It does not slow down the method of Subject To investing, unless you try to get the Seller to sign one. Trying to do this has lost many a deal because you are trying to explain to a layman what a trust is and there is no real reason to complicate the deal if you do it the following way.
When you have the seller sign the Offer & Acceptance you put your Corporate Entity and/or Assigns. You assign the property into "1234 Elm Street , Sellers Name, Trust". Some Attorneys recommend someone from out of State become the Trustee and your Corporate Entity becomes the Beneficiary.
In your State it is highly recommended you use Land Trusts for obvious reasons, I believe you have the 5 house rule there.
I have purchased many properties using LLC's, Limited Partnerships, Land Trusts, Living Trusts, etc. Remember everyones tax and personal situation is different.
Your Attorney or Tax advisor should be the one who guides you on how to structure your personal asset protection for your real estate investing business.
One of the best ways I know of to start structuring your Personal Asset Protection is to use a Family Limited Partnership as your main starting point.
For the new person use a Land Trust, it will probably make you sleep better at night, since there has so much hoopla about them.
This is a business we are in and a serious one so starting without proper guideance from professionals may hurt a new person later on in their career.
I understand that most new investors are short on funds when they first start out, so do a few deals and thats OK without everything being in place, make sure you set aside the money to get everything in proper order for your protection very soon after your first or second deal.
The paperwork you use however must be State Specific when doing your deals, just make sure you add and/or assigns to make the transfer into your asset protection program.
John $Cash$ Locke
John,
Thanks. I have an attorney that I have worked with in the past. He saved me over $500k on the current property I own so I know what you mean. I need to find out if he is up on REI and Land Trust
You are right about my limitations. I am not cash short but time short right now. I need to start having my money work for me instead of me working for money.
I have family trust and will be setting up a LLC or S-corp like you said. This is good advise and already in the works.
Last question though... You are saying that I should do the sub2 and on the deed assign it to the Land Trust but Gatten states that the seller should have 10% in the trust with me (the investor) holding the LPoA on the 10%. Are you suggesting that I work this LPoA in the deal at the close or structure this thing differently and not assign the seller's 10% in the Trust?
Thanks again
atplack,
I'll go out on a limb here and disagree with the Sub2 Master (Hi, JL). I have never found it to be an issue to have the seller deed the property into a trust. If you have a motivated seller and present it correctly, it's just part of the paperwork. Once the trust is done, then the beneficial interest can simply be assigned to another party or entity.
It's not at all difficult to explain the benefits to the seller.
Each state has its own rules regarding transfer of title. Depending on which state you're in, you may be required to actually record the trust, list the trustee, and record any transfers of beneficial interest. In other words, the most efficient methodology depends on where you live.
Since I haven't seen Gatten post here, I'll give you a brief explanation according to my understanding of the PacTrust. Gatten and his team have interpreted the Garn St. Germaine Act and court cases to mean that the Due on Sale clause may only be enforced if the seller does not retain any interest in the trust.
Of course, there's much more to the PacTrust than just this aspect and I'm not qualified to say if Bill's interpretation is correct or not, but this is one of the key ingredients of the PacTrust. I attempted to take a property down this way a couple of years ago, but ended up doing my usual routine at the last minute.
Anyway, hope this helps some...
[addsig]
Question on Land Trusts- Our local Rental Property Owners Assoc attorney commented in our newsletter about Land Trusts. He says there is hardly a week goes by that someone asks him about it, that they just "studied" or worse "went to some boot camp" and they become adverse clients when he tries to explain his view. He says that they are only recognized in a few states and for only specific purposes, i.e. facilitating a closing via a title company...he 's vague there... something along the lines of a simutaneouse close I guess?
Anyway, he says that many new investors are told to use these for asset protection and are unknowingly putting themselves at risk. He claims that even in the few states where they are recognized, the beneficiaries are not protected from lawsuits stemming from held property.
Any comments?
trandle,
A land trust is nessasary in my current State. Otherwise I am limited to 5 deals per year and/or 10 deals in 5 years without a RE license. If I get the licenses, I have to disclose ALL my proceived profits to both the buyer and seller even if speculatory.
The only way around this is a trust, LLC, or corporate, but there must be a broker in them or they are limited to the same rules as an individual. Alternatively, I can use a RE broker to do the deal and pay 7%. The land trust is better return than this.
Right now, the land trust is my only real option(unless I go out of state).
To the Cashman's point, I have yet to see a person tell me that the DOSC was triggered on a property that was current. I have seen NO posts and have trolled for them on most boards.
Your point on Gatten is recognized and I tend to agree with you that this is his view. It seems to me that he is right that these laws and rulings do create a shield for the trust, but I do not believe that this is the only way. The lender can still trigger the DOSC clause, it is just that the trust would win in court and court cost would make the trust lose IMO.
Once again, who has ever had it triggered when payments are current? I find little case law (that is publicly available) where it references the DOSC and in all cases the properties interests were NOT kept current.
Thanks for the feedback.
JZI:
??? What is this Attorney's Name?
I'd like to probe his eexpertise in this area since either he (or maybe you) has failed to identify SPECIFICALLY HOW:
<i>"Anyway, he(the ATTY) says that <b>many</b> new investors are told to use these for asset protection and are unknowingly putting themselves at risk. He claims that <b>even in the few states where they are recognized</b>, the beneficiaries are <b>not protected</b> from lawsuits stemming from held property."</i>
THIS IS EITHER A SERIOUSLY UN-INFORMED STATEMENT BY THE ATTORNEY or FAILURE TO PROOF THEIR ARGUMENT!
If you (JZI) FAIL to make this matter CLEAR (Case, Citings, etc.) we can all presume your ATTY (or YOU) DOESN'T KNOW LAND TRUST LAW From A BUMP ON THEIR A$$ET$!
BTW What did the Legal Beagal Say about Your (My) State MICHIGAN???
I know the Atty. whom drafted briefs relating to use of the IL Title Holding Trust in MI.
DERRICK ALI
JZI:
Also Have yor ATTY to read the article I wrote about this problem:
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&sid=191
You may want to do the same!
Best of the Best!
Derrick Ali
atplack,
What I do not want to do is try and explain is the Pac Trust to a seller, after reading on this site what someone who deals with these type of trusts says and I quote "the PACT/NEHTrust...which takes VOLUMES only to scratch the surface" if it takes volumes to scratch the surface then how are you going to explain to a Seller in the short time you are with them what a Pact Trust is?
Well Mr. Seller you keep 10% etc, etc, etc, I would just rather keep it simple. I do not need a Seller as my partner in the deal, I want the Deed in my entities name period. However, if the Seller is motivated enough you could sell them a Burial Plan included in the paperwork.
Mr. Gatten found his niche in creative real estate investing as many other course writters, I have no problem if it works for him or his students.
PS: Tim Randle, I know I could explain to a seller, especially if they are motivated to put the property in a Land Trust without a problem, just a matter of how you want to handle the Land Trust before or after. I know it works either way.
I was thinking of the new person doing his first few deals and did not want them to get hung up or have concerns about how to handle a Land Trust. You and I could add the Burial Plan without problem in the paperwork because we have been there and done that.
John $Cash$ Locke
JZI,
My understanding regarding asset protection with trusts is the same as yours. The trust is simply a cloaking device for ownership and has no asset protection feature, which is why the use of appropriate entities is critical.
Even Bronchick and Gatten, two of the most public figures promoting the use of trusts, have agreed on this point in the past.
[addsig]
jziproperties,
1. MOST RE attorneys are NOT familiar with trust law and will state what you stated above. I had one attorney here in WI that told me that WI did NOT support trusts. I asked him about WI Status Chapter 701 (Trust) which creates an IL type land trust in WI. He told me that he was unfamiliar with this. The attorney had not even looked for the statutes. Be VERY wary of any attorney who gives legal advice in general terms. Ask for specific court cases and issues.
2. My understanding is that the Trust is created out of state and therefore, the trustee is responsible to defend the trust in the state that it is created. I actually see this as a safety device for frivolous lawsuits trying to pierce the veil of the trust.
[quote]
I have family trust and will be setting up a LLC or S-corp like you said. This is good advise and already in the works.
Taxjunkie says:
Forget about using an S corp to own real estate. The LLC is a far superior entity. Owning real estate through a corporation can result in taxation if you later want to distribute the property out, and will also can limitations under the "at risk" rules under Internal Revenue Code 465 if you are trying to get depreciation deductions or losses passing through to you to use against other income.
Hope that helps,
Taxjunkie
Thanks for the input. One of my pet peeves is someone who is supposed to be a professional, pompously do and say things about stuff out of context (like the media does alot) without giving any supporting info. All I have read about these trusts are in forums etc so far and even I was able to ascertain that they were not really for asset protection. I was alarmed at his article since he blasted so called "gurus". I pay good money to belong to this landlords association and use his advisement services- they just recently formed an investors sub group that he has input to. The article mentioned that this is such a problem that the investors group was going to have a symposium coming up re: this subject and asset protection.
I will read your post and with your permission I will forward it to the Attny and others in the group. I want and need sound guidance and can't afford to be led estray...
He claimed that it is not legal in our (beautiful I might add) state of MI.
I can provide the article and his bio if you like, just email me.
JZI:
He's out of his league with this assertion.
Email me at:
Asupremeco@ureach.com
Thanks,
Derrick Ali
JZI,
Hey, I read through your question again, I must add for clarity sake that land trusts as I understand them, do not protect the person for liability but the property.
Issue 1 is protecting the property from petty suits which cloud the title.
Issue 2 is protecting you as the investor.
Issue 1 is handled by the land trust.
Issue 2 is handled by a LLC, C-Corp, S-Corp, or Limited Partnership (never sole proprietor or general partnership).
Understand that a corporation (properly administered) protects the shareholders/partners from liability. The land trust protects the property from liability. A land trust with a corporation as the benificiary does both. <IMG SRC="images/forum/smilies/icon_biggrin.gif">
BTW, I am not an attorney but I do study hard..... [ Edited by atplack on Date 04/13/2003 ]