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Considerations When Selling on an Installment Contract

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By Mr. Land Trust, RANDY HUGHES

One of the many ways to make money in the real estate business is to buy low and sell higher on an installment contract.

The traditional method of contract selling is known as “Contract for Deed.” It is a risky way of selling property when the buyer does not have cash or conventional financing. The risk involves the buyer defaulting on the contract.

Where’s the Risk?

By law, even though they have defaulted, the buyer still has an “equitable interest” in YOUR property. That interest must be foreclosed upon.

Foreclosure is a time-consuming and expensive legal process that can take months to accomplish while the contract seller makes payments on her underlying loan with no income to offset her payments. This is the WORST part of real estate investing.

One of the many benefits of using a Land Trust to hold title to investment real estate is the ability to sell the Beneficial Interest (which is personal property and not real property in most states) on an installment contract with the capability to “repossess” the Beneficial Interest when default occurs instead of having to “foreclose” the interest. Repossession takes about 30 days, foreclosure can up to a year.

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A Guiding Example

Regardless of which method you use to “sell on a contract,” selling the real property or the Beneficial Interest, you should check your State’s law regarding Contract Sales. For example, in Illinois, there is the Installment Sales Contract Act. It represents an excellent example of why I am always recommending that you seek competent legal counsel. There are certain disclosures required under the Illinois Installment Sales Contract Act.

The Act states that it means a “. . . legal device whereby a seller agrees to sell and the buyer agrees to buy a residential real estate.” Wait!, you say. Didn’t you just write that the Beneficial Interest is personal property? You are correct. I did. It is in most states and that is why I like to set my trusts up in states that consider the Beneficial Interest of a Land Trust personal property. And as documented in the DePaul University Law Review, volume 18, issue 2, article 37, page 878, it is.

Since the Beneficial Interest is not real estate, does the Act apply? The attorney in Illinois with whom I consulted encouraged me to comply with the Act anyway in case a judge rules that the Act does apply. When you go in front of a judge, anything can happen . . . no matter what the law in your State says. Judges “make law” every day in their courtrooms and if you don’t like it, you can appeal.

This Could Be a Good Thing

Even if you view the attorney I consulted as being overly cautious, you might consider fulfilling the requirements under that law. They could make your contract even more defensible if it should be challenged.

Here are highlights of those requirements:

  1. The contract must be in writing;
  2. The Seller must give the Buyer a copy of the contract at least 3-days before closing.
  3. The contract must contain many disclosures, including, but not limited to the following:
  • Purchase price
  • Down payment
  • Interest rate
  • Payment due date
  • Balloon payment due date (if any)
  • Amortization Schedule
  • Statement of who is responsible for repairs.
  • Who pays real estate tax bills
  • Who pays for property insurance
  • A list of building code violations
  • Amount of any unpaid real estate property taxes
  • If there are any liens against the property
  • If the property has been condemned
  • The Seller must record the contract or a memorandum of the contract at the Recorder of Deeds Office in the county where the property is located
  • The Seller must provide the Buyer with an account statement upon request
  • No pre-payment penalties can be charged for payments not due yet
  • If you default, you have the right to pay all fees and charges currently due under the contract to cure the default in 90 days.

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I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Behold the Cockroach – It has survived and thrived

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By Randy Hughes, Mr. Land Trust

Starting in the late 1970s and up through the 1990s pitchmen were all over television extolling the ease at which you could “become rich in your spare time” if you just followed their real estate investment “program.” After 52 years in the real estate investment business, I know of no one who became rich through real estate quickly (I am sure some investors got rich quickly through luck, but I have never met one).

I do know a lot of people who became rich using real estate as their vehicle. They all earned it by working hard and putting in years of devotion.

This article for Realty 411 is for all of you who have not yet become a millionaire in your “spare time.”

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What does all this have to do with cockroaches?

When it comes to being able to survive and expand its operations, nothing has ever surpassed the lowly cockroach. Despite chemical warfare, I often find them in my houses after tenants vacate. Some tenants seem to cohabitate with cockroaches intentionally (and quite well)!

In New York’s Museum of Natural History, they used to point tourists’ attention to a pickled roach between the toes of their biggest dinosaur to demonstrate that roaches have survived in the same form since the period before dinosaurs stalked the Earth.

This means that cockroaches lived on even after the mass extinction of the dinosaurs. For perspective, man has been on Earth during only 1% of the time that cockroaches have existed on the planet!

How have cockroaches survived?

How have cockroaches survived so successfully for millions of years? 1). It never challenges anything bigger than itself 2). It stays out of sight 3). It can survive for lengthy periods under adverse conditions or in a hostile environment 4). It is fast and elusive 5). It lives in the cracks of society never calling attention to itself 6). It reproduces quickly and with ease 7). It can make a meal out of about anything organic regardless of how unappetizing!

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What can we learn from the cockroach lifestyle?

We small investors must be adaptable, maintain a low profile, and be prepared to move quickly when either an opportunity or danger presents itself. We must be able to recognize opportunities, whether foreclosures, rehabs, discounted paper, single-family house opportunities, or value-added property prospects. We must also avoid hostile environments (and hostile tenants) which are high on risk and low on rewards.

You can skip “make a meal out of about anything organic”. I don’t recommend that.

About those Pitchmen

I knew a real estate guru once that bragged that he bought a property every month. He later confessed that he felt so obligated to follow through with that public statement that he would buy bad deals just to “keep up his image” as a monthly property buyer.

Be patient, be diligent, analyze, and then act. Some investors never succeed because they catch the “paralysis of analysis” fever. They buy books (sometimes they even read those books they buy), attend meetings, talk with other investors, analyze data, buy mentor programs, and never buy any real estate.

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Apply these lessons from a cockroach lifestyle and you WILL succeed!

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Multiple Properties in One Land Trust

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Image from Pixabay

By Randy Hughes, Mr. Land Trust

Many investors think, “I’ll put multiple properties into one Land Trust! That should be easy.” They could assume that managing one trust will be a breeze compared to managing multiple Land Trusts. They may also think that there is no downside.

Investors who think like this have not thought their plan through. The reverse can be the case. Managing multiple properties in one Land Trust is a snap (especially when you use my exclusive Trust Tracker, included with my Basic Course). It’s having all your properties in one Land Trust, or one basket as I like to say, that things can get tough, very tough, fast.

Welcome to the New Year

Image from Pixabay

Before I continue, permit me to point out that I started writing about Trust Trusts twenty-two years ago. My students requested it. They wanted to learn more about the scores of benefits of using a trust to hold title to their properties.

When I speak in front of an audience or teach a Land Trusts Made Simple® class, the question of whether to hold multiple properties in one Land Trust is sure to come up. My basic answer is “you can hold multiple properties in one trust, but I do not suggest you do that.” Why not? Read on my fellow real estate investors.

Here’s Why Not

First, there is a basic principle to asset protection that says, “keep all assets separated.” This applies to all types of investments (cash, stocks, bonds, real estate, precious metals, etc.). The theory behind this is that if liability occurs against one of your assets, it will not directly affect all your other assets. For example, if you titled ten single-family rental houses in one LLC and you had an uninsured loss or legal claim against the property/owner, any lien or judgment against the owner/LLC would tie up ALL the properties inside the LLC. Dumb, huh?

Image from Pixabay

However, if you hold the title to each of those ten rental houses in separate Land Trusts and a contingency-fee attorney and their deadbeat client attack one of them, any potential judgment would be rendered against the property itself and there would be no effect on your nine other properties. Therefore, the smart real estate investor puts each property into its own separate Land Trust. I encourage investors to take asset protection a step further by making the Beneficiary of the trusts one or more LLCs.

Hunting Expedition

There’s another benefit to NOT putting multiple properties into one Land Trust. If a subpoena is issued to the Trustee in search of information about the trust and its assets, the subpoena would apply to ALL properties inside the trust (not just the property involved in the litigation)! Double dumb, huh?

Furthermore, any assignments of Beneficial Interest or contingent beneficiary provisions in your trust will apply to all properties held in that trust. This removes one of the best reasons to use a Land Trust. For example, if you wanted to sell one property on an installment contract, you could not do it effectively when holding more than one property in one trust.

It does not cost anything to form a trust. Therefore, it makes sense to always put each property into its own, separate trust.

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Land Trust Record Keeping

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Image by OpenClipart-Vectors from Pixabay

By Randy Hughes

All you need to create a Land Trust is two documents. A Deed to Trustee and a Trust Agreement. The heart of a Land Trust is the Trust Agreement (TA). So, what do you do when you can t find your TA?

Your first phone call should be to your Trustee. She/He/It should have a copy. But, sometimes things happen and even your Trustee can’t find a copy of your TA. Your frustration mounts when you can’t locate your TA because generally you went looking for it for a reason and you need it now! Multiple USB sticks
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Image by jacqueline macou from Pixabay

Why do you need your TA? Probably because you are getting ready to sell the property out of the Trust and you need to prove to a closing agent, title company or attorney that the Trust exists. Or, you need to make a change (amendment) to the TA (i.e. change of Beneficiary or change of Trustee). First, I would suggest that you learn your lesson so this never happens again. Make sure that you keep two copies of each TA in addition to the copy retained by the Trustee. Keep a hard copy in your property files filing cabinet and keep an electronic copy on a Memory Stick in your safe at home or in your safe deposit box at your bank. Now, back to the problem. A Trust Agreement is not like a Will. By statute, Wills can be revoked by destroying it. Therefore, if no one can produce a valid Will upon the death of the testator, there is a presumption that the will was revoked. Not the case with a Land Trust Agreement. If a TA cannot be found there is no presumption that the agreement was revoked. If a photo copy cannot be found of the original TA, the Beneficiary can Restate the TA by typing up a new one! All the Beneficiary needs to do to recreate the TA is the put at the top of page one of the newly formed TA, Amended and Restated Trust Agreement. Then in the body of the TA attest to the fact that the original TA could not be found and that the Beneficiary is certifying that the is a true and accurate restatement of the original TA. So, remember. Keep multiple copies of your TA (and any amendments) in different locations. But, if all else fails you know that you can always recreate the TA, if necessary. Remember to like me on Facebook, join me on LinkedIn, and please leave me a Google Review!
Randy-Hughes

Randy Hughes, Mr. Land Trust

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)

Always Think Safety

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Image by Free-Photos from Pixabay

By Randy Hughes

Sometimes I am questioned as to why I do not want to own property in my personal name. Am I trying to do something illegal, immoral, or fattening?

NO! I am just trying to protect my family’s assets from deadbeats and their contingency fee lawyers! Furthermore, I am trying to protect my family from crazy tenants. Can you imagine a tenant you are evicting getting mad enough to come to your home and confront you (or worse yet, your children who answered the door)? It happens, and sometimes worse. Case in point; In Hartford, Connecticut a tenant cut off the head of his landlord who was trying to evict him. Don’t be an “owner.” Be a property manager . . . you may live longer. It is YOUR responsibility to protect your family and its assets. Get busy, and use a trust. You will be glad you did!! Remember to like me on Facebook, join me on LinkedIn, and please leave me a Google Review!
Randy_chair_500px

Randy Hughes, Mr. Land Trust

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)

Myths About Land Trusts

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By Randy Hughes, Mr. Land Trust

I write and teach a lot about the many benefits to using a Land Trust to hold title to real estate investments. There is a lot of misinformation in the marketplace about Land Trusts and a lot of bad advice given regarding these Grantor Revocable Title Holding Trusts. After using these trusts for over 40 years I have found that the myths outnumber the facts. In this article I will dispel some of the myths that I hear over and over.

MYTH: My lender will not let me close my deal using a Land Trust (LT)

TRUTH: This depends on if you are using borrowed funds from a lender that must qualify you in the secondary market. If you must meet secondary market guidelines it is true that you must close the deal in your name, but you can put the property into a land trust the day after closing. Once you have 4 secondary market loans (the maximum allowed) you must use a portfolio lender and they WILL let you close by taking title directly from the seller to your trust (So, you are never in the chain of title).

Note: Bank of America WILL let you close four secondary market loans using a land trust to take initial title. However, you must use an Illinois Land Trust and the property must be in Illinois.

no-68481_1280MYTH: Do I have to get a tax ID number for my LT?

TRUTH: The answer is no. Nor do you have to register your Trust Agreement with anyone on planet earth! (There are two States that I am aware of that require disclosure of the Beneficiary upon creation of the Trust…via the Deed to Trustee…but this problem is easily solved).

MYTH: You cannot do a Short Sale using a LT

TRUTH: False. You can and I have and there are many advantages to using a LT for this type of transaction.

MYTH: Is it true that I must record my Trust Agreement to make it valid?

TRUTH: No, and 99% of the time you would not want to record your trust agreement. However, there is that 1% reason that you might want to record. Contact me if you want to why.

MYTH: My attorney says Land Trusts are illegal in my state

TRUTH: This is probably not true. Almost all states recognize the validity of a LT or a similar type entity (Title Holding Trust, Common Law Trust, etc.). My experience is that a vast majority of lawyers do not understand Land Trusts and therefore do not recommend them. Too bad for their clients…they are missing out on over 50 Reasons to Use a Land Trust (I have written a booklet called, “Reasons to Use a Land Trust” and will deliver it to you for free if you text the word Reasons to 206-203-2005).

MYTH: If I use my LLC as the beneficiary of a Land Trust, I must register the LLC in the state where the property (held inside the Land Trust) is located.

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TRUTH: Wrong! Many accountants will tell you this, but they are incorrect. The beneficiary of the Land Trust is not “doing business” in the state where the property is located…the Land Trust is…and the Land Trust is not required to register.

Note: California has a law that says if you transfer more than 49% of ANY entity that owns property in CA or is the beneficiary of a Trust that owns property in CA, they have the right to tax you.

MYTH: Land Trusts are expensive to set up and maintain

TRUTH: Not true. If you follow my advice to put each of your properties into a separate Land Trust and you hire an attorney to do this for you, it WILL get expensive. But you do not need to do this. You can learn how to set up and administer your own Land Trusts (as many as you need/want).

MYTH: Land Trusts must have incorporation papers and the State notified

TRUTH: Wrong again! Land Trusts are not registered like corporations and LLC’s on a state-by-state basis (in fact, they are not registered at all…anywhere!). This is one of the many reasons to start your estate planning with a Land Trust for each property you buy.

MYTH: I was told that my Land Trust must open an account at a local bank

TRUTH: Not true. Since Land Trusts are “pass-through” entities in the eyes of the IRS you do not need a separate bank account for each Land Trust you form. You can set up an account, but it is not required. If you set up an account for your Land Trust, you will not have a tax ID number to use so you will have to use your own social security number (or, if your LLC is the beneficiary you might use the tax ID # for your LLC).

MYTH: It is illegal to hide the ownership of property

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TRUTH: I love this one. WRONG! It is not illegal to hold title to your real estate in a Land Trust to conceal the ownership (I call this being private about your business). The past president of the United States, Barack Obama, owns his home in Chicago, IL in a Land Trust with his attorney serving as the trustee. If it is good enough for a president, it should be good enough for you!

MYTH: Can I buy the Beneficial Interest in a LT without buying Title Insurance

TRUTH: Yes, you can, but I would not suggest doing this. I would always get a title policy and have the proper “search” done prior to transferring any funds. You want to make sure that the Trustee has clear title and there are no unknown liens or judgments against the property. You should also obtain a copy of the trust agreement and make sure the Trustee acknowledges EVERYTHING!

This is certainly not a complete list of misconceptions about Land Trusts, but is enough to digest for now. I will write more on this subject in future articles. Feel free to contact me if you have any specific questions. My number is: 217-355-1281. Or, [email protected]

Randy_chair_500pxI encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)

Prepare for the Coming Greed Pandemic

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Protecting Your Assets Is MORE Relevant Post-COVID-19

By Randy Hughes

If you wondered about your need for privacy and asset protection before the Pandemic, it will be critical for you and real estate investors like you post-Pandemic.

gdpr-4095257_1280The effects of the epidemic will be felt for years, not only financially but legally. If you have put off creating an asset protection plan, now would be a great time to start.

We have long known, as real estate investors, we are more inclined to be sued than most other occupations. Why? Because the average American assumes that ALL real estate investors are RICH! Therefore, we are good targets for frivolous lawsuits.

People with cash in the bank and no hard assets are not good targets for lawsuits because, unlike real estate, cash can disappear quickly . . . and buildings cannot. Furthermore, unlike deeds and liens, bank account balances are not available through public records.

Until you have been pursued by a contingency fee lawyer (and his or her deadbeat client), you might not feel the need to protect your assets. But, if you are going to stay in this game long-term, it is just a matter of time before the wolves will be at your door.

moon-4908100_1280The paradox of our careers is the more successful we become, the more of a “target” we are for the nefarious characters in our society. These characters do not want to work hard (like us) to become wealthy. They prefer the “easy route” via our dubious legal system.

I spoke 33 times last year to real estate investment groups around the nation. I stressed the need to get titles to real estate out of personal names and into Land Trusts for privacy, asset protection, and estate planning purposes.

In almost every gathering, someone asked the question, “Why do I need to protect my assets, won’t insurance take care of any claims?” My standard response was, “I believe in insurance and think you should buy all you can stand, but DO NOT RELY ON IT EXCLUSIVELY!

Insurance should be only one-leg of your asset protection stool. Why? Let me give you a recent example!

When the pandemic first arrived in America and almost every business was shut down, I called my neighborly insurance agent. Here is how our conversation went: “Hi Bob, I am calling because after 40+ years of paying you a premium for “business interruption” insurance, I need to make a claim.” Bob responded, “Sorry, but pandemics are excluded!” My response was, “Really? Forty years of premiums and now I AM NOT COVERED?

It is folly to rely solely on insurance to protect you when you need it the most.

As an aside, please read your policies. You will find LOTS of exclusions and often you are not even covered for “defense costs.” In other words, you can go broke just defending yourself (read: legal fees) from a legal challenge in which you are totally innocent.

lawyer-3268430_1280What is a real estate investor’s first line of defense? DO NOT OWN PROPERTY IN YOUR NAME! I have been preaching this to my fellow real estate investors for more than 40 years. I have been a full-time real estate investor for 50 years, and early in my career I discovered the benefits of using a Trust to hold title to my investments. I have written about the benefits extensively in this publication and many others.

Some people “get it” and many do not. They live in a dream world assuming that THEY will somehow be spared the sorrow and expense of a frivolous lawsuit (or worse yet, an attack by an irate tenant on them or their family at their personal residence). Consequently, they risk years of hard work and their family’s safety and financial security because they are too lazy to fill out a few papers.

I can lead a horse to water, but . . .

What is YOUR net worth, worth? Is it worthy of protection? How much of a price have you paid for it in sweat and tears? Are your family’s safety and security important to you? Perhaps you spend hours each week watching sports? Would it make sense to spend a little bit of your valuable time learning how to create a trust to hold title to your investments? The answer is obvious, you just need to do it and DO IT NOW!

output-5045168_1280What does this rant have to do with the pandemic? Plenty. Contingency lawyers and their deadbeat clients will be developing new and creative ways to find someone to sue because of the virus and its effects on tenants, businesses, and anyone with assets they covet.

If you can believe there are elements of our society that will walk in front of a car to eventually receive a “paycheck,” then you can also believe that it is time for YOU to get OFF the title of all of your real estate investments (and NEVER buy property in your name again!). Use a trust, you will be glad you did!

Several times a year I hear from people who have heard me speak or students who did not act on what they learned from me. They tell me they failed to take my recommendation, and now they regret it.

Don’t be one of those people.

Randy_chair_500px

Randy Hughes, Mr. Land Trust

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)

Illinois Land Trusts

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By Randy Hughes

There is no federal land trust law. Each state either has a Land Trust Statute or trust laws that govern the validity of using a Land Trust to hold title to real estate. In past articles I have covered; Florida, Virginia and California. This issue of my Land Trust University newsletter will detail the Illinois Land Trust (Chapter 760 ILCS of the Code of the State of Illinois) and its benefits/challenges.

Illinois is the granddaddy of Land Trust Law. This is the reason why most Land Trusts throughout the USA are referred to as “Illinois-type Land Trusts.” Chicago Title formed the first Land Trust made in the United States to help a builder develop and sell lots for a suburb of the City of Chicago, Illinois. While Illinois does not have a specific Land Trust Statute, it does have over 100 years of case law that most other states default to when deciding Land Trust cases. As a point of interest, Barak Obama, holds title to his house in the suburbs of Chicago in a Land Trust (his attorney is the Trustee). While I cannot prove it, some say that 90% of the commercial property in Cook County, Illinois (Chicago), is held in Land Trusts. Needless to say, Land Trusts are very popular in Illinois. This fact produces good news and bad news when using Land Trusts in Illinois.

justice-2071539 smallThe good news is that because Illinois Land Trusts have been around so long and used to such a large degree within the State, it is easy to find legal help with Land Trust issues AND title companies are very familiar with insuring Land Trusts. Furthermore, most property insurance companies are also accustomed to correctly insuring a Land Trust (making the Named Insured the Trustee and the Trust).

The bad news is, Illinois law has plugged the benefit’s hole to some degree. For example, Illinois has a law that any transfers of the beneficial interest in a Land Trust are NOT VALID unless reported to the local taxing bodies. However, there is a good lesson in this tale because if you read the law carefully you discover that the law ONLY applies to counties of 3 million or more in population. There is only one county in Illinois that holds that many soles…Cook County! The rest of the State of Illinois is exempt from this law (it always pays to read the fine print).

Illinois law also requires that the Trustee perform certain “duties” to validate the Trust Agreement. I do not want my trustee to have ANY duties other than to hold and convey title (at the minimum). As discussed in previous newsletters, other states (e.g. Virginia) do not require any duties of a trustee other than to hold title.

services-4070150_1280Despite these obstacles, many historical benefits to the use of Illinois Land Trusts remain. The principal attraction of a Land Trust is its ability to confuse and hide ownership of property and ease of transferability. Other benefits are:

1. Insulation from liens and judgments (can be seized or transferred by court order)
2. Ease of transfer of interest (button, button…)
3. Avoidance of probate (allows for one to control the management and distribution of an estate for generations)
4. Ease of management by multiple owners
5. Keeping sales price confidential
6. Fracturing interests for multiple owners (don’t become a general partner… form two trusts)
7. Ease of linkage to other asset protecting entities
8. Confusion/expense to adversaries
9. Flow through tax consequences
10. Limited liability
11. Non-judicial repossessions of real estate sold on an installment contract (buyer can’t encumber the fee simple title)
12. Form 1099 not required for transfers (personal property is not subject to real estate regulations)
13. Ease of operating across state lines

write-593333_1280Other issues to consider when forming an Illinois Land Trust are:

Note #1: In Illinois when a beneficial interest is assigned as collateral for a loan, it must be recorded under the Land Trust and Recordation and Transfer Tax Act. Taxes need not be paid on collateral transfers, only on all other transfers. They also want the trust document or a facsimile to be recorded along with the collateral assignment.

Note #2: Illinois land trust statute (75 ILCS 435) requires that holders of the Power of Direction owe fiduciary duties to holders of the Beneficial Interests. This is not the case in most other states that have Land Trust statutes.

Note #3: Effective January 1st, 2011 House Bill 5282 is now PA 96-1145. The Act adds language to section 1c of the Joint tenancy Act (765 ILCS 1005/1c):

Note #4: In Illinois trusts are generally spendthrift trusts by default.

(735 ILCS 5/2-1403) (from Ch. 110, par. 2-1403) Sec. 2-1403

No court, except as otherwise provided in this Section, shall order the satisfaction of a judgment out of any property held in trust for the judgment debtor if such trust has, in good faith, been created by, or the fund so held in trust has proceeded from, a person other than the judgment debtor.

Where the homestead is held in the name or names of a Trustee or Trustees of a revocable inter vivos trust made by the settlors of such trust or trusts who are husband and wife, and the husband and wife are the primary beneficiaries of one or both of the trusts so created, and the deed or deeds conveying to the homestead to the trustee or trustees of the trust or trusts specifically state that the interests of the husband and wife to the homestead property are to be held by Tenants By The Entirety, the estate created shall be deemed to be Tenants By The Entirety.

hammer-719066_1280The new law also amends section 12-112 of the Code of Civil Procedure (735 ILCS 5/12-112). As amended the second sentence of that section now reads as follows:

Any real property, or any beneficial interest in a Land Trust, or any interest in real property held in a revocable inter vivos trust or revocable inter vivos trusts crated for estate planning purposes, held in Tenancy By The Entirety shall not be liable to be sold upon judgment entered on or after October 1st, 1990 against only one of the tenants, except if the property was transferred into tenancy with the sole intent to avoid the payment of debts existing at the time of the transfer beyond the transferor’s ability to pay those debts as they become due.

Remember from my previous articles, it is possible to form a Land Trust in one state to hold title to property in another state. This is a very foreign concept to most attorneys and is confusing to most everyone. Consequently, holding title in an out-of-state Land Trust is a good asset protection technique.

I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411 and text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America today).

Randy-Hughes

Randy Hughes, Mr. Land Trust

If you want to learn more about the wonderful world of trusts, please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com/411 Also, feel free to call me with any questions. I actually answer my phone! 1-866-696-7347

Virginia Land Trusts

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By Randy Hughes, Mr. Land Trust

Our modern world is fraught with dangers and potential liabilities for the real estate investor who just wants to work hard and build an estate for his/her family. Learning how to conceal assets and appear poor should be the goal of all hard-working entrepreneurs. America’s legal system has run amok and if you do not concern yourself with asset protection you are doomed to fall prey to the 21st century terrorist…the contingency fee lawyer (and his/her client).

An interesting and not well understood fact about Land Trusts is that they do not have to be formed in the same state where the property is located (or where the beneficiary resides). Like the founding fathers intended, Land Trusts have been left to each state to develop how to rule on the use of them. There is no Federal Land Trust law. Only a few states have a Land Trust Statute (most have only case law supporting the use of Land Trusts from other states), but all states recognize some form of title holding trust. In this article, I will discuss the Virginia Land Trust Statute and its unique benefits to the real estate investor.

The English Statute of Uses was repealed by the Virginia General Assembly in 1792, thereby eliminating one of the hurdles to land trust validity. But in 1819 the legislature enacted a limited Statute of Uses which applies to declarations of trust in which the trustee has no duties whatsoever. Since Land Trusts are usually drafted requiring the Trustee to do something, even if only accepting property and deeding it out, this is all it takes to get around the limited Statute of Uses.

Land Trusts in Virginia work exactly like those in Florida and Illinois. 55-17.1 of the Code of Virginia spells out the modern-day interpretations which incorporates all these attributes. 58-77 (2) of the Virginia Code confirms that a trust is not taxed as a corporation. And, 8.01-81 et seq. of the Virginia Partition Statute verifies that the remedy of partition cannot be used by one beneficiary against another. Furthermore, there is no transfer notification requirement nor a requirement to disclose the beneficiary (as some states have).

Note: Virginia Land Trust Law (Virginia Code 55-58.1) requires an in-state Trustee. Therefore, if you are forming a Virginia Land Trust to hold title to property in any other state, you need to have a Virginia Trustee. I do not like this requirement because although I prefer my trustees located in the same state as where I am forming my trust, it is nice to have the option to use someone from another state.

So, how do you form and out-of-state trust to hold title to the property in your state? And, where can you find a trustee from another state to serve as your trustee? These are good questions for the concerned real estate investor who wants to protect his/her hard-earned assets. You will find the answers to these and many more of your questions at: www.landtrustsmadesimple.com

I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411  and text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America today).

Randy Hughes, Mr. Land Trust

If you want to learn more about the wonderful world of trusts, please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com/411 Also, feel free to call me with any questions. I actually answer my phone! 1-866-696-7347

They Did Not Take My Advice and It Cost Them Dearly

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By Randy Hughes, Mr. Land Trust

Several years ago I purchased four single family houses on an installment contract from an elderly gentleman and his wife. The couple had lived in my town all their life and had decided to retire to Florida. Not wanting to be burdened with continuing to manage their rental properties, they decided to sell. However, selling for all cash would have generated a huge capital gains burden (their houses were fully depreciated). The solution was to sell on an installment basis whereby only the principal payments would be reported as gain.

I suggested to the retiring couple that they put their properties into separate Land Trusts and sell me the beneficial interest on a contract. This method of selling would allow the title to the property to stay in their trust’s name (with them controlling the Beneficial Interest) until I paid them in full. If I defaulted, they would be able to repossess the Assignment of Beneficial Interest . . . and not have to foreclose.

Being stuck in their ways of doing things, the old couple said they did not want to sell using a Land Trust but wanted to record a deed in my name (actually I had them record the deed in the name of my Land Trust Trustee) and record a mortgage on each property for the amount of debt I would owe them. Not wanting to kill the deal, I agreed to do it their way.

Buying on an installment contract has its advantages. I paid the couple a small down payment and made them monthly payments amortized over a 25-year period. The interest rate they charged me was less than what the banks would have charged and more than they could receive in a certificate of deposit. Everybody wins when you cut the banker out of the transaction.

I rented the houses out to families and made my payments to the elderly couple for several years. The favorable terms I received on the contract allowed me to have a monthly positive cash flow on all four properties. Life was great!

One day the seller (now living in Florida) called me and said he had another house in my town for sale. After finding out the address of the house he wanted to sell, I told him I was not interested. He accepted my decision saying that he had another prospective buyer anyway.

About a year later I received a call from the old man from Florida. He told me a long story about how he had sold the house (that he had tried to sell to me a year earlier) to a painting contractor who was now in default on his payments. He needed my help.

I asked him if he sold the house to the painting contractor using the same method he sold to me. He said, “yes”. I said, “too bad, because now you are going to have to foreclose.” Since the old man had put the title to the property in the name of the buyer and then recorded a mortgage, his only option was to foreclose the mortgage.

Foreclosure can be expensive and time consuming depending on what state the property is located in, but it is always a hassle! The old couple from Florida had a long and expensive road ahead of them to regain possession of the property they had sold to the painting contractor.

Wanting to help the old couple out, I told them I would hire an attorney for them (at their expense, of course) to handle the foreclosure. Then, when it appeared that things could not get worse, the painting contractor died before we could get him served with the foreclosure action.

The contractor’s death resulted in the old couple having to hire two attorneys (one to represent them and one to represent the estate of the dead contractor). Since the contractor had no assets upon his death and had two judgment liens that were recorded against his house, no heir wanted to get involved. Thus the need to hire the second attorney to represent the contractor’s estate in the foreclosure action.

The foreclosure case took a little over one year and $10,000 + in legal fees. Even though I was involved and helped the old couple as much as I could, the stress on them was still great. Within a year and a half both of these fine people died.

The moral of this story relates to life itself. We all have unforeseen future circumstances affect us (and consequently the title to our property) in ways we cannot imagine in the present. Anytime you go on title with someone (even your spouse or significant other), you are risking losing your interest because of someone else’s actions.

Further, if you sell property on an installment contract by allowing the buyer to take title immediately you are risking a lot. This is why I teach real estate investors to not only put each of their properties into separate trusts, but to sell the beneficial interests of those trusts if they are not selling for all cash.

Real estate investing is fraught with risks and using a Land Trust to hold title reduces those risks. The method of selling the Beneficial Interest in a Land Trust is just one of over 50 reasons to use a Land Trust. I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411  or text me at 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone).

Randy Hughes, Mr. Land Trust

If you want to learn more about the wonderful world of trusts, please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com/411 Also, feel free to call me with any questions. I actually answer my phone! 1-866-696-7347