Land Trust Attorney in CA

[Michelle Mapp]

So , I don't know if I have ever heard so many different stories as I have regarding Due on Sale Clauses, changing title to an LLC or Land Trusts.

I can not believe how many people I have spoken to and how many articles I have read that all give me different stories.  What I am looking for seems pretty simple to me.  I would like to find someone in CA (where I live) who can do a Land Trust.  We want to transfer two properties in PA into the name of our LLC but would like to avoid any risk of Due on Sale clauses.  Seems like a simple thing right.  Well, apparently we don't use them much in CA and I have talked to 4 different people/firms and none of them do Land Trusts.  

Some advice I have been given: 

1) just transfer your property from your personal name (my husband an I) to the LLC - no one enforces those clauses

2) if the current title is 50/50 for husband/wife and the LLC is 50/50 for husband/wife then there is no issue - its basically the same

3) We don't do land trusts in CA

I do not want to take the risk of the Due on Sale clause, particularly with one lender who I would expect would actually enforce it.  

So - advice?  Recommendations for a Land Trust attorney?  

[Jeff B.]

BRAVO FOR YOU!  Just remember TALK is cheap, especially here.

I just love advice that induces Y O U to take risk with assets while the advisors take no responsibility.

(1) is totally irresponsible;  just remember terms like NEVER, ALWAYS, NO ONE are seldom true.

(3) APPEARS to be true to me as I have yet to have a lawyer or escrow company that will consider it.

(3) is dependent upon legal definitions.  The Due on Sale typically says something like "upon change of equity holder, change in title". I chased this at the county recorders office when vesting my trust (a wholly different animal). As the LLC is a legal entity(stating with the rights of a person), the transfer would be TAXED. If the lender filed a Request for Change with the Recorder's office, then the lender WOULD be notified of the change without any work on their part. How they would respond is problematic (ie up to them).

I'll also share what I've learned on LLCs - - yes I too fell for that asset protect stuff.

[Chris K.]

@Michelle Mapp

Just out of curiosity, why are you seeking to put these properties in a Land Trust? 

[Michelle Mapp]

@Chris K. Hi. My husband and I have properties that are currently titled to us as individuals and we want them out of our personal names. We would prefer to have these and all future properties owned by our LLC instead of us as individuals.

In order to transfer title seamlessly, (i.e. no due on sale enforcement or transfer taxes) based on the research I have done, the simplest way is to create a Land Trust and make the LLC the beneficiary. I have heard this from several investors and also read quite a few articles on it. But it apparently is not very common and I am having a hard time finding someone who can help me change the title on these properties easily.

My next step will be to contact people in PA but our LLC is CA and we plan on purchasing in other parts of the country as well.

Michelle 

[Jo-Ann Lapin]

feel free to pm me and I can give a good referral 

[Chris K.]

@Michelle Mapp: sorry for peppering you with questions, but why do you want to get them out of your personal names? Privacy? I also assume you want to continue to use Fannie or Freddie loans? By this I mean, 30 year mortgages instead of 20 years mortgages that allow you to own properties as a LLC?

In PA, the strategy you describe doesn't help with the due-on-sale clause (can't say I know enough about CA law to comment). Most of your protection from due-on-sale clause comes from a federal statute known as the Garn-St. Germain. It does provide an exception for transfer to an inter vivos trust, but it only applies when "borrower is and remains a beneficiary" of the trust and the transfer to the trust "does not relate to a transfer of rights of occupancy in the property." The regulations clarify that this means the trust exception only applies if: (1) it's an inter vivos trust where the borrower is the beneficiary; and (2) the borrower continues to remain as the occupant of the property. 

To specifically comment on the advice that you received:

1. I don't think anyone can tell you what the chances of a bank enforcing a due-on-sale clause. What I can tell you is that as an attorney I represented many national and community banks. We enforced due-on-sales many times. That's especially true for Fannie and Freddie loans since Fannie and Freddie require the banks to enforce it. 

2. I don't know CA Law, but in PA it's absolutely incorrect that you holding the property as husband and wife is the same as the LLC where husband and wife own 50/50 share. If you transfer the property to the LLC, it will trigger realty transfer taxes and also the due-on-sale clause.

3. I again don't know anything about CA law, but I can't imagine this being true. As used on BP, land trusts typically means a revocable trust that people use to hold real estate. There is nothing special about it. Now there are other kinds of land trusts (e.g. conservancy land trusts) but that really has nothing to do with what most people are looking for on BP.  

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

[Edward B.]

Using a land trust obscures that you have transferred the property, it does not circumvent the Due on Sale clause. If the lender finds out that you have transferred the beneficial interest in the trust to your LLC then they will likely be able to enforce the Due on Sale clause and accelerate your loan if they so choose. If you are at all concerned about having your loan accelerated, then you need to refinance it into the name of the LLC or leave it be. Anything else is smoke and mirrors and does not guarantee that you will not get your loan accelerated.

[Chris K.]

@Michelle Mapp 

This isn't directed at you, but I do have to say I'm a bit mystified about the obsession over land trusts on BP. There are hundreds of valid reasons to use a trust, but many folks on BP tend to overestimate the benefits of a land trust (granted, this does depend on state law). 

I am very curious where all this obsession over land trusts started from. 

[Edward B.]

@Chris K., I would say it comes from the mistaken belief that land trusts provide good asset protection and/or a sure fire way around the dreaded "DUE ON SALE" clause in most new loans.

[Michelle Mapp]

Okay - I found a great article on Bigger Pockets that explains exactly what I want to do and why.  Sadly, it also highlights that what I want to do doesn't actually help me in PA with regard to transfer taxes and since the two properties I want to do this with are in PA - well now I know.  :)  

https://www.biggerpockets.com/renewsblog/2010/09/30/land-trust-traps-for-the-unwary-investor-2/

[Chris K.]

@Michelle Mapp: 

Thanks for the link! Few comments: 

1. The author is probably correct that using a land trust makes it more difficult for a lender to notice that you made an improper transfer. That said, you are still voluntarily defaulting on your loans if you do so. I could see this becoming a major problem if your loan documents have any cross-default language. 

2. My guess is that the level of asset protection you receive from this arrangement will depend heavily on state law. In PA, if the land trust is revocable, then I'm not entirely sure what meaningful asset protection a land trust can offer. If a trust is revocable, creditors of the settlors or grantors (in this case you and your husband) can typically nullify the trust and reach the assets within the trust. As for the creditors of the LLC, I suppose it is true that they can't automatically reach the assets within the trust. But in this land-trust set up, I suppose I don't really see what creditors the LLC will have. If I understand the set up correctly, all tenants and creditors are will be dealing with the land trust and the trustee (which most likely will be you and your husband). So you are really just protecting the assets of the LLC, instead of protecting your personal assets.

3. In PA, I'm not sure having a land trust masks property ownership at all. As the author points out, the name on the mortgage and the note will likely reveal the true owner. More importantly, any competent creditor lawyer could probably find all the necessary information about the true owners within a week or two. 

4. Here is a link to a video that explains one common (and correct) set up for using a revocable trust. He is not specifically discussing a land trust, but it basically describes how most wealthier families use revocable trusts for their estate planning. But the setup is more about estate planning than liability protection.  

https://www.youtube.com/watch?v=HZln-xiJmRk 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.