Borrowing Through a Land Trust

[David Weintraub]

I have a borrower who asked me if he could "borrow in the name of a 'land trust'..." 

He briefly explained some of the nuances, and when I asked him why he did this he said, "It protects us a little better than a LLC..."

Does anyone have any experience with this?

The borrower tells me his LLC, and his brother's, fall under the land trust. But as a lender, we need SOMEONE we are lending to.

Advice appreciated.  I won't hold you to any incorrect legal advice :-) 

[Laura Richards]

Many private lenders will loan and like to loan in a land trust, but the land trust should be drafted differently than a typical land trust. For example, there should be a primary beneficiary and a secondary beneficiary with the primary being the lender and the secondary being the borrower. The trust should state that the primary has complete control over the trust until all terms of the loan have been satisfied. This gives the lender a lot of protection against waste, junior encumbrances, securing and maintaining the property if borrower defaults, etc. A common misconception is that the land trust helps the lender circumvent foreclosure- it does not. 

When its time to refinance, most conventional lenders will just require that the property be deeded out of the trust at closing.