Originally posted by "NCREOATTORNEY":
John Smith conveys to Jon Doe as trustee of the John Smith Land Trust John Smith is the beneficiary, but has no power to remove the trustee or convey the property... so if Jon Doe wants to he can convey the property away, or encumber it.... further.. when the land is put into the trust I am of the opinion it triggers the due on sale clause.... if it is Foreclosed on, then the bank in not secured, and the owners are gonna get nailed for loan fraud.... Any thoughts...
I had to read it twice... but I do have a couple of comments. First... let me clarify that I am not an attorney... However, let’s just say I have done a deal or two. And also to clarify, not in the carolinas.
" John Smith is the beneficiary, but has no power to remove the trustee"...
The ones I have seen do have a provision in the land trust agreement to allow the beneficiary to terminate and replace the trustee...
"so if Jon Doe wants to he can convey the property away, or encumber it"
He could, True, there could be criminal activities in doing so... Much like an attorney having possession of client funds, say in a trust account... You can go take all the money from the account tomorrow and run, but there could and would be some trouble ahead for doing so.
"when the land is put into land trust I am of the opinion it triggers the due on sale clause"
That is very well possible, and that point is open for discussion for sure, however the due on sale clause gives the “option” to the lender to call the loan due... it does not mean they will… especially in today’s mortgage mess. If you have ever read a standard note and trust deed used by mortgage lenders, I would bet a good attorney could find 20 things many home owners are breaching in their agreement on a regular basis… i.e. parking commercial vehicles, or operating a business from the premises... Can you imagine how many foreclosures there would be if every lender foreclosed on every house with a construction vehicle in the driveway, and running a small business from home? With all that said... yes it can be a risk... but so is driving to go out to dinner, there are some nuts out on the road!
"...if it is Foreclosed on, then the bank in not secured, and the owners are gonna get nailed for loan fraud..."
You lost me on this one... How is the bank not secured? Where did the deed of trust go? The bank still has security in the form of a lien on the property... the lien is still there until it is released from the property by the bank. If you could make liens go away by transferring titled... that would be very helpful and a great scam!
Thanks for your thoughts... And in general I agree... there are risks to using land trusts... Someone should clearly how something works and evaluate the pros and cons of doing so… land trusts or anything else.
And yes… they should go see an attorney!
