With the downturn in the economy many entrepreneurs are looking at getting into the real estate market especially concerning foreclosures.
Real estate has always been and will always be a smart investment choice. However, before one jumps into the real estate market there are some fundamental legal issues one needs to have a good grasp of.
By owning real estate in your name, you give up control of your assets and you risk losing everything.
Real estate investors are particularly vulnerable for two reasons.
1. real estate ownership is shown in the public records for anyone to find.
2. any judgment against you immediately becomes a lien against all your real estate.
What this means is that any lawsuit against you could potentially result in all your real estate being encumbered by a resulting judgment. A judgment will lien your properties until you either pay it off or win an appeal later. You will not be able to sell or mortgage your property until you pay the judgment in full. The only way to protect your real estate is to separate the ownership of the properties. This is where Land Trust Agreements come in.
To create a land trust, you enter into a land trust agreement with a trustee you choose. You will then deed the property into the trust. In the trust agreement, you will designate a name for the trust. You can use any name you desire. I personally use the street address for the Trust name. For example, a property at 123 Park Street would be named 123 Park Street Land Trust and another property at 456 Elm lane would be 456 Elm Lane Land Trust.
Thus, transferring each property (by recorded deed) into a separately named Land Trust Agreement you have isolated or separated the ownership of each property as you always have only one property in each trust.
If there is a problem with one property, let's say a tenant at 123 Park Street sues the landlord (property owner) the suit would be filed against 123 Park Street Trust as this is the name on his/her lease agreement. If he/she is awarded a judgement it becomes a lien against only the property at 123 Park Street and not against all properties owned by you. Leaving you free to sell or mortgage any or all of these other properties without first having been forced to pay the judgement against 123 Park Street.
Remember, if all your properties are under a single owner you must first pay your judgement before you can sell or mortgage any other property. Even if you are appealing the judgement, you are not allowed under law to sell or mortgage any of the other properties because if you have not separated ownership of your properties the lien initiated against 123 Park Street becomes a lien against all your properties.
A Land Trust Agreement leaves you in control of your properties and makes your real estate ownership your own private business. The land trust Agreement is not recorded only the deed is recorded. Since the property is not titled in your name, only you and the trustee know that you own it. The trust contains a provision explicitly preventing the trustee from disclosing your ownership.
The trustee is of your choosing and can be anyone, a friend, a lawyer, a family member, anyone that you trust. The trustees main responsibility is to hold the title to the property until you direct him to transfer the property. The trust agreement and deed to the trust provide the trustee with the necessary authority to act in whatever manner necessary on behalf of the trust. The trustee is prohibited from acting, however, except upon your specific written instructions. When you want the trustee to take some action, such as deed the property to a new buyer, you simply direct him/her in writing to do so.
The trustee is not personally liable for any action he/she takes on behalf of the trust. You have the right to fire the trustee if you ever desire to do so. The trustee can resign. In either case, or if the trustee dies, you have the right to appoint a new trustee of your choosing.
The land trust also provides for the beneficiary. You are the beneficiary. As the beneficiary, you have the right to direct the trustee how to deal with the title to the property, you have the right to manage and control the property, and you have the right to receive all the income and tax benefits of the property. As the beneficiary, you own the trust which owns the real estate.