Friday, August 1, 2008

Master Mind Discussing Illinois Land Trusts with David Henderson

Creating a Win-Win-Win for Investors, Sellers, and Buyers

In the current real estate market there is a glut of two parties. You’ve got a glut of sellers who may or may not be in bad loans who all want to sell now. Then you’ve got a glut of buyers who, with the dramatic changes in the lending environment, cannot get loans to buy. David Henderson says, “As an investor, you don’t want to own property, you just want to control it.” The Trust is a tool that allows you to control (not own) multiple properties. David recommends the book, ‘A Fortune In Free Real Estate,’ for a more in-depth look at the Trust process.

Real Property vs. Personal Property: After Real Property is placed in a Trust, it ceases to be ‘real property’ and turns into ‘personal property.’

The Trust itself has 4 different documents:

1. Trust Document

2. Beneficiary Designation Document (defines each beneficiary’s interest in the Trust.

3. Assignment of Beneficial Interest Document

4. Occupancy Agreement (like a standard lease)

**All of these documents are closed at a Title Company.

What about the Due on Sale Clause? Trust does NOT trigger the Due on Sale Clause.

Good Market Opportunity: There is a glut of both buyers and sellers in the market right now. Buyers that cannot qualify for loans to homes and Sellers that cannot refi or cannot sell with so many homes on the market.

Seller Carries Note: David approaches ‘For Sale By Owner’ Sellers. Sellers must be willing to carry the Note until the Trust is terminated in 36 mo. when the buyer is able to refi the property. All of David’s buyers in his Trusts have been able to refi before the 3 yr deadline when the Trust is terminated.

Cash Down Returned to Buyer: Buyers for the property, or your ‘Resident Beneficiary’ must have 5% down plus 1st months rent. (No credit necessary but do they have the cash down to buy the home?) The selling point on this is that this 5% is returned to buyer when the Trust is terminated.

Terms are flexible: To make a deal work, all of the terms are flexible. Whatever the seller or the buyer needs to enter into the Trust with you, the investor, make it happen!

Leverage your Realtors: Realtors can bring people to you that cannot qualify for a loan if you are willing to offer them a commission. David says this is his best source of referrals.

How do you convince the buyer to become a resident beneficiary in a Trust?

Tax benefit given to ‘Resident Beneficiary’

5% down at inception of Trust is returned to buyer at time of Trust termination.

Can offer a split in future appreciation with buyer when Trust is terminated.

Terms of the deal are legally binding through the Trust documents (buyer is protected!)

For more information, contact David Henderson of Project Liberty


  1. I agree with every point you made above except with reference to having the title co. set up and administer your land trust. One of the biggest reasons people use a land trust is for privacy. You will lose that privacy when you yield control to the title co. Everyone can learn to set up and administer their own land trusts with the proper home study course on land trusts.

    Randy Hughes

  2. But for controlling multiple properties as an investor, in this case, anonymity is NOT the biggest priority.....?correct?
    Corey of Project Liberty

  3. I've seen the courses for land trusts where you set up a friend or relative as your trustee. It's cheap and works great until theirs a problem and your trustee/brother-in-law says something they are not supposed to and your trust is broken I'll pay for a trustee that knows what he should say/must say or can't say. You may have read where a person who did that was fined $250,000 and had to return all of the properties. The state attorney general (I think North Carolina) said had they used a corporate trustee, they would have been fine.

  4. Oh, it's Randy the "expert" again. You keep popping up with your faulty home study course.

    Nowhere does it say to have the *title company* set up and administer the trust. It's only involved to ensure that the transfer of property is 100% kosher.

    Administering the trust yourself itself sets yourself up for trouble as you've created a trust that can easily be delared dry. Use a beneficiary-directed trust with a corporate trustee that holds title to keep everything 100% kosher.

    In a beneficiary-directed trust, you've given up ZERO control to the trustee. In fact, the trustee has ZERO control. The corporate trustee only holds legal title, shielding the property from judgements, liens, etc. giving the beneficiaries personal property interest rather than real property; specifically the beneficiaries only have beneficial interest. A corporate trusteee doesn't die, taking the property into probate. The corporate trustee isn't available to be sued, with the property at risk of being an asset the courts can take.

    John's correct about land trusts blowing up because people thought they'd shortcut the process and go "on the cheap". This opens oneself up to risk. Do it "exactly right" and remove the risk.

  5. @Corey:

    You're right that anonymity is not necessarily the biggest priority. It is an important strategy in discouraging opportunistic lawyers, but creating a legal "lock box" that shields the property is much more desirable. Control without ownership leaves the property safe. Trust documents that lay out the deal ahead of time (i.e. no executory contracts) ensures that if people go sour the deal won't end up squabbling before a judge. There are other benefits.

    However, Randy's assertion about loss of control is incorrect. Only a fool would turn CONTROL over to a third party.

    With a corporate trustee (whose only business is holding title, and knows the legal ins and outs) privacy is maximized. It will take time in court convincing a judge to issue an order to have the trustee reveal anything. A good trustee will make them burn a lot of time and money annoying a judge.

    The plaintiff has to answer the question, "What's your beef with the owner of the property?" which is a big hurdle. Their beef is with people who lease the property or who are beneficiaries.

  6. Thanks for your comments. Very interesting to see so many different opinions on the Trusts. I do have another question however. Are there different types of Trusts that accomplish this same thing? For example: there are Illinois Land Trusts and there are Massachusetts Land Trusts etc. What is your take on this or which is best to use for this purpose?



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