I’ve been harping on for years about the importance of setting up a land trust for your real estate investments. Today I want to touch on one of the issues many real estate investors struggle with – how to borrow money using a land trust.
There are times when you may want to borrow money to make improvements or preserve assets held in a land trust. There may also be a need to refinance the property at some point. You need to make sure that the trust has the power to borrow money. It may not always be the case and this is normally covered in the trust deed.
Let me get right into the mechanics of it all.
The first step you’ll need to take is to have the trustee sign the mortgage or note. However, you will need to apply for the loan and sign the guarantee or the note since the trustee won’t be signing personally.
Alternatively, if you have your property in a land trust already and want to borrow money against the beneficial interest, then the lender will need to serve a Notice of Collateral Assignment on the trustee. The trustee will then write an acknowledgment of the assignment.
When this happens, the trustee is no longer able to transfer title of any property held in the trust or encumber or mortgage the property without the lender’s written consent.
Here are the five things the lender will be looking for when granting the loan:
If you’re seeking to obtain a loan against trust assets, you need to consult with an expert trust administration attorney. You do not want to take any action that might potentially harm the assets of the trust.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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