Understanding Land Trusts and Foreclosures

We’ve all known someone who has gone through the complicated foreclosure process. Over the past year the amount of monthly foreclosures has hovered between 60,000 and 80,000. Holding property in a land trust can add an extra layer of complexity to the already confusing foreclosure process. We are one of the only firms in the nation to regularly manage land trusts. As a result, we’ve developed a wealth of expertise in dealing with the complex nature of land trust and foreclosures. In this article, we’ll help you understand land trust and foreclosures and provide examples of how a land trust can impact the foreclosure process.

Land Trusts and Foreclosure Misconceptions

One of the most important steps in understanding either a legal process or financial product is clearing up common misconceptions. A major misconception is that holding land in a land trust won’t affect the foreclosure process. The laws that govern land trusts vary from state to state. Thus, blanket statements about land trusts and foreclosures can be misleading. Also, this is a dangerous misconception in that it limits one’s openness to the potential benefits of a land trust when going through foreclosure.

Benefits of a Land Trust in Foreclosure

One of the biggest potential benefits of using a land trust is that in case of foreclosure it can slow down the process. In the case of both personal property or real estate investment property, the land trust structure throws lenders out of their usual operating procedure. There have been cases where lenders need extra time to serve all parties in the foreclosure case. Not being able to serve one party in the case, such as one of the trustees, can stall the foreclosure process. While stalling the foreclosure process is a potential benefit in that in can keep one from making payments, stalling is far from the ideal strategy. For real estate investors, a total asset protection plan is the best strategy.

Asset Protection for Real Estate Investors

Asset protection involves isolating the risk away from yourself and the assets you own. Asset protection isn’t about defeating a lawsuit already in progress or strengthening one’s defense in the case of a lawsuit. It also isn’t about relying on insurance. Insurance isn’t enough because most companies will go to great lengths to deny a claim, especially a large one. We believe in an extremely proactive and effective asset protection strategy that involves preventing lawsuits before they even begin. Anonymity stops a lawsuit before it ever starts. This anonymity is achieved through a trust structure. The trust owns title to investment property. For government records, the trust is listed as the title of the trust, rather than an investor’s personal name. A public search won’t reveal an investor’s name. This is extremely important in preventing lawsuits before they even begin. If an opposing lawyer can’t connect your name to assets and those asset’s associated value, then pursuing a lawsuit will no longer seem like a sure profit. In fact, a lawsuit may seem like more trouble than it’s worth. Keep in mind lawyers, like any other profession have a bottom line to look after.

Combining a Trust With a Series LLC

In case a lawsuit does continue, limiting liability is very important. This is achieved through a business structure we specialize in called a series LLC. A series LLC consists of one head or “parent” LLC which holds a number of individual or “child” LLCs. In this structure, assets are spread out into multiple independent entities. This is key in limiting liability because if one child LLC is hit with a lawsuit, the other child LLCs aren’t exposed to that lawsuit. Potential loss is stopped or contained within each child LLC. For instance, Randy has already taken our advice in using an anonymous trust to hold his assets. However, a lawsuit still progressed against one of his assets. Randy can enjoy an extra layer of protection knowing that a lawsuit against one of his assets won’t impact his properties. Alternatively, if all these assets weren’t compartmentalized, then a single lawsuit related to one asset can put them all in jeopardy. For litigators, this would be considered a jackpot scenario. For real estate investors, failing to compartmentalize assets with a series LLC can wipeout their entire portfolio of investments.

Get Help From a Fellow Real Estate Investor

As you can see, a basic land trust does provide the benefits of potentially stalling foreclosure proceedings, but an ideal asset protection plan involves a more advanced approach. Whether you are dealing with foreclosure on one of your properties or are an investor looking to strengthen your asset protection plan, our legal team of experts can help. Besides being legal experts, we are also real estate investors. Thus, we know all the nuances of managing multiple properties, while also being proactive in preventing lawsuits.