Understanding Land Trust Beneficiaries & The Foreclosure Process | Asset Protection for Real Estate Investors : Royal Legal Solutions

Understanding Land Trust Beneficiaries & The Foreclosure Process

It’s time to talk about the f-word: foreclosure. Foreclosure is a very rationale fear for any property owner, and during the housing crisis became something of a collective national nightmare. Wise investors often take advantage of land trusts for investment properties because they offer a broad range of specific benefits. Among these is the fact that land trusts allow you to obtain personal financing while also safeguarding the property inside of an LLC structure.

But land trusts aren’t immune from foreclosure.  Real estate investors using land trusts can suffer from the actions of their beneficiaries.  Read on to learn about the relationship between your trust’s beneficiary and foreclosure, as well as some tips on preventing this financial nightmare from becoming your reality.

Do Land Trusts Protect Me From Foreclosure?

Unfortunately, a land trust alone does not prevent foreclosure. This is actually a fairly common misconception about land trusts, but we’re here to tell you that it is just that: a myth. This fiction has persisted partly because of wishful thinking common among those in debt, but also because disreputable land trust companies have pushed the idea. Outright scammers have also exploited it.

Further, the legend of land trusts preventing foreclosure lives on because investors often confuse liability protection with foreclosure prevention. Land trusts absolutely offer liability protections.  

There is, however, a grain of truth beneath the misconception. Some states will extend liability protection to the beneficiary of the trust, but in reality, this is extremely rare.  Most states hold all “permissable parties” accountable in the event of a foreclosure. This includes the beneficiary–and that’s you.

The good news is you don’t have to tango with the threat of foreclosure at all.

How Do Investors Avoid Foreclosure on Land Trust Property?

The good news is you don’t have to tango with the threat of foreclosure at all.

Be financially responsible in your investments.

This means planning ahead and actively working with your CPA to ensure you can afford any financing you obtain for your investment property.  Work with your attorney to actively oversee your trust and its activities. Your proactivity will pay off by ensuring you’re on top of any payments you may owe.

Choose your land trust trustee wisely.

Trustee fraud is an unfortunately common occurrence. Essentially, your trustee is in the pilot’s seat of your trust. That means that your trustee has the power to cause your property to crash and burn.

Trustee fraud occurs when the trustee  misuses or abuses their power over the property. It isn’t always deliberate, either. Sometimes, trustees are simply negligent and fail to fulfill their duties. If this happens with something like a mortgage payment, you could be faced with foreclosure. This is why it is critical that you choose a trustworthy trustee.

If the integrity of your trustee is at all in question, you can always appoint a board of trustees to guard against the possibility. Using a board prevents any single individual from tanking your investment without your knowledge. To stretch the airplane metaphor: would you rather have one pilot, or three commercial airline certified pilots operating your aircraft? Remember, you’re the passenger and the owner here. With a board, if one pilot decides to knock down three martinis during the flight, you’ll have other people who can take the wheel and regain control.
Following these tips should keep your plane in the air and your land trust on solid legal ground. If you still have questions, feel free to ask in the comments section below. If you need specific advice, set up your consultation with Royal Legal Solutions today.

Discuss The Legal Safety Of Your Real Estate Investment Portfolio With Our Team? Give Our REI Legal Team A Call Now!512-757-3994