California Title Holding Trust
The Title Holding Trust, often referred to as Land Trusts or Holding Trusts, has been in use in California for a good many years. I have personally been involved in the drafting, creation, and administration of Title Holding Trusts for real estate investors and homeowners in California since 1986. I have administered Title Holding Trusts that were drafted and established back to the late 1930's.
Common Ways to Hold Title to California Real Estate
However, the Title Holding Trust is not a well know method for holding title to real property in California. You might be interested in reading about the Eight (8) Common Ways to Hold Title to California Real Estate. I helped draft this years ago when I worked for The Chicago Trust Company of California (part of Chicago Title). It was Seven (7) Common Ways to Hold Title back then.
Roots in the Illinois Land Trust
The Title Holding Trust has its roots in the Illinois Land Trust. Land trusts have been used in Illinois since 1868. The Title Holding Trust or Land Trust is a simple and inexpensive method for acquiring, holding and disposing of title to California real estate and personal property.
Parties to the Title Holding Trust in California
The person that intends to acquire the real estate in a Title Holding Trust is known as the trustor or Grantor or Settlor. This is the person that has set-up the Title Holding Trust in order to acquire and hold title to California property.
Generally, the Trustor will also be the beneficiary or owner of the Title Holding Trust. The beneficiary has complete authority over the trust and generally has the power of direction. The power of direction can be delegated by appointment.
A trustee will be named or appointed within the Title Holding Trust Agreement. The trustee acquires and holds title to the real estate or personal property on behalf of the trust. The trustee in our Title Holding Trust agreements is Exeter Fiduciary Services, LLC.
Benefits of the Title Holding Trust
I will cover the advantages and the benefits of using a Title Holding Trust in my next post, so stay tuned.
William L. Exeter
President and Chief Executive Officer
EXETER 1031 Exchange Services, LLC
EXETER Fiduciary Services, LLC
Hi Rick,
It varies from state to state.
For example, Illinois has the Illinois Land Trust. Florida has the Florida Business Trust. MA has the MA Business Trust. California has the Title Holding Trust. Other states vary depending on state laws, regulations, etc. It is really just a living trust designed specifically for holding title to real estate.
Bill ... thanks for this nice article about taking title to property in name of LAND TRUST OR TITLE HOLDING TRUST. I intend to link to your article in my ARarticle on the subject. Best wishes. Harrison
Hi Harrison,
You are most welcome. Thank you for visiting and thank you for linking back. There are so few who really understand the benefits of the Title Holding Trust.
Talk to you soon.
Bill,
Thanks for the interesting information. Do you know if Washington State owners can take advantage of either California or Illinois Land Trust?
Hi Bill,
You are most welcome. Yes, you can use the land trust in Washington, and like California, they do not have any specific code that covers land trusts, like Illinois does. There is very little guidance available.
Great info, BIll...thanks! Working with a client now who discovered this option, and it may work for them. We're exploring it together. Any other resources you can recommend. I notice a Webinar in April, but we need info sooner than that. Appreciate your guidance.
Hi Pam,
You are most welcome. Here is a link to our web page with our Newsletters. There is one that specifically discusses Title Holding Trusts (see below info.): http://www.exeter1031.com/The_exchange_Newsletter_Archives.aspx
Volume III Issue I
Topics Include:
Cultivating the Title Holding Trust (Land Trust)
Overview of the Title Holding Trust or Land Trust
24 Reasons to use a Title Holding Trust (Land Trust)
Tax Implications with a Title Holding Trust (Land Trust)
I would be happy to discuss the transaction with you, too.
Can this be used effecitvely if I take over a property subject-to existing loan(sub2) in CA? How complicated and what forms to use?
Hi James,
You must be very careful here so that you do not trigger the due on sale clause and/or commit lender fraud. The answer is: it depends on the loan documents. If the loan documents define a due on sale trigger as conveyance of title to a third party, then you may have a problem because the assignment of a beneficial interest of a Land Trust is considered a conveyance of title. There has been a lot of abuse in this area.
Hi,
Please advise if I can use Title Holding Trust in the state of Texas.
Thank you very much.
Hi Bill:
I'm a RE broker in CA and one of my clients is trying to buy a property under a Land Trust. We are running into the problem that title companies do not want to insure those trusts. Can you explain to me why that is? Thank you!
Markus
This is a very common problem these days. The issues revolve around the fact that there has been so much abuse (read fraud) involving land trusts. Investors use land trusts to get around the due on sale clauses, to acquire property subject to existing debt without getting lender approval, to avoid seasoning requirements, flipping prevention, etc., so title insurance companies are now rightfully gun shy. It is really too bad.
It is still possible to get them insured by title companies, but you must work really hard to convince the title insurance company that there is no fraud involved. You may want to consider recruiting one specific title insurance officer, one escrow/closing/settlement agent, etc., and then educating them as to exactly why you are using the land trust (and why there is no fraud involved). This way you have a team in place that is familiar with land trusts, the process, the issues, and most importantly, you and your client.
How exactly the Land Trust works with a new purchase? I understand the Trustee's name is in the Buyer's section of the Purchase Agreement. But who gets approved for a loan? Would any Lender and/or Title/Escrow company agree to sign a non-diclosure Agreement, and what information regarding the mortgage amount would be available in Public Records?
Thank you.
The underwriting (and therefore loan approval) will be done on the underlying beneficiary, who is the true owner of the Trust and the underlying property held in the Trust. The Trustee would only sign the loan documents in its capacity as Trustee of the Trust. Generally, the Trustee will only sign if the loan is non-recourse to the Trustee.
You can ask the lender/title/escrow company to sign an NDA, but I doubt they would agree to it. They already have a fiduciary duty to keep the information private. The only recorded document would be the Deed of Trust or Mortgage, so that information would be public.
...and in this kind of scenario there is no need for any quitclaim to LLC, right? So there would be no ground for a Lender to call the loan...
Also, when such property is rented out, whose name should be stated in the Landlord's section? Would it be the Trust/Trustee/LLC (who is the actual owner)/some other management company?
What is the most common pay the Trustee receives for his/her services in California?
Thank you very much, Bill!
Yes, you are correct. The lender can not call the loan if the beneficiary of the Title Holding Trust is the same as the current owner of the property. Rental property can show the Trustee's name, but generally would list or display a person or entity that functions as the property manager.
Trustees' fees in California run anywhere from $750.00 to over $10,000 for large trust companies. The trust companies generally do not want to handle land trusts, but are willing to do so if you compensate them with a large annual trust fee.
Hi Bill,
I am a licensed california real estate broker. I have a client who entered into a land trust two years ago. The purpose of the trust was for the party interested in ultimately acquring the residence had credit issues and needed to defer the purchase by up to three years (i will refer to him as the "buyer/tenant"). The "buye/tenantr" placed a $28k deposit into the land trust and began occupancy of the property, and has been in possession for two years.
Approximately 5 months ago the "buyer/tenant" stopped making any payments whatsoever to maintain the mortgage in the amount of $3,700 per month.
The "buyer/tenant" has now fallen $22k behind on the current monthly obligation, and will exceed $28k past due by June of 2012.
The "buyer/tenant" occupies the property based on a lease agreement, and is a minority interest in the land trust.
The "buyer/tenant" has no intention of becoming current, and no intent on refinancing the property into his own name, as the property is upside down in value, and he has lost his income, and is not credit-worthy.
The land trust expires in twelve months. My question is can the "buyer/tenant" be evicted, and the land trust dissolved once his interest in the trust (i.e. the $28k deposit) is ultimately offset by his delinquency of $28k in payments in June of 2012? If so, what is the process to do so?
Thanks
Craig
Hi Craig,
Generally, yes, the buyer/tenant can be evicted unless the lease and/or the land trust agreement contain any language to the contrary. The eviction process is the same with or without the land trust, again, unless either document contains language to the contrary.
Generally, a majority of the beneficial interest holders is all that is needed to terminate and dissolve the land trust, but again, it depends on what the land trust agreement says. Assuming that it states a majority of beneficiaries, then the one majority could vote to terminate and dissolve the trust once the eviction has been completed and the $28K has been applied toward amounts due.
Hi Bill,
Thanks for the quick turnaround.
Given the eviction process can take several months (and if the buyer/tenant) is not cooperative, woud it be wise to begin the process now?
The majority holder in the trust is my wife, and it is her property. We invest in real estate separately. Assuming the buyer/tenant is cooperative, would it behoove my wife to serve the tenant a notice to pay rent, followed by a proposal to terminate the lease agreement and trust consecutively on or about june of 2012?
If the buyer/tenant is not cooperative in dissolving the trust, would my wife then have to resort to legal remedies? if so, what are they? and could you be of assistance? I cannot recall if you are an attorney.
I have been involved in dissolving a trust before and it involved petitioning the court to dissolve the trust when the trust balance was equal to zero, which would be the case in this event once the buyer/tenant falls $28, behind.
Last, does the buyer/tenant have any right to claim that any portion of the payments made that were applied to principle are in any way owed back to him? On the other side of the coin, as the property has dropped in value, and the economic loss and the damage to my wifes credit be used against the tenant to offset any mitigations he may come up with?
Thanks again
Hi Craig,
We are not experts in tenant issues such as failure to pay, eviction, etc., nor are we attorneys. I think I would act now if it were me since it seems to be clear that the tenant has no intention of paying. However, I would consult with an attorney that specializes in tenant issues such as eviction to make sure that you follow the local laws.
Generally, Court approval is not required for land trusts since they are completely revocable trusts. It merely takes the actions of the beneficiaries.
The last paragraph would depend on the agreements and what they provided for. I would have the attorney review all of the documents involved before proceeding with any action just to keep yourself out of trouble.
I hope it all goes well as these things are not fun nor easy.
Bill.
Hello,
I am trying to sell a property that I hold title in/as a Trust Declaration. My daughter is the Trustee. My Exhibit A declaration page states the Beneficiaries as myself and husband, and goes on to say "All proceeds from sale of property are to be made out to the bennficiaries of the Trust noted above." The Title co. will not comply with that direction and will only pay to the Trust. Is that something new? I closed many many properties that way, however, that was 10 years ago when I was buying/flipping properties. Not sure I can say here who the title co is. I'm in Los Angeles County, CA. Do you have a title co you work with that still complies with this direction?
Thank You
Gretchen