Monday, October 15, 2007

The Equity Holding Trust™ Transfer System - In Detail

The Title-Holding Land Trust that underpins the Equity Holding Trust Transfer System (often referred to as the "Illinois Land Trust", a "land trust", or a "nominee trust") is accepted in form, substance and enforceability, throughout the U.S. This too-often overlooked real estate ownership vehicle is slowly but surely gaining recognition as arguably the best possible means of real property ownership and asset protection.

The land trust within itself is considered unique in that a property's legal and equitable title(s) are vested in the trustee, rather than in the owner of record. However, the land trust's beneficiaries remain fully in control of the property and over the actions of the appointed trustee. As a result of this beneficiary-directed, third-party trusteeship, any property so held is effectively hidden from public view, and thereby shielded against legal actions by lawyers and creditors.

As a matter of fact...when there are multiple (unrelated) beneficiaries in a title-holding land trust, its corpus (the property) becomes virtually impervious to tax liens, creditor judgments, lawsuits, bankruptcy actions and charging orders. In short, the message is that creditors, even including the IRS, cannot reach a property in a land trust wherein there are no familial or business relationships among co-beneficiaries.

In our opinion, the land-trust-based transfer system, the NEHTrust, supplants the need for various risky, and often even illicit, seller-carry financing schemes that abound today. The Equity holding Trust Transfer System by North American Realty Services, Inc. is a meticulously structured, straight forward process of documentation incorporating, with the land trust: 1) an Assignment of Beneficiary interest, 2) a Beneficiary Agreement (analogous to a partnership agreement) and 3) an Occupancy Agreement (i.e., a tenancy agreement whereby a co-beneficiary 'leases' from the trust, versus holding a title interest in the property), and 4) an optional Power of Attorney sometimes given to the party most actively involved in management of the property and direction of the trustee.

When combined, these documents effectively afford any would-be buyer all the benefits of homeownership, including income tax deductions...without the necessity of a transfer of title ownership (the deed). The EHT system protects the property (settlor, investor, and/or resident beneficiaries) from untoward personal or legal actions by or against any party.

In that the land trust converts one's ownership of realty to ownership of personalty (i.e., an interest in the trust, versus in the property), and since personalty is not deemed subject to partition by judgment creditors, unrelated parties holding their property in this manners needn't fear their property becoming the subject of: a creditor judgment, lien or charging order. Neither could the property be the subject of a tax lien, any party's bankruptcy, marital dissolution or probate...a most comforting feeling when 'carrying' a mortgage for someone else.

Overall, the EHT gives a relinquishing party - who is willing to keep its existing financing in place - a quick, easy and safe method of disposing of the property and its direct obligation, while simultaneously providing the acquiring party/ies with virtually 100% of all the benefits of ownership.

A list of the acquiring party's (the "buyer's") many benefits includes full mortgage interest and property tax deductions, as well as virtually all other incidents of real estate ownership (e.g., appreciation, loan principal reduction, ect.). An EHT buyer needn't qualify for a new loan or make a standard "down payment", since all qualification rules and parameters are solely those of the relinquishing party (the "seller").

In so much as a property vested in a land trust has not been "sold", but has instead merely been (from any inquiring party's point of view) vested in an inter vivos (living) trust and leased to a successor beneficiary of the same trust...there is no overt breach of the lender's due-on-sale (alienation) admonitions. As well, the EHT very effectively provides any would-be "seller" an excellent means of avoiding immediate capital gains taxation, and/or the unpleasantness of seller-carry schemes; an untimely or under-market sale; an Offer and Compromise (short-sale); foreclosure; or...being forced to deal with tenants toilets and trash (maintenance costs) and negative cash flow.

Currently either authorized, or allowed under land usage regulations, in all states, the merits of the land trust are only diminished in two states - Louisiana and Tennessee. This is due to those states' non-acceptance of the Uniform Doctrine of Equitable Conversion, which doctrine prevails in all other jurisdictions. This is to say that, in those states, a beneficiary interest in a land trust is seen as ownership of realty versus personalty, despite an owner's relinquishment of the property's full legal and equitable ownership benefits to another, while still retaining full control and management. However, even in Tennessee and Louisiana, the privacy and ease of transfer benefits do remain intact.

In states where no specific relevant land trust legislation exists (i.e., where there is no "Land Trust Act" per se), the land trust is supported by a reliance on legal precedents established locally and in other states. This is to say that a court's finding in, say Minnesota, would have to rely largely upon precedent case-findings in other states where land trusts are specifically authorized by precedent or statute, as in: Alabama, Florida, Georgia, Hawaii, Illinois, Indiana, North Dakota, Ohio and Virginia.

A prime motivation for forming a simple land trust (i.e., one beneficiary only, and without the additional documents that compromise the EHT) are the benefits of privacy and anonymity of ownership. In other words, when a property's title is vested in a land trust trustee, a very effective and protective legal shield is formed, making it virtually impossible for any inquiring party to determine who the trust's beneficiaries are. This is due to the fact that the trust agreement is never placed into the public record. In fact, the deed transferring ownership to the trustee is all that is ever recorded. The trust itself never becomes a matter of public record. Furthermore, following the recording of the deed, the land trust trustee is specifically prohibited from releasing any information to any inquiring party under any circumstances (absent a court order). Information regarding the trust's management and/or the identities of its beneficiaries, including local, state and federal governments, remains wholly private.

More on the Due-On-Sale Clause:

The FDIRA (Federal Depository Institutions Regulation Act; or "Garn-St. Germain Law" of 1982; 12 USC 1701-j-3) limits the justification for foreclosure relative to a lender's due-on-sale clause (re. an "unauthorized title transfer") under certain circumstances, one of which is vesting of a mortgage property into an inter vivos trust (such as a land trust). As a result of that federal law, mortgagors (borrowers/property owners) cannot be prohibited from placing their real estate into a revocable, living [land] trust. Neither can they, following establishment of the trust, be prevented from leasing the property to whomever they might choose (so long as the lease is for less than 3 years and does not relate to an option to purchase). To wit: when a lessee (the tenant) in such a trust property is also given a remainder interest (i.e., becoming a successor beneficiary or remainder agent) in the same trust, that party becomes fully entitled [under IRC 163(h)4(D)] to virtually the same incidents and benefits of homeownership that he/she would have, had they financed the purchase of the property in any other manner.

It is for all of these reasons, and more, that the NARS Equity Holding Trust Transfer System emerges as a superior and most logical and protective means of conveying the benefits of real estate ownership when a seller would choose to leave the current underlying financing in place to assist an acquiring party.


Tiago said...
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Anonymous said...

So what happens to the buyer or trustee in this case, if a seller defaults or files for bankruptcy?