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LAND TRUST TRANSACTION IS A TRAVESTY!
Daniel P. Kapsak, Esq. A form of fraudulent real estate transaction called the Land Trust (LT) and the Land Trust Transaction (LTT) is in our area. Innocent persons will be suckered into this sham transaction and will suffer irreparably. Instead of the deal they thought was going to get them into the house of their dreams, victims of this fraud will discover that (1) they never owned the house (and never will!), (2) the house may be subject to IRS liens or other judgments or foreclosure that will be satisfied by sale of the property, and (3) the sellers are under no obligation to ultimately transfer the house to the buyers. The buyers will wind up with a house ripped out from under them and no recourse against the seller who has either disappeared or is judgment-proof! Literature promoting the LT and LTT advertises that the LTT¹s advantages are privacy, asset protection, ease of transfer, avoidance of probate, and facility of sale. Their literature also promotes the LTT as the best way to avoid what are euphemistically called inhibiting circumstances, i.e., bankruptcy, IRS or other creditor liens; foreclosure. The LTT is also perfect (so says the literature) for getting around the due-on-sale clause in most mortgages. All of these so-called advantages are merely smoke and mirrors and will only serve to tempt the gullible into financially and emotionally devastating actions. Some basic myths about the Land Trust and the Land Trust Transaction: Myth 1. The purpose of the LT is to hold and manage real property and to permit persons to hold what is called beneficial interest in the property, all without any formal transfers of ownership in the property. Fact: All the LT does is sucker the victims into believing that they will have some interest in the property which ultimately will allow them to own the property in their own names. Unfortunately, the LT is revocable, thus any interest "conveyed" to the beneficiary may be changed or terminated without recourse. Myth 2: The LTT provides the parties a "secure method for selling real estate." Fact: Because there is no change in the deed (the only evidence of property ownership), the purported buyers do not own the property. The formalities of property ownership and transfers, including executing new deeds and issuing title insurance are in place to provide the parties with secure transactions. The title insurance tells the buyers that they are taking possession of a house without liens, judgments, or other clouds on the property¹s title and ownership. Using the LTT only serves to short-circuit this process; the sellers avoid any of those nasty questions such as, "Why are there judgments against the property?" and "How do you think you will be able to sell the property with the IRS lien against it?" Myth 3: This transaction is deemed to be a private contract between the seller and buyer, requiring no approval from anyone else. Fact: If we own property subject to a mortgage, we cannot by the terms of the mortgage just up and sell the property without telling the mortgage company (if we sell the property we are obligated by our agreement with the mortgage company to pay off the balance of the mortgage; this is called the "due on sale" clause). Also, if we have liens, judgments, or other "clouds" on our ownership of the property, we are obligated to notify them and pay those obligations before we transfer title of the property to someone else. Thus, by "selling" the property, the sellers are violating the terms of their mortgage, thus defrauding the mortgage company and any other lien holders. Also, because the LTT provides that the buyers do not pay the mortgage company outright but instead make payments to the sellers who then pay the mortgage company, there is nothing to insure that the sellers will pay the mortgage, nor is there is there anything in place to insure that the buyers¹ prompt payments will be reported anywhere. Conclusion: Land Trusts and Land Trust Transactions are not to be considered as legal, viable means of transferring title to property while avoiding such inhibiting circumstances, such as bankruptcies, IRS or other creditor liens; foreclosures. Remember, any liens, judgments, or the like will follow the property unless satisfied. Thus, taking title or any other interest in a property that is subject to such inhibiting circumstances means that the creditor will have the right to execute against that property to satisfy the obligation, no matter who own‹or think they own‹the property. The old adage that "if it sounds too good to be true, it probably is," applies here. Avoid Land Trust or Land Trust Transactions at all costs. Daniel P. Kapsak, Esq. is the principal of the Kapsak Law Firm, LLC, of Longmont. He may be reached at 303.651.9330 or at dkapsak@kapsaklaw.com. |
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