How a Land Trust Works

[trustpro]

BLL,

I think I understand what you mean.  Most people, myself included, when using a land trust on your own home, use a simple trust and hold their interest in the trust in their LLC.  There is no co-beneficiary involved.  This is not a DOSC violation, because title to the property is held by the Trustee.  The beneficiary interest in the trust is personal property.

When not living in the home but holding it as investment property, and using a Resident Co-Beneficiary, it is ALWAYS necessary to retain a 10% interest in the trust to avoid the DOSC.  Your beneficiary interest may be held in an LLC if you so choose.

[TMCG]

again trust, i'm not down on land trusts.  don't take it personal.  i'm not making it personal and i'm replying to this thread because i want to. 

land trusts are good, just not for noobs to read about. 

[Rich_in_CT]

I would think that everyone following this should read this over before continuing on with land trusts:  http://www.reiclub.com/forums/index.php/topic,31405

I should note that the person involved, Bill Gatten is the original poster of this thread (mtnwizard).  Apparantly the only trick this wizard knows is screwing people.

[trustpro]

Rich,

Politely, that is not correct.  First, Bill Gatten is NOT mtnwizard.  I know both of them personally and although they are friends, they are two entirely different people.  Second, the crybaby who was fined deserved to be.  He did not act in accordance with the terms of the trust.

"Between April 2003 and November 2004, Lorraine Edwards and her daughter Electa Dawn Lee resided in the property as the resident beneficiary. She was late on her monthly payment several times. In November 2004, Ms. Edwards and her
daughter each sent a check to cover the monthly payment – the check from her daughter bounced, making it impossible for Riverhaven to pay the mortgage payment on the property.

IF HE FOLLOWED GATTEN'S PACTRUST, THE RENT IS COLLECTED AND MORTGAGE PAID BY THE TRUSTEE, EHC, NOT THE INVESTOR.

On November 17, 2004, Riverhaven notified Mr. Worrellia and Ms. Edwards that it was exercising its right not to purchase the property, and would relinquish its ownership of interest and responsibilities (per the signed trust agreements) to Mr. Worrellia.

THIS IS NOT CORRECT.  THE ONLY OPTION USED BY GATTEN IS A NON-EXCLUSIVE OPTION TO PURCHASE A BENEFICIARY INTEREST IN A TRUST CONTAINING THE REAL PROPERTY.  THE RIGHT NOT TO EXERCISE THE OPTION EXPIRED ONCE A RESIDENT BENEFICIARY WAS PLACED IN THE TRUST.  THIS GUY DID NOT HAVE THAT RIGHT TO NOT PURCHASE AT THE TIME HE WALKED AWAY AND IT WAS HIS RESPONSIBILITY TO EVICT THE TENANT AND KEEP THE PAYMENTS CURRENT.

We offered to assist Mr. Worrellia with eviction per the trust agreements of Ms. Edwards if necessary.

NICE GUY. EVICTION IS THE SOLE RESPONSIBILITY OF THE INVESTOR, NOT THE SETTLOR (SELLER).  NO WONDER THIS GUY GOT INTO TROUBLE.  HE VIOLATED THE TERMS OF THE TRUST AGREEMENT.

In March of 2005 my family and I moved to Seattle, Washington for an engineering job and to be closer to family in  Washington.

HE ABANDONED THE PROPERTY LEAVING THE SETTLOR HIGH AND DRY.  IF I WAS THE SETTLOR, I'D SUE HIM TOO.

Unbeknownst to us, Mr. Worrellia had also filed a complaint against us with the Ohio Real Estate Commission for engaging in unlicensed activity. This was the first time I realized that Mr. Gatten was probably incorrect in saying that the system did not require a license.

IT DOESN'T.


Gatten's Land Trust system has been used for almost 20 years without any problems.  Unfortunately, occasionally people either mis-use it as the crooks did in NC, or don't follow the procedures and get themselves in trouble.  There are such people using every creative financing method there is.  There are literally hundreds of testimonials that I have read or discussed with people who have used this system successfully, including myself over the past ten years.

THINK, people.  Land trusts have been used for over 100 years.  Of course they are legal.  It's just people who think they are smarter than the originator who get into trouble by not following the rules.

[trustpro]

In reading this further, I noticed something else that indicates to me that this guy was clueless in Ohio. 

At closing, the resident beneficiary paid the closing costs (part as cash, part in the form of a promissory note to Riverhaven Equities). The closing costs were made up of an initial investment and non-refundable closing and trust establishment fees.  As per Mr. Gatten’s system, all required documents were filed with the state of Ohio and North American Realty Services (NARS), and all fees for creation of the trust were paid to NARS.

This guy apparently filed his trust documents with the state of Ohio.  This is a definite no-no.  The ONLY document required to be recorded in any land trust deal is the Warranty Deed, transferring title from the Settlor to the Trustee.  That is the ONLY one ever recorded and nothing is ever filed or recorded with NARS.  This guy wasn't paying attention to put it mildly.

[$Cash$]

trustpro,

Understand that Rich is a Moderator on this board and is basing his assessment of the situation by reading what the Regulators in the State of Ohio found when investigating the situation.

As Moderators we try to keep the board free from Board Hustlers and mis-information, so albeit new or senior investors are not taken in by what is posted here when it is brought to our attention especially when it comes from a State Regulatory Commission.

My advice would be to get a statement from the Ohio Commission that the person who was fined $39K did not follow the trust policy and procedures that you are claiming they did not.

John $Cash$ Locke

[trustpro]

I appreciate and understand your position.  If I was Bill Gatten and this was MY system, I would follow up as I'm sure Gatten has or will, if he even knows of this.  This is the first I had heard of it and I just read the summation.  The mistakes this guy made are obvious and I just thought I would point them out.

For instance, the Non-Exclusive Option he used to secure the property ended when he placed his RB.  He had no right to "not exercise" his option at the time he backed out because no option existed.   There is no option in the land trust once it is established, only a first right of refusal to purchase at FMV at a specific time.

Another obvious mistake is he talks about collecting rents, something that is NOT done in Gatten's system by the Investor or Settlor.  Because the Trustee owns the property, HE is the one who carries the lease, collects the payments, pays the mtg., etc.

Finally, he abandoned the trust and walked away.  There are always specific ways to withdraw or dismiss your interest and they are outlined in the trust docs.  Walking away and leaving the Settlor hanging is not one of them.

[iHateUserNames]

Yum, good stuff.  Questions follow.   

2.  Escrow is opened to facilitate the assignment, in the existing land trust, of beneficiary interest to co-Beneficiary.  Title to the property is deeded to your Trustee.

NOTE:  Once your Trustee takes title, he owns the real property, YOU OWN PERSONAL PROPERTY, NOT REAL ESTATE.  ALL DOCUMENTS CREATED WITHIN THE TRUST REMAIN LEGALLY UNRECORDED AS THEY ARE PRIVATE PROPERTY AND YOU ARE PROTECTED, EVEN FROM THE IRS.  

"Title to the property is deeded to your Trustee."  Say what now?  I thought 1) the land trust was a vehicle to hold title and 2) the primary if not whole point of creating the land trust was to hold title.   

So the first thing you do is go and give title to the Trustee?     What am I missing?

You guys clearly know much more about it than I do, I'm one of those noobs who shouldn't be learning this stuff. 

Perhaps this particular trust is for the accomplishment of a particular task, and there are different types of land trusts that are designed differently to accomplish other tasks?

For example, in my case I want to wholesale a pile of mortgage notes.  Loans.  What I was planning on doing was asking the seller to deed? the notes into the Trust.  He would be the beneficiary, and pick his own trustee.  Through escrow, an AFFIDAVIT OF TRUST is filed in the public record naming the Trustee of the Trust.  At the same time, an assignment of beneficial interest is executed, wherein I (or my LLC) become the beneficiary.  Then I change the Trustee.  My exit buyer then walks into the closing room, and I re-assign my interest in the Trust to him and he pays the previously agreed upon price.  The escrow agent divvies up the cash between the original seller and myself.
Everybody goes home.

Does this make sense, or am I confused and/or missing important details?

Thank you