Land Trusts and the Practice of Law

[AndyRob76]

I am a real estate investor in California, focused on short sales (foreclosures). I've learned that some investors use land trusts as a way to conduct a simultaneous close on a short sale ("flip") without causing a title seasoning issue when they sell the property.

Here is my question: If I, as a non-attorney investor, prepare (and by prepare I mean filling in the blanks on already created by an attorney land trust docs) the land trust documents for a homeowner in foreclosure, would this be considered practicing law without a license?

If, in fact, it would be considered "practicing law w/o a license," then how do you set up land trusts for homeowners in foreclosure whose properties you plan to buy and flip?


Thanks,

Andy

[Jim FL]

I am a real estate investor in California, focused on short sales (foreclosures). I've learned that some investors use land trusts as a way to conduct a simultaneous close on a short sale ("flip") without causing a title seasoning issue when they sell the property.

Here is my question: If I, as a non-attorney investor, prepare (and by prepare I mean filling in the blanks on already created by an attorney land trust docs) the land trust documents for a homeowner in foreclosure, would this be considered practicing law without a license?

If, in fact, it would be considered "practicing law w/o a license," then how do you set up land trusts for homeowners in foreclosure whose properties you plan to buy and flip?


Thanks,

Andy

Andy,
First, Welcome to Magicbullets.
Always nice to have new folks join.
You've come to the right place, and I'm sure within a couple days, others will respond to your post as well.

In the mean time, I'll try to give you a non-lawyer answer.........but as with everything in this business, verify with comptent pro's in your area.
Laws vary from locale to locale.

Now, my opinion on the matter.
NO, you are not practicing law, as you are not giving the sellers advice, or doing any legal work for them, or even representing them.
In a subject to purchase, you are a BUYER.
So, any docs you prepare to facilitate the transaction are done for YOUR benefit.

Do keep in mind though that California does have some laws pertaining to pre-foreclosure purchases, with regard to time frames etc.
Something to definitely study up on and follow to the letter.

In the case of short sales, and making the offer with the purchaser as a land trust, to set up a close with your buyer.........your not setting up a land trust for the sellers.
For the short sale method you describe, you are merely listing the buyer as the trust.
This way, when the lender approves your short sale, that contract remains intact, and you merely have the buyer close, as the trust, which they buy from you for a fee.
This way there is one close, not two, and title goes from the sellers, to the trust.

Does that make sense?.........I'm in a hurry now, so if not, post back and I'll respond later when I have more time.

So, here is the scenario as you've laid out and how I interpret what you said:

The investor offers to buy from the seller, contingent on a short sale approval from the sellers lender.
The contract is written up, with "Joe and Mary Homeowner in default" as the sellers, and the buyer would be "AndyRobs land trust".
Then, you market for a buyer, and the buyer closes as the land trust.
Title then transfers like this:
Joe and Mary Homeowner ---> trust (which because you sold that, is your buyer)
The lender approving the short sale, most likely will not allow an assignment of contract, or a double close.
Using the land trust avoids having the lender who has accepted the short sale, not allow a close because a different buyer enters the picture.

As for title seasoning, this would be an issue for the end buyer, IF they are using a lender.
Most lenders these days want to see the seller on title for some time, hence the reason a double close does not work well.
If you take title in a land trust, and then sell to a buyer with a new loan, sometimes, the new lender will simply see the title in a trust, and consider chain of title seasoned..........because they assume the trust is actually owned by the original barrowers, your sellers.

Hopefully this made sense, and your heads not spinning. If I can be more clear, let me know.

HTH,
Jim FL

[AndyRob76]

Andy,
First, Welcome to Magicbullets.
Always nice to have new folks join.
You've come to the right place, and I'm sure within a couple days, others will respond to your post as well.

In the mean time, I'll try to give you a non-lawyer answer.........but as with everything in this business, verify with comptent pro's in your area.
Laws vary from locale to locale.

Now, my opinion on the matter.
NO, you are not practicing law, as you are not giving the sellers advice, or doing any legal work for them, or even representing them.
In a subject to purchase, you are a BUYER.
So, any docs you prepare to facilitate the transaction are done for YOUR benefit.

Do keep in mind though that California does have some laws pertaining to pre-foreclosure purchases, with regard to time frames etc.
Something to definitely study up on and follow to the letter.

In the case of short sales, and making the offer with the purchaser as a land trust, to set up a close with your buyer.........your not setting up a land trust for the sellers.
For the short sale method you describe, you are merely listing the buyer as the trust.
This way, when the lender approves your short sale, that contract remains intact, and you merely have the buyer close, as the trust, which they buy from you for a fee.
This way there is one close, not two, and title goes from the sellers, to the trust.

Does that make sense?.........I'm in a hurry now, so if not, post back and I'll respond later when I have more time.

So, here is the scenario as you've laid out and how I interpret what you said:

The investor offers to buy from the seller, contingent on a short sale approval from the sellers lender.
The contract is written up, with "Joe and Mary Homeowner in default" as the sellers, and the buyer would be "AndyRobs land trust".
Then, you market for a buyer, and the buyer closes as the land trust.
Title then transfers like this:
Joe and Mary Homeowner ---> trust (which because you sold that, is your buyer)
The lender approving the short sale, most likely will not allow an assignment of contract, or a double close.
Using the land trust avoids having the lender who has accepted the short sale, not allow a close because a different buyer enters the picture.

As for title seasoning, this would be an issue for the end buyer, IF they are using a lender.
Most lenders these days want to see the seller on title for some time, hence the reason a double close does not work well.
If you take title in a land trust, and then sell to a buyer with a new loan, sometimes, the new lender will simply see the title in a trust, and consider chain of title seasoned..........because they assume the trust is actually owned by the original barrowers, your sellers.

Hopefully this made sense, and your heads not spinning. If I can be more clear, let me know.

HTH,
Jim FL



Jim,

Thanks for the warm welcome, and for the thorough post. Regarding the preparation of land trust docs for sellers in foreclosure, I agree with you. After speaking with a number of other folks, some attorneys, some not, the opinion seems to be split 50/50 as to whether doing this constitutes the practice of law. Even if it is, I have a couple of other potential solutions that might sidestep the whole issue altogether.

As for land trusts and simultaneous “simo” closes, I was pretty much tracking with you…I think? Have you successfully completed some simo closes? The only thing I’m wondering is if the end buyer’s lender will have an issue funding a loan where the seller is the land trust, a land trust established within the last 30-60- days? Also, given that FHA loans are expected to rise in use, I’ve heard that FHA will not fund a borrower buying a property from a trust? Do you know about this?

Thanks, again…

Andy…