Re: Land Trusts: Changing Beneficial Interests - Posted by Bill Gatten
Posted by Bill Gatten on March 30, 1999 at 14:52:33:
Jim,
Re. the 2nd part of the exemption (GSG)…
When creating the land trust, the trust itself does not (should/must not) relate to a transfer beneficiary interest OR occupancy rights. If a beneficiary is to take occupancy, the transfers are each done via separate agreements (Assignment Agreement and Occupancy Agreement). If you, yourself, are acquiring a property to rent or lease out, it’s the tenancy agreement itself that conveys the occupancy rights, not the trust.
Think about it: How many people do you know who hold income properties in living trusts? Wouldn’t all of them be in violation if the DOS admonition were taken to mean that a property couldn’t be placed into the trust, then leased out; or that a leased property couldn’t be placed into a trust?
Regarding the question of what would happen if a lender were to deem the assignment of beneficiary interest as a DOS violation: Yes. One would probably have to bring suit to stem foreclosure proceedings; and though he/she would be “virtually” certain to win the case: based upon precedents in other states, the process could prove expensive.
In most states land trusts are only statutory, and not specifically authorized and protected under legislation (i.e., by an Act of Congress); and the outcome of such a court case could never be foreseen with absolute certainty. In this regard, we only have history, logic and the fiction of law to rely upon. And that is to say: it has never happened; it would be very unlikely to happen; and “probably” couldn’t happen. And even it did happen, the lender would have to prove that it happened and demonstrate how it had been injured; and how its security interests were compromised or impinged upon.
Jim, all of this is why we say, let the borrower stay on as beneficiary (in part) and retain mutual voting rights. Anything the co-beneficiary would want to avoid voting on (remodeling, increasing rents, early termination, etc.) can easily be spelled out in advance without compromising ones autonomy. This way there clearly has been no divestiture or ownership or control beyond the owner’s own trust. As far as a partial assignment of beneficiary interest is concerned, that’s always prudent when dealing with a land trust, in order to invoke the protection of non-partionability of personalty.
Regarding the insurance issue, in our program (or yours) the seller merely converts his homeowner’s insurance to a non-resident policy, naming the trust as loss payee. The trustee is then mutually directed in advance by both beneficiaries, that any insurance moneys received by the trustee are to be remitted directly to the injured co-beneficiary. If the co-beneficiary is also to be a resident in the property, he/she will, of course, order their own contents coverage in their own name.
Bill