Need help!! Land trust? Partnership? Help!! - Posted by Apollo

import · May 20, 2008, 12:17pm

Posted by Penny on May 21, 2008 at 10:18:26:

What contributions have the other partners made so far, e.g. down payment, closing costs, rehab costs, rehab labor, mortgage payment contributions, etc. in this deal?

Have they been contributing their share, per the LLC operating agreement, but the title and mortgage happen to be in your name only?

Interestingly enough, your partners are also at risk for putting money into something the LLC doesn’t own and are relying on your integrity to honor the original intent of the property acquisition. Your posts show you have concern for both sides. Good for you!

I’m not an attorney and don’t play one on tv. Check with your own attorney who is familiar with your state laws and your situation.

That said, I do own more than one business and have worked with my own attorney and accountant regarding asset protection, multiple corporate structures and tax benefits.

So here are some general thoughts that may help your advisors.

Others - please feel free to chime in and check my homework here.

Since you don’t want to transfer the title to the LLC while remaining liable for the debt, then the LLC needs an agreement with you (or whatever entity in which you choose to hold the property) regarding the LLC contributions and profit returns. So yes, you should draft a document that spells out the gory details.

You need to decide how you want to hold the title (e.g. put it into a trust, LLC, etc.) to manage your personal liability. Your attorney can help you with asset protection and estate implications, and whether insurance can help with the various entity choices.

I’d check with your CPA for tax implications (for you personally and also for how you might flow tax benefits to the other partners) and also your banker on refinancing options and implications. If you were to re-finance it in the LLC name, chances are someone would be asked to personally guarantee the loan.

My tax strategist was telling me about new Fannie Mae and Freddie Mac rules that will impact the ability to refinance properties (SFR and multi-s 4 or less) that are held in an LLC. Refinancing down the road is one way to get your name off the mortgage as well as draw out equity for distributions to the partners. Make sure you think about exit strategies for you and your partners, if you haven’t already.

The current LLC could either loan your entity funding, or it could invest in your entity. I’d talk with a good corporate attorney to help you figure out which is best, or if there are other options that I’m not familiar with. Once you decide on an entity choice and the current LLC relationship, your attorney should be able to help you write something up.

Hope this helps. Good luck!

import · May 20, 2008, 12:17pm

Need help!! Land trust? Partnership? Help!! - Posted by Apollo

Posted by Apollo on May 20, 2008 at 12:17:46:

Hi,

Before you ask, yes I did search the archives first before typing this post. I got a lot of great information, but my question wasn’t specifically answered (or at least I couldn’t find it).

With that said, here is the scenario: Me and some friends formed an LLC for the purpose of investing in real estate. We bought a preforeclosure, and I financed the property in my name. We just completed the rehab, and are about to put a tenant in the property.

I am concerned about my liability, since the mortgage and title are in my name only. I saw some post on here that mention putting the title into a land trust. That sounds like a good idea for protection purposes, but I’m concerned about giving up the title on a property that I hold a mortgage on. What if things don’t work out, and I now have a mortgage on a property that I don’t legally own? That scares me.

Would the best way be to put the property into a trust, and then have our lawyer draw up a Partnership agreement that protects me as well as our partners? I really don’t know what to do on this one, and would appreciate anyone’s comments. Thanks in advance!

Apollo

import · June 13, 2008, 6:00pm

Re: Need help!! Land trust? Partnership? Help!! - Posted by thefullpriceofferguys

Posted by thefullpriceofferguys on June 13, 2008 at 18:00:48:

the land trust that im studying is bill gatten’s equity holding trust system.

its an illinois type revocable living land trust. the main component to this is we would use a neutral 3rd party corporate trustee, licensed, bonded, non for profit. this trustee would hold Power of Sale and your title on behalf of its beneficiaries in your own land trust.

the beneficiary would be your LLC. as a beneficiary of your own land trust, your LLC would also hold the Power of Direction. so you can direct the trustee on how to dispose of the property when it comes to getting financing and to release title to the end buyer. in essence, this type of trust is beneficiary directed where the beneficiaries will get to decide on how to control, manage, lease, rehab, assign, refinance or sell the property. if there are multiple beneficiaries, it must be a unanimous decision and a letter of direction must be given to your corporate trustee.

its pretty unique and has a bunch of components which is also complex to understand. majority would say its an overkill but i prefer to make it very difficult for any creditor or attorney to try and attack my assets - especially real estate assets.

they’d have to pierce a properly formed land trust and then they’d have to pierce a properly formed LLC. in this case, the property cannot be partitioned or liquidated if i have multiple beneficiaries who are NOT related to me. they can only attach a judgement lien against your beneficial interest, but NOT your real property.

im not an attorney. just a computer engineer =)

i understand that land trusts are used to protect the property and LLC’s are used to protect me from personal liabilities.

talk to a trust attorney.

import · May 20, 2008, 9:22pm

Re: Need help!! Land trust? Partnership? Help!! - Posted by Penny

Posted by Penny on May 20, 2008 at 21:22:41:

If you can provide a little more info, maybe you can get some feedback that you can take to your own attorney and CPA.

What does your LLC operating agreement say regarding each person’s contributions, participation expectations and investment returns? Why did you decide to put the property & mortgage in just your name versus the LLC/and or the other partners (I can guess, but don’t want to assume)? What contributions have each of the partners made so far?

An LLC is usually a good choice for holding real estate and other appreciating assets, both from a tax perspective and asset protection.

import · May 20, 2008, 9:56pm

Re: Need help!! Land trust? Partnership? Help!! - Posted by Apollo

Posted by Apollo on May 20, 2008 at 21:56:41:

Penny, thanks for your reply. Our LLC operating agreement basically says that each member is responsible for making an equal contribution towards all investments, and will have an equal share in all profits. That’s the simplified version, but that’s it in a nutshell.

I put the property in my name, because the debt is in my name. I am very concerned about having a mortgage in my name, when I am not the actual owner of the property.

Just to make clear what my issue is: I know that an LLC is a great way to provide protection for all of the partners, but that’s not really my main concern. My main concern is how do I protect myself in this situation? The title and mortgage are in my name. That makes me responsible for everything. I can transfer title, but that doesn’t relieve me of the responsibility of the debt.

Is there a document that I can draft (Partnership agreement?) that can spell out what the responsibility of the LLC is, versus what my responsibility/liability is?