I’m going to conclude this brief series regarding trustees and grantor revocable title holding trusts by exposing a couple of myths that have been circulating for a long time.
Myth #1: Grantor revocable title holding trusts (or land trusts, as they are often called) provide asset protection. That is incorrect. A trust is a contract, and a contract has no statutory or common law basis for providing asset protection. A trust, however, does a very good job in providing anonymity and privacy.
Myth #2: You can use these types of trusts as part of buying a property subject to an existing mortgage and, therefore, comply with the Garn-St. Germain Depository Institutions Act of 1982 and avoid triggering the due-on-sale clause inside a deed of trust or mortgage. Any person who espouses this myth has clearly failed to read the Garn-St. Germain Act in its entirety to see the limited basis on which putting a property into a trust does not trigger the due-on-sale clause in a deed of trust or mortgage.
Those who believe Myth #2 are usually encouraging others to engage in the unauthorized practice of law or are creating trusts that have a potential massive defect. When I refer to a trust as a “grantor revocable title holding trust”, that means the individual who forms the trust or enters into the agreement with the trustee has the ability to amend, change or revoke that trust. The notion that having the homeowner from whom you are buying the property subject to an existing mortgage create the trust and then assign the beneficial interest to you, the investor, is bad on both counts. First, you are engaged in the unauthorized practice of law, and second, you are creating a trust that, if valid, could be revoked at any time by someone over whom you have no control or sway.
I hope this article is making you say, “Oh, wow!” and not, “Yeah, but…”. If this series has been helpful, please let me know and I may extend it.