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U.S. Department of Justice Files Sexual Harassment Lawsuit Against Landlord

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By Stephanie Mojica

The U.S. Department of Justice recently filed a lawsuit against an Iowa landlord alleging that he sexually harassed and committed acts of retaliation against a female tenant.

The defendants in the lawsuit are Juan Goitia and 908 Bridge Cooperative in Davenport, Iowa, according to a press release from the Department of Justice. The reported incidents occurred between March and August 2018 and are blatant violations of the Fair Housing Act, according to the Department of Justice.

Goitia, an owner and manager of residential properties, allegedly touched a female tenant’s body on multiple occasions without her consent and made repeated and unwanted sexual remarks, according to the Department of Justice. When the woman filed a fair housing complaint with the Davenport Commission on Civil Rights (DCRC) and the U.S. Department of Housing and Urban Development (HUD), he engaged in acts of retaliation against her, according to the Department of Justice. The press release did not elaborate upon what those alleged acts of retaliation were.

“No woman should have to endure sexual harassment to keep her home,” Assistant Attorney General Eric Dreiband of the Civil Rights Division said in the press release. “The Fair Housing Act protects tenants from sexual harassment and retaliation by their landlords, and the Justice Department will vigorously pursue those who engage in such reprehensible and illegal conduct.”

After the DCRC and HUD investigated the woman’s fair housing complaint, they forwarded it to the Department of Justice for further action. The lawsuit filed on June 29th calls for the woman to be compensated financially. Also, the Department of Justice asked for a court order to be issued to prevent further discrimination against the woman.

“Women have a hard enough time finding a decent affordable place to live without having to be subjected to unwanted sexual advances,” Assistant Secretary Anna Maria Farias of HUD’s Fair Housing and Equal Opportunity Office said in the press release. “HUD applauds the action the Justice Department is taking in this matter and remains committed to working together to protect the housing rights of women when those rights are violated.”

Incorporating in Nevada

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By Jay Butler

During the 18th century, corporations in America were formed by an act of congress for public projects and services, such as the building of damns or creation of manufacturing jobs.  Charters were revoked for the violation of law or upon the life of the project.

Originally owners and managers of corporations were held liable for the mismanagement of all company affairs and criminal acts. These corporations could not own stock in other companies, possess ownership of non-essential property, nor make political or charitable contributions to influence law-making decisions within the legislative branch of the United States government.

Large central banks didn’t care for this and pushed New Jersey representatives to pass legislation called the General Revision Act in 1896, which privatized corporate charters.  Delaware passed similar laws shortly thereafter and became known as the premiere state in which to incorporate in America for the next 101 years.

In 1997 Delaware began disclosing stock ownership information with the Internal Revenue Service and, combined with an 8.7% state corporate income tax rate, may no longer be the best choice for forming a private corporation.  However, Delaware has some of the best anti-takeover clauses in the United States and is a worthy consideration should you wish to take your company public.

Wyoming has risen through the ranks as a viable alternative state in which to incorporate.  Although they disclose available stock ownership to the IRS, Wyoming does not keep any records on file and therefore has no available information to disclose. It is a very clever strategy and certainly places the low cost of incorporating in Wyoming above most other every state in the union.

Nevada improved upon Delaware laws when forming their Nevada Revised Statutes in 1987 (later revised in 2001), wherein personal liability protection is determined by state statute and not by judicial determination on a “case-by-case” basis as in California courts.  In Nevada, individuals are not subject to the unpredictable rulings applied by any particular judge, rather one can count on stable outcomes based on foreknown Nevada state law.

Nevada has developed a strong precedence for protecting the corporate veil, making it the most difficult to pierce of any state in the country. In fact, since 1987, only one Nevada “C” corporation has ever had its veil pierced. [Polaris Industries Corp v. Kaplan]. Under NRS 78.747 the protection and anonymity for officers, directors and stockholders in Nevada “C” corporations are unparalleled with any other state in the union as the nearly insurmountable burden of proof rests entirely on the Plaintiff to prove all three of the following NRS requirements to pierce the veil.

1.) The corporation must be influenced and governed by the person asserted to be the alter ego. When a corporation is not operating as a true legal entity and is being used by its shareholders as a “shell” to control private interests and assets or debts, the corporation is said to be the “alter ego” of its shareholders. A corporation may appear to be the alter ego of its shareholders when:

  • No directors are elected;
  • No corporate records are kept;
  • No records are maintained by the shareholders;
  • Personal funds or assets of shareholders are co-mingled with those of the company;

  (e.g. no separate bank accounts).

If the shareholders have themselves disregarded the corporate form, the law will disregard the entity and shall not offer shareholders the protection normally granted to the corporation.

2.) There must be such unity of interest and ownership that one is inseparable from the other;

3.) The facts must be such that adherence to the corporate fiction of a separate entity would, under the circumstances, sanction fraud or promote injustice.

After the deplorable June 24th, 2010 Florida Supreme Court Ruling in Olmstead vs. FTC, Nevada amended their charging order protection under NRS 86.401 to specifically provide single-member limited liability companies the same exclusive remedy for a judgment creditor as with multi-member LLC’s.  And with legislation enacted on October 1st, 2011, Nevada went a step further under NRS 78.746 to become the only state in America extending such charging order protection to “C” Corporations.  Now Nevada “C” corporations are afforded the highest degree of protection from lawsuits filed by disgruntled creditors and zealous attorneys.

Tax, what tax?  The great state of Nevada has no gift tax, no sales tax, no luxury tax, no property tax, no franchise tax, no capital gains tax, no succession tax, no tax on corporate shares, no individual income tax and no corporate income tax for entities whose gross revenues do not reach or exceed $4 Million per annum.  Nevada entities are only subject to Federal income tax IF the respective entity has a profit upon reaching its fiscal year-end. 

Nevada corporate stock holders and directors are not required to be U.S. citizens and meetings may be held by proxy anywhere in the world.  Nevada requires no minimum paid-up capital and there are minimal reporting and disclosure requirements.  Only the names and addresses of the corporate officers, directors and resident agents are on public record, but again Nevada recognizes privacy and permits the use of nominee officers and directors.

The primary business which may be exempt from paying the annual Nevada state business license fee under NRS 76.020 are government entities, non-for-profit organizations, motion picture studios, and limited types of insurance companies.

Choose a jurisdiction in which to incorporate wisely and always be sure to “Cover Your Assets”.  Please contact our offices today at https://www.assetprotectionservices.com/apsa/contact/contact-us.php to receive your free private consultation and for assistance with forming an entity in the state which best suites your needs.


Asset Protection Services of America

701 South Carson Street

Suite #200

Carson City, NV 89701-5239

Office

(775) 461-5255

Fax

(775) 461-1155

Mobile (239) 309-8214

Skype Jay_Butler

E-Mail [email protected]

Website www.AssetProtectionServices.com

 

So Many Ways to Buy

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By Bruce Kellogg

#1 – Cash Purchase

This is the simplest method: write a check, wire the funds, etc.  But more needs to be known etc.  a) The investor needs to calculate their percent cash return on their cash invested in order to compare with other investment opportunities in front of them.  b) When buying with cash, try for a price discount.  Don’t pay “retail” unless you have to.  c) After buying with cash, take out a credit line on the property for security if times get tough.  Credit unions are good for this.  In tough times, banks often reduce or cancel credit lines, which makes banks unreliable when you need them.

#2 – Assume an Existing Loan

This involves applying to the existing lender to replace the existing borrower.  You will have to qualify as a new borrower, and pay fees.  In this low interest rate environment, it can be preferable to simply assume the loan.  Some commercial and private loans are assumable as well as institutional loans on 1-4 residential units.

#3 – “Subject to” an Existing Loan

Unlike formally assuming an existing loan, this method involves taking title to the property without disturbing the loan, and just start paying on it.  Conceptually, it is simple, but in practice it is not.  Most loans nowadays are “due on sale”, so if the lender finds out the property was transferred, they can “accelerate” the loan and call it “due and payable”.  They have the right to foreclose if they are not paid, or a satisfactory arrangement made.

#4 – Create Financing

When a property is purchased, the numbers have to add up.  If the down payment and the existing or new loans do not equal the purchase price, then financing has to be created.  Often, the seller will agree to “carry back” a created loan for the buyer to complete the purchase.  This “note” can be sold, often at a discount, or borrowed against by the seller, so they are not stuck with it.  Or, they might like it and keep it in their pension fund, for example. The terms of the loan are whatever the parties agree, as long as the terms are legal.

#5 – Create a “Wraparound” Loan

One really useful created loan is called a “Wraparound” or “All-Inclusive” loan.  This is where a loan is created that “wraps” or “Includes,” the existing loan(s), which the buyer executes in favor of the seller.  Usually , the “wrap” includes the part of the purchase price that is unpaid by the down payment.  It’s basically the “carryback” amount due to the seller over time.

There are a couple of benefits to the “wrap”.  First, it is a useful way to work with a “subject to” transaction, described above as being somewhat complicated. 

Second, if the “wrap” is written at a higher interest rate than the loan(s) enclosed in it, the seller will receive excess interest above what he is paying out.  Yields can be high with a “wrap” this way.

#6 – “Creative” Financing

This is where real estate gets “creative”.  By legal definition, personal property is any property that is not real property.  Examples of personal property are cash, corporate stock, gemstones, art, vehicles, promissory notes, and so on.  How about, instead of cash, use other personal property for the down payment?  A 4 carat diamond was used to purchase the Mt. Diablo Hotel in Contra Costa County. A mid – 1930’s 40 foot wooden motor boat (gorgeous woods) was used to acquire a triplex in Redwood City.  How about a travel trailer for a down payment?  Anything goes, sometimes!

#7 – Funds From a Whole Life Policy

In most cases, it is possible to borrow from a “Whole Life”  insurance policy and use the funds to buy real estate.  This can be investigated by reading the terms of the policy, and then discussing this with the company.  Repayment will be required, and reasonable interest will be charged, but it’s a good source of funds.

#8 – Invest Using Your IRA

Now that interest yields have been low for so long, people are moving to invest in real estate using their  Individual Retirement Account (IRA).  Investments can be made in real property or personal property such as notes, coins, paintings, securities, and so on.  Basically, the method is to move your IRA account to a “custodian” and have them buy, manage, and sell your properties at your direction.  Custodians are plentiful on the internet, and they have literature galore.  Leverage by borrowing from banks can be used to enhance the return in your IRA.  Your custodian can steer you to banks that offer to do this.

#9 – Cash to New Loan

The most common method of purchasing real estate involves the buyer putting up a cash down payment, then qualifying for a new, long-term “purchase money” loan from a bank, credit union, or mortgage broker.  Sometimes, the seller will make (i.e., “carry back”) the loan.  Usually an institution will fund the loan and either keep it in their portfolio, or, more often, they will bundle it with others and sell it as a security on Wall Street.  This replenishes their lendable funds.

Down payments vary.  Commercial loans are usually 20 – 40% down, depending upon the lender’s guidelines and risk assessment.  Owner-occupied, residential loans can be as low as 0 – 3.5% with mortgage insurance usually required.  1 – 4 unit investment properties typically require 20 – 25% cash down, but no mortgage insurance.  Lenders’ programs vary widely, including rates and fees, so comparison shopping is recommended.

#10 – Gifting

Purchasing as described in #9, above, many times offers the opportunity for the borrower(s) to receive a gift of money toward some, or all, of the required down payment.  Acceptable donors include “a relative”, defined as a spouse, child, or other dependent, or any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.  A fiancé, fiancée, or domestic partner can also donate.

Lenders will want a “gift letter” signed by the donor stating that repayment of the gifts is not required.  Many lenders will require proof of the funds being transferred, so it is important to learn the lender’s requirements prior to transferring funds around.

#11 – Buy Defaulting Note, Then Foreclose

This method involves buying notes or mortgages that are in default at a substantial discount, then foreclosing to acquire the property.  Notes can be purchased through advertising on Craigslist, newspaper ads, direct mail to purchased lists, or websites dealing with note transactions.  Searching on the  internet will provide organizations with courses on notes.  This method can be highly profitable, but is quite sophisticated.  Additionally, foreclosing on a note usually does not afford the opportunity to conduct inspections, and a title search is essential.  Some states provide a “right of redemption” for the foreclosed borrower to recover ownership, adding further complexity and risk.

#12 – Tax Liens and Tax Deeds

In order to stay solvent, when  owners fail to pay property taxes, countries will issue tax liens or tax certificates which are sold to investors at a certain yield.  Depending upon the state, yields run from 6% to 36%, with 8 -18% being most common.  Under some circumstances, investors can foreclose and obtain ownership of the property.  Searching the internet under “tax liens” will produce teachings and organizations offering to help investors get involved.  Be advised, however, that this axquisition method is also sophisticated and has the same warnings as #11, above.

#13 – “Trade” or 1031 Exchange

A “trade” of real estate involves swapping one property for another.  An example would be if the owner of a vacant lot traded it with the owner of a mountain cabin, probably with some cash changing hands to even out the values.  One party might obtain financing, or one trader might carry back some “owner financing”.  Noteworthy here is that the trade is not a tax-deferred exchange, but just a swap.  These transactions are advertised on real estate and barter websites from time to time, saying “For Sale or Trade”, or similar.

A tax-deferred exchange is a transaction governed by Section 1031 of the Internal Revenue Code and is designed to defer long-term capital gains taxes for the “exchangor”, the one moving up in property.  The properties have to be “like kind”, such as real estate for real estate.  They do not have to be identical types of real estate.  For example, an airport hangar could be exchanged for a duplex.  However, they do both have to be either an investment property, or a property “used in a trade or business”.  So, a plumber who is retiring could exchange his shop building into a fourplex for retirement income.  However, an investment property CANNOT be exchanged into a property that is promptly turned into a residence after the close.  Capital gains taxes will be due.  The Internal Revenue Service (IRS) has issued “safe harbor” guidelines for a successful exchange, so real estate, accounting, and possibly legal experts need to be used.

#14 – Syndication

When investors get together to buy a property, it is commonly called a “group investment”, which is legally termed a “syndication”.  This is usually done to allow the purchase of a larger property and provide “passive” ownership benefits for the investors.  The common types of syndications are:  1) Limited Partnership 2) Limited-Liability Corporation (LLC), and 3) Tenancy-in-Common (TIC).  Each one has an organizer who usually becomes the manager of the project.  An “offering circular” is prepared describing the project, including financial projections, organizations, management, and risks.  Investors sign a “subscription agreement” and contribute their “share” of the project.  Syndicatiions are a “security” under federal and state laws, so there are regulations to be followed concerning marketing, disclosure, handling of investor funds, management, and reporting.  Larger projects typically require the investors to be “accredited”, which necessitates a substantial income and net worth.  Syndications are easy investments, but investigation of the project and the organizer is essential due to the potential for the promoter to take advantage of the investors through slick marketing.  Additionally, if the organizer is honest yet inexperienced, the project could fail.  Don’t be afraid, but be careful with syndications.

#15 – Equity-Sharing

Another method of investing with lots of potential is “Equity-Sharing”.  This is when an investor and a potential homeowner buy a single-family residence together, and the aspiring homeowner occupies it.  They are called the “resident co-owner” (RCO), and the investor is called the “investor co-owner” (ICO).  Percentage shares are negotiable with the RCO paying the property taxes, insurance, loan payment, and routine repairs, while the ICO puts up the down payment.  There is a “Shared Equity Agreement” or “Joint Ownership Agreement”, which sets the term, allocates the income-tax benefits, and specifies how the arrangement is to be wound-up.  One party could buy out the other, or the property could be sold and the net proceeds divided.

Equity-Sharing works well between relatives.  One Lockheed engineer has seven of these going to help his children, nieces, and nephews become homeowners.  College housing is another application where the son or daughter owns part of the house with the parents then rents bedrooms to other students.

#16 – Joint Venture

A “joint venture” is where two parties undertake a project together, such as a “fix and flip” of a property.  One party usually supplies the funds, while the other supplies the expertise and management.  This is often called a “rich man, poor man partnership” and is a great way to get started.  A “Joint-Venture Agreement” describes the arrangement.  These can be found on the internet.

#17 – Contract-of-Sale

The “Contract-of-Sale”, also called “Contract for Deed”, “Land Sales Contract”, or “Land Contract” is a method of acquisition that defers the buyer’s receipt of the deed (fee ownership) until all of the contract’s terms have been fulfilled.  Meantime, the purchaserhas what is known as an “equitable interest”, an interest under the contract.  It is a security device for the  seller who is financing the transaction.  It’s a good method for selling to a buyer with a low down payment or weak credit that can be improved over time.  Since it is a contract, foreclosure requires an action in court.  Additionally, most states have a “right of redemption” where the foreclosed party has a certain period of time to pay the arrearage plus costs and recover the property.  For a purchaser, it is an easy way to begin ownership of a property.  A good practice is to obtain a quitclaim deed and record it if the contract in not fulfilled.  This cleans up the title.

#18 – Shared-Appreciation Mortgage

When the market is appreciating rapidly it is sometimes difficult to convince a seller to sell on reasonable terms, or to carry back owner-financing.  One approach to this is to create a “Shared-Appreciation Mortgage” which the seller carries back.  Usually, it involves a low interest rate, but then gives the seller a percentage of the profit at the end of the loan term.  This approach also works well in a high interest rate environment because it helps the buyer achieve a reasonable cash flow to sustain the property.  A “standard form” for this type loan is not normally available, so it’s best to have an attorney draw one up, or customize an existing one.

#19 – Option to Purchase

An option confers the right, but not the obligation, to do something.  Real estate examples include the option to purchase, option to lease, option to renew, option to extend, and so on.  Usually, a prospective buyer negotiates an option to purchase when they want the property, but sometime later.  They give the owner some agreed “option consideration” for the right to purchase the property on mutually-agreed terms on or before a specified future date.  Option consideration is frequently cash, but it could be personal property, like a used tractor, or even “personal service” where the future buyer fixes up the property before buying it.  If the option is not exercised, the owner is entitled to keep the consideration.  A good practice is to obtain a quitclaim deed and record it if the option expires without being exercised.  This clean up the title.

Options are particularly useful for reserving properties without appearing on the public record until the options are exercised.  Developers do this to accumulate parcels without “tipping off” other players in the market that they are buying.  An individual can negotiate an option in an appreciating market and exercise the option later without the costs of ownership in the meantime.  It’s an excellent way to speculate, and fortunes have been made this way.

#20 – Lease-Option

A lease-option involves leasing and taking possession of the property being optioned.  Prior to exercising the option, the property can be occupied as a residence, or leased to a subtenant.  This is a way to “tie up” a property to take advantage of an appreciating market. 

Another possibility is to enter into a contract-of-sale with an owner, then lease-option the property to a tenant.  If/when the tenant exercises the option, pay off the contract-of-sale, and realize a profit.  Option consideration from the tenant can be used for the down payment on the contract-of-sale, resulting in a (nearly) cashless transaction.  This can be done repeatedly as a business model.

Two cautionary remarks:  1) ALWAYS make sure the option and lease agreements are separate documents so a judge cannot order the refund of the option consideration to the tenant by characterizing it as a rental deposit.  2) Obtain a quitclaim deed any time an option is not exercised in order to maintain a clean title.

#21 – Master Lease-Option

This method applies primarily to commercial rehabilitation projects.  The idea is to find a building that has “gotten away from” its owner and become run-down with vacancies that are not being filled.  A “Master Lease” is negotiated with the owner to take over rehabbing and re-tenanting the building, along with an option to purchase the building before an agreed future date when financing the purchase is more likely to succeed.  Since the present owner is obviously short of funds, the purchaser will have to fund the project and receive a lower price or credit toward the purchase, or both.  It is best to have a real estate attorney draw up these agreements.

 

#22 – Adverse Possession

An interesting way to acquire a property is through what is called, legally, “Adverse Possession”.  It involves taking possession of a property and continuously possessing it for a number of years specified by state law.  The years vary by state from six to thirty, with California being just seven.  Possession has to be “open”, which means coming and going at will.  It has to be “notorious”, which means it can be readily observed.  It has to be continuous, so a break disrupts the timeline.  It also has to be “hostile to the interests of the owner”, which means overstaying an invitation by the owner does not qualify.  California also requires the possessor to pay the property taxes, as well.  If all conditions are met, the possessor will sue the owner in a “quiet title action” to obtain title in their name.  This situation occurs more with rural property, and is not common, but is fun to think about! See wikipedia to learn more.

#23 – Involuntary Methods

The other acquisition methods in this series are all voluntary, except two, which are involuntary.  These are: a) Inheriting a property and, b) receiving a property as a gift.  These are mentioned for completeness, but are too simple to warrant discussion.

#24 – “Leftovers”

There are three additional ways to acquire real estate which are more like techniques that can require no cash down payment.  Here they are:

“P-Note” iivolves giving the seller an unsecured promissory note for the down payment.  This works best if the parties know and trust each-other. But it’s a viable approach.

“Sweat Equity” involves the purchaser convincing the seller to allow them to fix up the property in lieu of a down payment while the seller carries back the financing.  Doing the repairs prepares the property to obtain a new loan and, at the same time, it secures the seller’s loan more as the repairs are accomplished.

“Personal Service Contract” Involves a purchaser providing some service to the seller in lieu of a cash down payment.  Examples include a plumber re-piping the seller’s residence, or a dentist providing dental implants to the seller.

These three techniques should probably be used with the help of a real estate attorney.

Conclusion

In many parts of the country, markets are tightening, and inventory is dropping.  Investors are finding it harder to make a deal.  While the 24 acquisition techniques presented here cannot increase the supply of properties, they can open up alternative ways to capture more properties that are available.

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Bruce Kellogg

Bruce Kellogg has been a Realtor® and investor for 36 years. He has transacted about 500 properties for clients, and about 300 properties for himself in 12 California counties. These include 1-4 units, 5+ apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches. He is available for listing, selling, consulting, mentoring, and partnering. Reach him at [email protected], or (408) 489-0131.

Is the Secrecy of a Land Trust Lawful?

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By Randy Hughes, Mr. Land Trust

Land Trusts have been used in the United States for over 100 years, primarily for privacy of ownership. Many people, for various reasons, want to own real estate without public knowledge. Perhaps they are a celebrity, politician (President Obama owns his house in the Chicago suburbs in a land trust) or an individual that just doesn’t want the general public to know their private business. Such persons might also fear the wrath of disgruntled tenants, vendors or building inspectors. Further, if it were public knowledge that the richest man/woman in town owned local rental property perhaps rent increases and maintenance requests would be perceived differently.

Since title to property ownership is public information many real estate owners and real estate investors opt to take title to their real estate investments in land trusts. Land trusts hold title in the name of a Trustee and the trust itself. The Beneficiaries of the Land Trust are not disclosed to the public and are only named in the Trust Agreement (a non-recorded contract between the Trustee and the Beneficiary). The Beneficial Owners can be individuals, a corporation, a Limited Liability Company or another trust. Consequently, the true beneficial holders can be buried deep for privacy and asset protection reasons (with no document on the public records indicating true ownership and control).

The beneficial interest holder of a land trust is liable for what happens on the property that is held in a land trust. Therefore, most real estate investors will own the beneficial interest via another entity (i.e. a corporation or limited liability company). Unfortunately, some land trust beneficiaries are unscrupulous and attempt to conceal ownership to avoid conflict of interest and/or building code violations. Consider for example, Chicago alderman, Thomas Keane, who owned an interest, through a land trust, in a corporation that obtained a lucrative parking lot with city owned O’Hare International Airport. The alderman did not reveal his ownership interest when he voted to grant the contract (see Land Trust Secrecy—Perhaps a Secret No More, 23 DePaul L. Rev. 509,511 n.10 (1973)).

The technique in using a land trust to hide ownership has been raised to an art form in Cook County, Illinois. It is estimated that over 90% of the property owned in Cook County is held in a land trust!

So, why is it important to record title in an individual’s name or the Trustee of a land trust? Everyone who owns property places in the public records some kind of document recording their interest. Failure to do so raises the risk that subsequent purchasers or creditors of a previous owner may deprive the present claimant of his title. But it is also true that the recorded title need not disclose the personal name or identify him/her in any way! Instead, a nominee, corporation, trustee or other entity may be interposed as legal title holder. Its relationship with the beneficial interest holder may be (as mentioned previously) represented by a private unrecorded document that is not disclosed to anyone without a court order or discovery process instituted.

Is it immoral to not reveal the true identity of the controlling party of a piece of real estate? Some would say yes but, once you own real estate in your own personal name and experience some of the inherent legal risks you might be more understanding of those who do not want to own title in their individual name. Real estate ownership carries risk and sometimes excessive oppressive risk. While it is true that real estate ownership should carry with it some responsibilities (i.e. to maintain, comply with building codes, meet minimum housing standards, etc.), it should not be a target source for contingency fee lawyers and other frivolous legal attacks.

Furthermore, some real estate investors are concerned about Federal and State government intrusion in their lives (read: Patriot Act). Since there is no requirement to itemize specific property ownership details on your IRS 1040,  holding real estate in a Land Trust keeps the investor’s name out of all city, county, state and federal databases.

Since Land Trusts are not registered at the State or Federal level (unlike Limited Liability Companies –LLC’s and Corporations), they are the last useful non-entity entity available to owners of real property (land, improved property, commercial buildings, residential buildings, real estate options, real estate contracts, etc.). Yes, LLC’s and Corporations offer more direct asset protection benefits, but the Land Trust provides more privacy of ownership and indirect asset protection benefits. Therefore, it is best to link Land Trusts, LLC’s and Corporations together for the best of both worlds.

By structuring the Land Trust with an LLC or Corporation as the beneficiary, the real estate investor creates a unique structure with symbiotic benefits. For example, changing ownership of the beneficial interest (being held by an LLC), would effectively change the owner/control of the title holding Land Trust without public notice or knowledge. Not only would this be a deeply private transfer of ownership and control but taxing authorities would be left out of the loop resulting in substantial tax savings!

Some theorists contend that property should be owned only in individual names so the “public good” can be served by holding owners accountable for what occurs on property (liability for people and condition). At the Federal level some even refer to two statutes of importance: The Freedom of Information Act (1976) and the Privacy Act of 1974 as reasons to compel ownership in the name of individuals and not trusts (or at least limit the privacy of Land Trust’s through legislation).

In Arizona, for example, the fear of organized crime prompted action by its legislature (see New York Times, March 30th, 1976 at 20, col 4). The AZ legislature enacted, as an amendment to the recording statute, a provision requiring every conveyance to or from a Trustee to include the names and addresses of the beneficiary or persons representing the beneficiary. However, it is unclear under this law if the Trustee of another Trust (i.e. a personal property trust), a corporation, or a nominee can be listed as the beneficiary and still comply with the law.

In Illinois the land trust statutes seemed to have evolved from legislative apprehension over slum housing problems and corruption among public officials (as with the previously stated Thomas Keane case). A 1963 law enacted in Illinois requires full disclosure of a Land Trust beneficiary “within 10 days of receiving a notice or complaint of violation of any ordinance relating to condition or operations of real property affecting health or safety.” The apparent intent was to force disclosure of the “true owners” of buildings with housing code violations. While there is a $100.00 per day penalty for non-compliance of the law, no- where does it spell out specific procedures to compel disclosure.

Iowa’s primary concern when it comes to privacy of ownership is the possibility of hiding ownership of property by nonresident aliens. Under Iowa law (see Property Rights of Aliens under Iowa and Federal Law, 47 Iowa L. Rev. 105) a nonresident alien may not own more than 640 acres located outside the corporate limits of a town or city (see Iowa Code Ann. 567.1). However, the prohibition on nonresident alien ownership in Iowa speaks of “acquiring title to or holding” real estate. It is unclear whether indirect ownership (i.e. via a Land Trust or nominee) is prohibited. It is also interesting that the Iowa law mentions no penalty for non-compliance!

What is interesting about some states attempt to control Land Trust information (and force disclosure) are their statutes are event-based. The event that triggers disclosure is the transfer of title into or out of the trust. Occurrences after conveyance into the trust, such as beneficiary changes or amendments to the trust agreement, need not be disclosed.

There is an inherent conflict between those who want to own property privately and the interests of the general public (and some governmental agencies). While it is true that some nefarious characters will attempt to use a land trust to avoid code requirements, tax re-assessments or the due-on-sale clause, a vast majority will not. Most people who utilize a land trust do so with good intentions in mind. (i.e. estate planning, privacy concerns, asset protection, etc.).

Certainly public officials should not be allowed to use land trusts to defraud the public (and building code violators should be held accountable), but in the typical residential real estate sales transaction the buyer is protected via the seller disclosure laws, title companies and attorneys involved in the transaction (regardless of whether a land trust is used or not). Further, the liability for the property held inside a land trust flows through to the beneficiary. While an LLC or other entity can be the beneficiary to a land trust, ultimate liability is not avoided by using a land trust.

Because our American legal system has run amuck and contingency fee lawyers abound, I do not favor the free flow of information as it relates to property ownership. Since there is no Federal land trust law (only state-by-state), the likelihood of legally compelling land trust beneficiaries to disclose information voluntarily about the title or condition of their property is unlikely in most states, if at all.

P.S. If you want more information on Land Trusts, please text “reasons” to 206-203-2005 for my FREE booklet with over 50 reasons to use a Land Trust (title holding trust). You can also attend my FREE Land Trust webinar by going to: www.landtrustwebinar.com. Or, call me. I actually answer my own phone! 866-696-7347.