Land Trusts: Case Studies

Land Trusts: Case Studies

We’ve been looking at Community and Conservation Land Trusts for the last couple of weeks.Today, we’re going back to the Traditional Land Trust. This week, we're going to look at 5 specific examples of when a Land Trust was particularly helpful.

Case Study #1

Mike owns rental property in a suburb of Chicago.  In January, one of his tenants has visitors during a snowstorm.  One of these visitors, Mr Jones,  falls on his way out, and needs to be rushed to the hospital.  Mike thinks he is covered by his Landlord's Insurance.  However, Mr Jones's medical bills exceed the amount Mike is covered for, and Mr. Jones wants to be paid for his pain and suffering. Mr. Jones claims negligence and files suit against Mike, listing Mike's other rental properties as assets.

Mike learns an expensive lesson, and settles with Mr. Jones.  Mike goes to get an equity loan on his own mansion to pay off the victim and is denied.  Mike checks his credit report and finds his score has gone down significantly because of the personal judgement. He is unable to obtain a loan on his property and must begin liquidating personal assets.

Mike then learns about Land Trusts.  Mike forms an LLC called "Suburban Chicago Rental Apartments, LLC."  Mike places his rental properties into a Land Trust with the LLC as beneficiary.

The next winter, Mike has another slip and fall accident on his property.  Instead of being sued personally, the victim sees the property is held in trust, with an LLC instead of an individual as beneficiary.  The victim hires an "ambulance chaser" to represent him.  The attorney searches for assets, and sees the LLC has little to go after.  He advises his client to settle with the insurance company.  The victim wants to sue Mike personally, citing his lakefront mansion as an asset.  The lawyer informs the victim that Mike's personal property is off limits, as the apartments are held in trust, with the LLC as the beneficiary.  Mike knows his own home and property are safe, and that any judgement will be limited to the assets held by the trust.

Case Study #2

Lisa owns an single family house as an investment property.  She leases the property annually.  Her lease stipulates "No Pets."  Despite this, Peter the Meter Reader gets bitten by a dog on Lisa's property.  Peter hires a lawyer.

Peter's lawyer performs a property search.  He finds the property is owned by "Our House in the Woods" Land Trust.  The lawyer has to file suit against the Trustee, who is out of state.  The Lawyer cannot find someone to depose.  He is unable to easily find out who is the beneficiary of the trust, who in this case, is an LLC in a third state.  He does find out who holds the mortgage: a loan company in a fourth state.

Peter asks his lawyer about using "service by publication" to get a judgement.  The lawyer tells Peter that this case is too involved, and is not worth pursuing on a contingency basis.  He tells Peter he can pay a large retainer, but the costs would most likely outweigh any financial benefits Peter would see.  

Case Study #3

Bob and Linda both live in a very small town, where everyone knows everyone else.  Bob and Linda both make their living as landlords, renting a variety of different types of housing.  Linda, however, uses Land Trusts for her real estate holdings; Bob does not.

Both Bob and Linda have the misfortune of hitting runaway dogs, Bob on the South-side, and Linda in the West End.  Both dog owners want to sue, so they see their small town lawyer, Mr. Lincoln.  Mr. Lincoln starts by running their names.  When Mr. Lincoln enters Bob's name into the database, he gets over 50 matches.  His eyes widen, and he says "I think we have a VERY good case here!"  I'll take your case on a contingency basis.  I think we can BOTH make a little money here.  Conversely, when Mr. Lincoln runs Linda's name, he gets zero results.  Linda's investment properties are all held in a Land Trust.  Mr. Lincoln says "I'm not really seeing any assets we can attach here.  I'm not sure we really have a case."

Case Study #4

Twins Harry and Larry's Aunt passes and leaves each twin a large sum of money. Each decides to use his share for a down-payment on a new house.  Both intend to finance the remainder with a typical mortgage.  Larry decides to go the traditional route, while Harry decides to use a Land Trust for his property.  Harry ensures the Trustee signs all of the financing documents.  Larry decides finance in his own name, and he signs all the loan documents himself.  The documents are recorded, and each brother moves into his own house.

Six months later, Larry calls Harry in a panic.  He needs to borrow some money from Harry, as all his own accounts have been frozen.  Larry confesses he has been the victim of Identity Theft, and because of this, his finances are a mess.  He needs Harry to cover him while he tries to straighten his financial mess out.  A year later, Larry is really lucky, as the police have actually managed to track down the identity thief. It's a disgruntled former lover of the Aunt's, bound for revenge, as he feels Harry and Larry inherited what should be rightfully his. The thief confesses that the twins' new houses angered him so much, he vowed to take them away.

The thief confesses he stole Larry's information from his public record mortgage documents.  Once he had Larry's address and personal information, it was easy to use social engineering to get what else he needed.  Obtaining a financial document with Larry's signature allowed him to practice his forging skills until it was easy to send letters in Larry's name, with a perfectly matching forged signature. He even used this information to file "Change of Address" notifications on several of Larry's existing credit cards. 

The thief confesses he wanted to steal Harry's information as well, but found it much harder to do. Despite knowing Harry's new address, the thief couldn't find Harry's information in the property database.  He could not find mortgage documents in Harry's name, nor easily find anything with his signature.  Because of this, he got frustrated and left Harry alone. When Larry discovers the Land Trust protected Harry from identity theft, he asks his brother to help him develop his own Land Trust.  

Case Study #5

Marie is a single lady who just happens to earn her living as a Landlord.  She owns multiple properties, each held in a Land Trust.  Marie buys a new apartment building, puts it into trust, then makes arrangements to not renew tenant leases so that she can renovate the building.  She appoints her attorney as Trustee.

Arthur is a tenant in Marie's new building.  He has lived there for several years and does not want to move.  Arthur decides to find the owner of the building to express his contempt at the prospect of eviction.  He finds the trustee's name in the courthouse records, stomps down to his office, and demands to speak with the owner of the property.  The lawyer responds "It's owned by a trust."  When the angry tenant demands the owner's name and address, the trustee replies "We are not allowed to give out that information."  When Arthur throws a tantrum, the trustee calls the Police and has him trespassed off the property.

Marie learned the hard way to put her properties into Land Trusts.  When Marie was just starting out, she was set up on a blind date.  She declined a second date with the individual, and the individual started stalking her.  This man looked Marie up in the property database and found she owned 5 rental properties.  Mike began hanging out at the rental properties, harassing her tenants for her personal information, trying to get to Marie through her tenants.  Marie sought the help and advice of a lawyer, originally to perhaps obtain a restraining order.  The lawyer suggested Marie start using Land Trusts, so that future stalkers could not try to terrorize her through her properties.  Today, running Marie's name in the property database returns zero results.  Marie managed to protect herself from harassment simply by the use of a Land Trust.

Summary

This week, we examined five different situations where using a Land Trust was extremely beneficial. These case studies highlighted the privacy and asset protections a Land Trust can endow.  We also saw how the use of a Land Trust can enhance personal security.

Thus far, we have focused on the use of Land Trusts for property investors.  We also discussed how Land Trusts are also being used for conservation, neighborhood enhancement, and affordable housing.  We’ve also looked at specific examples of how all types of Land Trusts are being used.

As always, we invite you to submit comment and feedback.  You may use the comment form below, or contact us on our Social Networks by using the Facebook, Twitter, and G+ links in the sidebar.  We also invite you to reach out to us through our websites, www.hartelawoffice.com or harterealestatelaw.com.   We welcome questions and comments about this series, about Land Trusts, or any other area in which we practice.  We want all of OUR readers, clients, and friends to be Harrys, NOT Larrys!