William Bronchick | 7 Reasons to Use Land Trusts in Colorado
William Bronchick: The land trust is a very powerful tool for
the savvy real estate investor, and there are many reasons to use land trusts
in Colorado. A Colorado land trust is a revocable, living trust used
specifically for holding title to real estate. Each property is titled in a
separate trust, affording maximum privacy and protection. Also known as
an “Illinois Land Trust”, the title-holding land trust is recognized by statute
in Florida, Georgia, Hawaii, Illinois, Indiana, Montana, North Dakota,
South Dakota, and Virginia.
Colorado does not have a land
trust statute, but since a land trust is a basic revocable, living trust, it
would be recognized under common law trust principles.
Here are seven good reasons to use a Colorado land trust for titling property to real estate.
Privacy
In today’s information age,
anyone with an internet connection can look up your ownership of real estate.
Privacy is extremely important to most people who don’t want others knowing
what they own. For example, if you own several properties within a city that
has strict code enforcement, you could end up being hauled into court for too
many violations, even minor ones. Having your real estate titled in land trusts
makes it difficult for city code enforcement to find who the owner is, since
the trust agreement is not public record for everyone to see.
Protection from liens
Real estate titled in a trust
name is not subject to liens against the beneficiary of the trust. For example,
if you are dealing with a seller in foreclosure, a judgment holder or the IRS
can file a claim against the property in the name of the seller. If the
property is titled into trust, the personal judgments or liens of the seller will
not attach to the property. This is because of the unique nature of land
trusts, which make the beneficiary’s interest in the trust “personal property”,
and vests all legal and equitable title in the trustee. Thus, a judgment
against X is not a lien on the property held in a land trust for X.
Protection from title claims
If you sign a warranty deed in
your own name, you are subject to potential title claims against you if there
is a problem with title to the property. For example, a lien filed without your
knowledge could result in liability against you, even if you purchased title
insurance. A land trust in your place as seller will protect you personally
against many types of title claims because the claim will be limited to the
trust. If the trust already sold the property, it has no assets and thus limits
your exposure to title claims.
Discouraging Litigation
Let’s face it, people tend to
only sue others who appear to have money. Attorneys who work on contingency are
only likely to take cases which they can not only win, but collect, since their
fee is based on collection. If your properties are hard to find, you will
appear “broke” and less worth suing. Even if a potential plaintiff thinks you
have assets, the difficult prospect of finding and attaching these assets will
discourage litigation against you.
Protection from HOA Claims
When you take title to a
property in a homeowner’s association (HOA), you become personally liable for
all dues and assessments. This means if you buy a condo in your own name and
the association asseses an amount due, they can place a lien on the property
and/or sue you PERSONALLY for the obligation! Don’t take title in your name in
an HOA, but instead take title in a land trust so that the trust itself (and
thus the property) will be the sole recourse for the homeowner’s association’s
debts.
Making contracts assignable
The ownership of a land trust
(called the “beneficial interest”) is assignable, similar to the way stock in a
corporation is assignable. Once property is title in trust, the beneficiary of
the trust can be changed without changing title to the property. This can be
very advantageous in the case of a real estate contract that is non-assignable,
such as in the case of a bank-owned or HUD property. Instead of making your
offer in your own name, make the offer in the name of a land trust, then assign
your interest in the land trust to a third party.
Colorado’s Unique Trust Statute
In most states, a property in
trust must be held in the name of the trustee, for example, “John Jones, as
trustee under a declaration of trust dated June 2, 2011”. Colorado law
(CRS C.R.S. 38-30-108.5) allows a trust to take title in its name, then the
trustee may file a “statement of authority” identifying the trustee (CRS
38-30-172). If you want to change trustees in Colorado, you do not need a
new deed, just amend the land trust and file a new statement of authority with
the County Clerk and Recorder.
William Bronchick: As you can see, the title-holding land trust
can be very beneficial for the owner of real estate in Colorado.
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