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NOTNOT Your Father’s Land Trust
David LanciottiExecutive Vice President / General CounselChicago Title Land Trust Company10 South LaSalle Street, Suite 2750Chicago, IL 60603g ,Phone: (312) [email protected]
Daniel HalperinDirector of Business Development / Trust CounselChicago Title Land Trust Company10 South LaSalle Street Suite 275010 South LaSalle Street, Suite 2750Chicago, IL 60603Phone: (312) [email protected]
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Part 1• Background• Trust Instruments• Uses and Purposes
AGENDA
p– Privacy– Insulation From Asset Searches– Anonymous Offers to Purchase– Controlling Your Client’s Partners– Non-Judicial Foreclosure– Transferring Property Without a Deed
Part 2• Check list – Seller• Check list – Purchaser• Questions/Answers
LAND TRUST BACKGROUND• Developed by Illinois Lawyers.• Inspired by Massachusetts Business Trust.• Predicated on the concept that property consists of different
elements (legal/equitable).elements (legal/equitable).• Is an “Artificial device by which some of the consequences, that
would ordinarily attach to the ownership of property by a naturalperson, may be avoided.” Hanley v. Kusper, 61 Ill.2d 452, 337N.E.2d 1 (1975).
• Use dates back over 100 years in Illinois: “The law of this state andthe decisions of reviewing courts for more than 80 years haveencouraged public reliance upon the real property conceptsencouraged public reliance upon the real property conceptsexemplified in the land trust now before us.” Chicago FederalSavings & Loan Association v. Cacciatore, 25 Ill.2d 535, 185N.E.2d 670 (1962).
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LAND TRUST BACKGROUND (continued)
• DEFINITION:
“The land trust is a device by which the real estate isconveyed to a trustee under an agreement reserving toconveyed to a trustee under an agreement reserving tothe beneficiaries the full management and control of theproperty. The trustee executes deeds, mortgages, orotherwise deals with the property at the written directionof the beneficiaries. The beneficiaries collect rents,improve and operate the property, and exercise allrights of ownership other than holding or dealing withg p g glegal title.” Robinson v. City National Bank, 32 Ill.2d 55,176 N.E.2d 659 (1961)
LAND TRUST BACKGROUND (continued)
• EXTENT OF USE
The land trust is used most extensively in Illinois. While useis not as prevalent, the land trust has been recognized inone form or another in the following states:
• Arizona• California• Florida• Hawaii• Indiana• North Dakota• Virginia
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TRUST INSTRUMENTSCREATION OF THE LAND TRUST (Trust Agreement)
1. Trust Agreement: Establishes the fiduciary1. Trust Agreement: Establishes the fiduciaryrelationship between the trustee and the beneficiaryand sets forth the respective rights and obligations ofthe parties. It is signed by all beneficiaries, holders ofthe power of direction (if different from thebeneficiaries) and the trustee. The trust agreement islodged with the trustee, but not recorded with thegcounty recorder of deeds.
TRUST INSTRUMENTS (continued)
CREATION OF THE LAND TRUST (continued)
a) Beneficiary Designation• Individual joint tenants tenancy by the entirety tenancy inIndividual, joint tenants, tenancy by the entirety, tenancy in
common, partnership, corporation, LLC, trust, life estates.
• Remainder/contingent provisions.
b) Power of Direction• Where power is in all beneficiaries, they must act
concurrently, and generally this poses no administrativeproblemsproblems.
• Where power is exercised by less than all beneficiaries,problems can arise.
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TRUST INSTRUMENTS (continued)
CREATION OF THE LAND TRUST (continued)
Problems relating to the management and operation of the property,the nature of relationships among beneficiaries, possible restrictionson assignment, additional capital contributions, and numerous otherissues should be addressed by separate agreement among thebeneficiaries. Land trustees generally will not accept trustagreements which attempt to incorporate provisions with respect tosuch matters.
TRUST INSTRUMENTS (continued)
CREATION OF THE LAND TRUST (Deed in Trust)
2. Deed in Trust: Conveys real estate to trustee. Containsf S flanguage regarding powers of trustee. Signed by transferor
deeding property over to trust and notarized.
a) Quit Claim Deed - transferor makes no warranties withrespect to status of title to property.
b) Warranty Deed - transferor makes various warrantieswith respect to status of title to property.
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TRUST INSTRUMENTS3. Collateral Assignment of Beneficial Interest (aka,
the “CABI”): This is often the counterpart to the mortgage, butinside of the land trust. It can also be held by private lenders orinside of the land trust. It can also be held by private lenders orinvestors. It has several effects:
• Gives the holder the power of direction, which is a vetopower. So, the CABI holder can block actions involving title –e.g. mortgages, sales, assignments etc.
• Makes the holder an additional beneficiary.• Has been used for non-judicial foreclosure.
USES AND PURPOSES
• Transfer on Death/ Probate Avoidance
• Partition
• Judgment Liens • Ancillary Probate
• Tax and Statutory Liens • Assignability
• Identity Protection/Privacyof Ownership
• Gifts
O C• Multiple Ownership • Control and Protection of Collateral for Loan
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A. Transfer on Death/Probate AvoidanceOne of the most popular features of a land trust. Where the beneficial ownernames a contingent beneficiary, the property will pass to the contingentbeneficiary(ies) outside the court-monitored probate process. Such anarrangement avoids the time and expense of probate.
B J d t Li
USES AND PURPOSES
B. Judgment LiensSince the beneficiary does not have legal or equitable title, a judgment lien isnot a lien against the title to the property. However, the interest of a beneficiarycan be reached by the appropriate court proceeding.
C. Tax and Statutory LiensLike judgment liens, a tax lien is not a lien against the title of property held in aland trust because the beneficial owner does not have legal or equitable title.Again, however, the interest of the beneficiary can be reached by theappropriate court proceedings.
D Multiple OwnershipD. Multiple OwnershipWhere real estate is owned by a number of people, complex issues can arisewhen dealing to title of land. A land trust can simplify many of these issues.
E. PartitionWhen there are multiple owners, the conduct of one can frustrate theplans of the others. This is because a co-owner has an absolute rightto partition proceedings and can precipitate a public sale of property.The use of a land trust protects the title from this prospect, sincepartition will not lie in Illinois with respect to a property held in a land
USES AND PURPOSES (Continued)
partition will not lie in Illinois with respect to a property held in a landtrust.
F. Ancillary ProbateSince the beneficial ownership interest is considered personal property,it is probated in the state in which the beneficiary is a resident, eventhough the property may be located in another state. Consequently,ancillary probate administration is avoided at a considerable cost-savings to the estate.
G. Assignabilityg yThe interest of the beneficiary (being personal property) can beassigned by simple assignment. This is a convenient aspect of the useof land trusts where a number of ownership interests are created withfractional interests. This feature of assignability also makes it availablefor use as collateral in financing arrangements.
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H. GiftsThe beneficial interest in a land trust can be used for the purpose ofmaking gifts. This is accomplished by assignment of the beneficialinterest. As with other gifts, there must be an irrevocable parting with
hi d t d ti i t t Th ti b th d f
USES AND PURPOSES (Continued)
ownership and present donative intent. The reservation by the donor ofthe right to revoke can result in an ineffective gift, as will retention ofthe power of direction.
I. Control and Protection of Collateral for LoanLenders can take a Collateral Assignment of Beneficial Interest (CABI)in trust property. This gives them a power of direction in the trust.Consequently the lender will be notified of any and all activity withrespect to the trust property and have signing authority (i.e. vetopower) over any action taken with respect to the trust. In certain cases,CABI’s have been used to accomplish non-judicial foreclosuresCABI s have been used to accomplish non judicial foreclosures.
J. Identity Protection/Privacy of Ownership
Privacy UsesPrivacy Uses• Confidentiality of Ownership
• Insulation From Asset Searches
• Anonymous Offers to PurchaseAnonymous Offers to Purchase
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Question:
How many attorneys in this room would EVER advise their client to press send on this email?
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Toxic Transparency
Advances in the internet have rendered our affairs“toxically transparent” including with respect to realestate.
Real Estate Websites:
• BlockshopperTrulia
Social Networking Sites:
• FacebookLinkedIn• Trulia
• Loopnet
Asset Search Websites
• Accurint• Knowx
Search Sites
• Google• BingKnowx Bing
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This level of transparency exposespeople and businesses to:
• Litigation.• Financial & Physical Threats.• Loss of bargaining power.
LITIGATION
Class Actions• Class Actions.• Commercial Cases.• Collection Matters, including
foreclosure cases.
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Attorneys perform asset searches, on bothbusinesses & their officers, before filinglawsuits.
How do you want your client to appear?
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Practice Examples:
• Foreclosure Issues• Foreclosure Issues
• “Frank the Faxer”
• “Roger Rolls Royce”
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Land trusts solve the problem because theyLand trusts solve the problem because theykeep the name of the true owner off thepublic record, effectively meaning that ahuge portion of the asset search will turn upnothing.
Step 1 Sign a Trust Agreement.
How it Works
Review Deed.Step 2
Close Directly in Trust & Preserve Privacy.Step 3
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Common Pitfalls & Traps
• Property tax info. on Deed (Elite Street story).• Property tax check.• Recording trust agreement.• Beneficiary name is on deed or mortgage.• Deeding into trust after closing.• Disclosing address elsewhere (e.g., on secretary
f t t d i i t ti )of state or on a domain registration).• Using address in your LLC name.
Common Rebuttals
• I use LLC’s; or
• I use irrevocable trusts.
The problem:
Neither of these vehicles provides any privacyf hiof ownership.
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Or, title will simply show a trust as the owner using the family name.
• Either way, if your clients are spending the money forasset protection, the first line of defense is to stay offthe radar.
• Make the LLC or Trust the beneficiary.
• Special asset groups in banks.
Investigative Strategies –
Goal is often to link an opaque entity witha transparent entity or ascertain furtherinformation.
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• Property tax bill & searches (county specific).
• Search of HTML Coding (Right Click for Page Source).
• Reverse IP searches.
• Domain Registration/History of Registration
• www.waybackmachine.org
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• What information is disclosed on trademarkregistrations, secretary of state and local filings.
Use of same fax phone numbers or addresses as other• Use of same fax, phone numbers or addresses as otherbusinesses. (Google is very helpful here).
• Site visits, calling property managers.
• Litigation searches.
• Social network searches.
Financial & Physical Threats • Financial –
• Scammers use information contained on landScammers use information contained on landrecords. Using the land records, one can get alist of 10,000 entries with:
• Name• Address• Phone number• **Lender• **Estimated loan balance
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• False Lien/Filing Problem.
– Chicago Treasurer Stephanie Neely.– Empire State Building.– Fringe group filing billions in false liens.
But, if they cannot find your property, they cannot lien itcannot lien it.
• Physical –
• The concern here is the unwanted, surprise visit.Examples include: Joan Lefkow, Judge visited byD f d t i llDefendant in alley.
• It starts with a quick internet search.
• Ex-employees, disgruntled customers, and whoknows who else.
• Watch out for using home addresses on business& domain registrations.
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Another side effect of Toxic Transparency –The Facebook Problem.
• People post pictures of their vacations, orsimply “check in” to a fancy newrestaurant.
• A burglar sees it, Googles the person, andis at their house in 5 minutesis at their house in 5 minutes.
Land Trusts solve the problempbecause they keep the name of thetrue owner off the public record.
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Loss Of Bargaining Power • The transparency provided by the
internet has eroded our bargaininginternet has eroded our bargainingpower. A company’s identity and assetsare easily ascertainable.
• PrivateBid™ is a quick and easy way tomake anonymous offers to purchasereal estate.
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Situations Where A Buyer’s Bargaining Power is Eroded
• Seller knows buyer has money. (Walt Disneyy y ( yexample).
• Seller dislikes buyer. (High-rise neighbors).
• Seller knows buyer is desperate to have theproperty. (Restaurant owner).
• Seller objects to buyer’s intended use of theproperty. (Demolition example).
Or, the very act of buying a property sendsan unintended message about yourbusiness plans.
For example, please consult the ADMstory.y
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Step 1 Sign a PrivateBid™ Agreement.
How it Works
Make Your PrivateBid.™ Step 2
Close in Trust or Take an Assignment. Step 3
I l i f ili t ti l dIn closing, failing to mention landtrusts is like advising your client topress send on that email.
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T f i P tTransferring Property Without a Deed
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Why Transfer Property Without a Deed?
• Privacy concerns (e.g., family members transferring y ( g y gownership to each other);
• Part of an asset protection strategy; or
• Assigning partial interests pre-closing (this way, seller never knows).
How it works
Use a simple one page assignment form to designate:Use a simple one page assignment form to designate:
• Who the new owner is;• What his/her/its ownership percentage is; and• Who holds power of direction.
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ControllingControlling Rogue Partners
The Problem • Real Estate Partners frequently take
unauthorized actions for example:unauthorized actions, for example:
• Taking out 2nd mortgages; or• Selling/transferring property.
• Drafting agreements to address this isexpensive, time consuming and leaves yourp , g yclient in a reactive position.
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Two Solutions1. Have the “Power of Direction” require
unanimous consent for title related matters.
This one sentence clause affords your clientfar more protection than any agreement evercan. It works because the Trustee must signoff on mortgages, deeds, etc.
This takes your client out of a reactiveThis takes your client out of a reactiveposture.
2. Give your client a Collateral Assignment ofBeneficial Interest (or, an Irrevocable Rightof Approval).of Approval).
This is a good option where your client doesnot want to be an indirect owner of theproperty.
It works because Chicago Title, as Trustee,will need your client to approve things likemortgages and sales.
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Non JudicialNon-Judicial Foreclosure
• The key to this is the language of theCABI which will usually state something toCABI, which will usually state something tothe effect of:
“Upon the occurrence of an Event of Default: . . .
(d) Lender may sell the Collateral at public auction ”(d) Lender may sell the Collateral at public auction.
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• Key: Conversion from real estate topersonal property. See Levine vs. Pascal.
Why it Works:
personal property. See Levine vs. Pascal.94 ILL. App. 2d 43 (1st Dist. 1968).
• So, the lender can proceed with a UCCSale under Article 9 instead of a judicialforeclosure.
What’s the Big Deal?
TIME EXPENSE LOCATION
UCC SALE 60 - 90 Days $15,000 to $20,000
Public Auction
JUDICIALFORECLOSURE
Easily as long as 3 years
Easily over $100,000
Daley Center –Cook County(Often)
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• Securing the personal property interest
-The Collateral Assignment ofBeneficial Interest
* Receipt of trustee perfects* No UCC filings necessary
How it Works:
Step 1• Default (Non-Payment).
Step 1
Step 2• Notices.
• UCC SaleStep 3
UCC Sale.
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LIMITATIONS
1) Only for commercial property1) Only for commercial property
2) Mandatory Foreclosure underIMFL 735 ILCS 5/15-1106(a)
Mandatory Judicial Foreclosure if allthree of the following are met:
1. Land Trust was createdcontemporaneously with grant of CABI;AND
2. CABI granted as a requirement of loan;AND
3. CABI permits real estate to be sold tosatisfy loan obligations.
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Real Estate Financing & the CABI
Key point:
• Use of conjunctive “and” in thestatute.
• Break one of the three prongs and youhave a great case for going to ag g g
UCC Sale.
Prong 1
“Contemporaneous” creation of CABIContemporaneous creation of CABI and Trust
Miriam Webster definition of Contemporaneous:
“existing, occurring, or originating during the same time”
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Work Arounds:
1) Property is already in a land trust.
2) REO Model/Owner Financed Sales Put property2) REO Model/Owner Financed Sales – Put propertyin a land trust immediately. Sell & finance thebeneficial interest and take a CABI at some laterdate.
3) Require property to go into a land trust, but onlytake a Right of Approval. Then upon first default,take a Right of Approval. Then upon first default,re-instate but take the CABI, preferably forconsideration.
Prong 3
CABI permits “real estate” to be sold tosatisfy loan obligations.
Argue that “real estate” is not being sold.Instead, the “beneficial trust interest” (whichInstead, the beneficial trust interest (whichis personal property) is being sold.
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Cautionary Note:
The law is unsettled in this area.
That said, half the battle is leverage.
LAND TRUST AS SELLER – CHECK LIST1. Identify trustee
2 Contact trustee2. Contact trustee
3. Resolve lien/transfer restriction issues
4. Complete direction to convey
5. Review documentation provided by trustee for accuracy
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LAND TRUST AS SELLER – CHECK LIST
1. Identify Trustee
• Due to the large number of mergers andacquisitions, title may show a predecessor trusteethat is no longer in existence. If that is the case,contact a local land trustee and ask who issuccessor trustee to titleholder.
2. Contact Trustee
• Identify yourself as attorney for a beneficiary.• Request beneficial ownership information.• Request power of direction information• Request power of direction information.• Inquire as to whether there are any liens against
property which call for additional signatures – suchas collateral, citation, IRS.
• Request Direction to Convey form.• Inquire about “turnaround time”, policies differ
among trustees.• If you plan on using a power of attorney, requesty p g p y q
trustee policies regarding acceptance of power ofattorney.
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3. Resolve Lien/Transfer Restriction Issues
LAND TRUST AS SELLER – CHECK LIST (Continued)
• Collateral Assignment of Beneficial Interest/Right to Approve− Obtain release of collateral assignment/right to approve
from lender.− Obtain consent of lender subject to release.− Caution: Trustees generally will not accept a Release of
Mortgage as Release of a Collateral Assignment ofB fi i l I t tBeneficial Interest.
• Judgment Lien/Citation to Discover Assets
− Obtain Dismissal of Citation.− Obtain Release and Satisfaction of Judgment.− Obtain Consent of Citation Holder.− Caution: Trustees will require release or
consent of citation holder; Citation does notexpire on its own after statutory period. SeePodvinec v. Popov, 168 Ill.2d 130 (1995)(Citation to Discover Assets puts a judicial lien
ll t f j d t d bt )on all property of judgment debtor).
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• IRS LeviesObt i R l f L
LAND TRUST AS SELLER – CHECK LIST (Continued)
3. Resolve Lien/Transfer Restriction Issues (continued)
− Obtain Release of Levy.− Obtain consent of IRS subject to release.− Caution: An IRS Levy is executed by service of Form
668-A; it remains in force and effect until the appropriaterelease is served, Form 668-D.
• Land Trust Fees− Trustee will require payment of outstanding land trust
feesfees.− Caution: Policies differ among trustees as to when and
whether fees are payable up front or they can be cut fromthe proceeds of the sale.
4. Complete Direction to Convey• Clearly identify all required information; provide
current legal description to ensure accuracy.• Request ALTA statements and proceeds letter.equest state e ts a d p oceeds ette• Land trustee will require the original signed
Direction to Convey.
5. Review Documentation Provided by Trustee forAccuracy• Deed language
T t ’ D d ill l b it l i− Trustee’s Deed will always be quit claimdeed.
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PURCHASE TRANSACTIONS - GENERAL
An Illinois land trust may take title to a propertyAn Illinois land trust may take title to a propertypurchased by a beneficiary. The sales contractmay be signed by the beneficiary(ies) of the trustor by the land trustee pursuant to an appropriateLetter of Direction to Execute.
PURCHASE TRANSACTIONS – CHECK LIST
1 C t t t t1. Contact trustee.
2. Draft trust agreement and open trust.
3. Review deed in trust provided by seller’s attorney.
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If title is going to be held in a land trust, take the following steps:
PURCHASE TRANSACTIONS – CHECK LIST
1. Contact Trustee
• Reserve trust number (if not an existing trust) and obtain feequote.
• Request suggested beneficial ownership language, if any, fromtrustee.
• Request trust agreement and warranty deed in trust forms.• Contact seller’s attorney and tell him/her title will be taken in
trust and provide trust number and date.
2. Draft Trust Agreement and Open Trust
• Use suggested language, if available.• Submit to trustee for review ahead of time (this is
particularly important where trust transaction is morecomplex (i.e., a life estate)).
• Trust agreement execution− Trust must be signed by all beneficiaries and holders
of power of direction.• Present to trustee for acceptance.
3. Review Deed in Trust Provided by Seller’s Attorney
• Verify accuracy of trust number and dateVerify accuracy of trust number and date− Caution: Date on trust agreement must be prior to or
contemporaneous with date on deed; if not, it will be adefective conveyance.
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WEBSITE
LINKSChicago Title Land Trust Company
Website
http://www.ctlandtrust.com
Forms
http://ctlandtrust.com/pages/forms.aspx
Successorships
http://ctlandtrust.com/pages/successorships.aspx
Lake County Trust Company (Indiana)
Website
http://indianalandtrust.com
Chicago Title Insurance CompanyChicago Title Insurance CompanyWebsite
http://www.cmetro.ctic.com
