What is Land Trust?
A land trust is a legal entity that holds title to real estate on behalf of a beneficiary, with a trustee managing the property per the trust agreement. Used by investors for privacy, asset protection, and as a workaround for due-on-sale clauses on subject-to deals.
In a land trust, the trustee (typically a friendly attorney or trust company) appears as the property owner in public records. The actual beneficial owner (the investor) is identified only in the private trust agreement, which isn't recorded. This provides genuine privacy from casual title searches.
For subject-to deals, conveying title into a land trust before changing the beneficiary doesn't trigger the federal Garn-St. Germain Act's due-on-sale exception — but it also doesn't trigger the bank's automated transfer-monitoring most of the time, because the recorded title transfer is just "to a trust" with no apparent ownership change.
Land trusts are governed by state law and aren't recognized in all jurisdictions. Illinois land trusts have a well-developed body of law; many other states either don't recognize them or treat them differently for tax purposes. Always check state-specific implementation.
Concepts that connect.
A "subject-to" deal is when an investor buys a property and takes title, while leaving the seller's existing mortgage in place — the investor makes payments on the seller's loan. Used to acquire properties with locked-in low rates or when the seller is behind on payments and needs to walk away.
Creative finance is the family of non-conventional real-estate transaction structures — subject-to, seller financing, wraparound mortgages, lease options, land contracts. Used when conventional financing doesn't fit the deal or when the seller has motivation to preserve a below-market loan.
A wraparound mortgage ("wrap") is seller financing structured on top of (wrapping) the seller's existing mortgage. The buyer pays the seller; the seller continues paying their own mortgage. The wrap rate is higher than the underlying rate, and the spread is the seller's profit.
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