How to Work with Lenders for Your Land Trusts

In this episode of Coffee with Carl, attorney Carl Zoellner guides you through the process of working with lenders for your land trusts.

Hello everyone, and welcome to this episode of Coffee With Carl. I am your host, as always, Carl Zoellner. One of the attorneys here with Anderson Business Advisors. 

Today I wanted to talk a little bit about lending and land trusts. One of the things that our clients come up with is the use of land trusts:

How do we work with lenders? 

There are a variety of lenders out there that will work with land trusts. The ones that I’ve seen that have worked are the ones where you deal with, like a local community bank or local community lender. They tend to have a little more flexibility, especially in working with somebody with an established relationship. 

Some of the great benefits of a land trust are anonymity and the ability to assign the beneficial interest without recording it on public record. Those things that are of benefit to us as the individual–or the property owner–are actually what most lenders would consider a factor in their risk profile and the ability to have that flexibility. 

That’s part of the reason why you may run into some issues with a lender when you’re trying to get a loan for a property in a land trust. The other part is if they have a difficult time and they won’t disclose this to you. They would have a difficult time selling that loan on a secondary market when it’s in a land trust. 

There are a couple of states that recognize land trust as a distinct entity–or have some version of asset protection for them. Usually, it’s only inside liability protection. Therefore, it’s not a complete version of asset protection. Those states are Illinois and Florida. 

But what the issue becomes for the lender profile is that it creates an additional level of risk on the lender side. Even though they’re always as secured as they work, they will still file a lien against the property. 

If they needed to foreclose, they could. They don’t like the idea, though, of you being able to sort of shift the property around or potentially shift the owner behind the scenes without them noticing it. 

The primary reason is that I have a harder time selling the loan, but that’s why you tend to run into some issues with lenders in land trusts. 

It’s not that there’s anything wrong with the land trust. They’re not a big fan of it because it creates a skew in their risk profile. 

The good news is this: It’s a pretty simple solution to get around. Anytime you’re working with a lender, you just need to fit inside their box and what they consider acceptable risk and lendability. 

So how do you do that in a land trust If they’re not willing to work with the land trust? The simple solution is to:

  1. Pull the property out of the land trust. 
  2. Do the refinance, equity line, or whatever version of loan you’re going to do. 
  3. Give it a couple of months. 
  4. Put it back in the land trust, and you’re on your way! 

It’s a pretty simple workaround, right?

However, there are a lot of questions behind working with lenders. Why won’t lenders work with them? As I said, some will, some won’t. However, it has to do with their risk profile and a couple of states’ ability to sell those loans after the loans close. 

That’s it! 

I hope you enjoyed this Coffee with Carl.

The Takeaway

As always, keep taking advantage of our FREE educational opportunities and the free content we put out on the web. So that’s Toby’s Tax Tuesday, our tax and AP events for our clients who’ve already gone through our Tax and Asset Protection event. 

Our Structure Implementation Series is fantastic. That answers a lot of the questions you have in the beginning. So there are a lot of different educational opportunities out there. One of my favorites as well is our Infinity Investing Workshop

Resources mentioned in this video:

Got an idea for a future Coffee with Carl? Send it to Carl at cwc@andersonadvisors.com.