I was at a staff meeting the other day and one our attorney partners provided some good information on several issues that have been due to fradulent title conveyances that have occurred between sellers and buyers who are placing properties in land trusts without following the appropriate requirements and precautions listed below.
Some tips for your clients to consider before conveying title in a land trust;
1) A fully executed contract for the sale of the property is needed
2) Since Georgia is an 'attorney state', it requires that an attornedy oversee the transaction and properly pass title from the seller to the land trust
3) Trust Agreement: A valid Trust Agreement is needed to make the transaction valid. Many people are transferring title to land trusts with no formal Trust Agreement being created. The closing attorney must have a copy of the trust agreeement which clearly identifies the Trustee's name and the name of the Trust. In addition, the trust will also specify what powers the trustee has per the Trust Agreement
4) Due on Sale Clause: Most security deeds (used in GA) contain a Due on Sale clause which specifies that the lender could accelerate the loan since the seller has transferred interest in the property without paying off the loan. Many times, the land trust is used to conceal the conveyance to prevent the triggering of due on sale clause.
5) Seller is stll responsible for mortgage: This is probably the most important point for sellers to consider. Conveying title in this manner via the land trust does not remove the seller's liablility for the underlying loan. If the new buyers fails to make a payment or the property ends up in foreclosure, the seller's credit will be negatively affected and not the buyer
Just some notes from our meeting that I wanted to share for anyone who is not familiar with this type of transaction. It is becoming more commonplace because many individuals are in foreclosure and this method allows a quick sale for the seller but they should be fully aware of the risks involved.
Have a great day!
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