There are over 80 million lawsuits filed every year in the United States. Landlords and real estate investors are especially susceptible to liability. Are you a target? Are your assets easy to locate? Is your real estate titled in your name?

You wouldn’t walk around with a financial statement taped to your forehead would you? So why would you have your most valuable assets exposed to public scrutiny? Anyone can go down to the county courthouse or recorder’s office and look up the owner of any property. Real estate records are now computerized, so all of your real estate holdings can be located at the touch of a button!

Any mortgages on your property will be recorded as well. Most recorded mortgages will state the amount of the original principal balance and the date the mortgage payments began. All one has to do is figure out the balance of your mortgage and subtract that amount from the market value of your house. Bingo! Now they know how much equity you have and hence whether suing you is worthwhile.

If a tenant or creditor is contemplating suing you, he will make an appointment with a lawyer. Unless he can afford an attorney by the hour ($150 and up), he will likely seek a “contingency-fee” lawyer. A contingency-fee lawyer does not charge by the hour; he charges a percentage of whatever he collects. Most contingency-fee lawyers will not take a case unless there is something upon which to collect. If you have no real estate in your name, then finding out your ownership interest will not be easy for a typical lawyer. It’s not that lawyers are lazy. It’s simply a matter of allocation of resources; lawyers focus on cases they can win and collect. If they don’t find any assets in your name (and there is no other apparent “deep pocket”), they probably won’t take the case. As you can see, appearing “broke” is the best lawsuit-repellent money can buy!

There is another problem with owning real estate in your own name. If a judgment is obtained against you and filed in any county in which you own real estate, all real estate in that county will have a lien attached to it. You cannot sell or refinance any property in that county, since no title insurance company will guarantee a clean title. You’re stuck until you pay off the lien.

Some people use a corporation or limited liability company to hold title to their real estate. While these entities will protect you, they will not protect your property. If you own all of your properties in one corporation, a judgment against the corporation will create a lien on all property owned by the corporation. Furthermore, the directors and officers of a corporation are public record, so a corporation will not hide your ownership.

The solution for holding title to real estate is a land trust. A land trust is a revocable, living trust used to title ownership of real estate. Title to the property is held in the name of a trustee, who is forbidden to reveal the beneficial owner. The beneficial owner or “beneficiary” can be an individual, corporation or other entity for further protection. Land trusts were first used in Illinois, hence the nickname, “Illinois Land Trust.” In nine states (AL, FL, GA, HI, IL, IN, ND and VA), land trusts are specifically recognized by statute. In most other states the validity of land trusts are supported by common law and general trust principles (land trusts are not recognized in TN & LA).

A land trust, if properly setup and implemented, will hide your name from the public records. No one will know who owns the property but you, your attorney and the trustee. If a judgment is entered against you, a lien will not automatically attach to the property, since title is not in your name.

A transfer of realty into a land trust virtually no income tax consequences. A land trust is considered a revocable “grantor” trust under the Internal Revenue Code, so it does not require a separate tax identification number or income tax return. Thus, you continue report the property for income tax purposes as though you still own it. Furthermore, a transfer of property into a land trust will not usually trigger the “due on sale” clause of your mortgage.

A land trust will allow you to assume an FHA or VA loan without recourse. Anyone can assume an old FHA or VA loan without qualifying, but few investors realize that such an assumption is with recourse. If the investor sells the property and the buyer assumes then defaults on the loan, the investor (and anyone else who previously assumed the loan) may be held liable. If a land trust is established to take title to the property and assume the loan, there is no recourse against the beneficiary. Furthermore, the loan will not appear on the beneficiary’s credit report as a liability. So What are your waiting for?

Get that Property Out of Your Name!

William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who’s Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996.

You can’t expect to reduce your risk of getting sued to zero, but you can take steps to reduce your risk as much as possible. In any situation where your money is at risk, ask yourself, “Is there a better way?”

Know the legal and financial risks of the situations in which you place yourself, your business, your family, and your assets. Without covering every issue involved, here are a few common mistakes that investors make–novice and experienced alike.

Poor legal forms

It’s amazing how short-sighted novice investors can be when it comes to shelling out money for good legal contracts. They often buy contracts at discount office supply stores, from Internet websites, or borrow them from friends. However, a real estate deal is only worth the paper it’s written on.

Like the old expression, “Every tax strategy works until you get audited,” it can be said that “Every contract works until you have a dispute.”

So invest in a good set of real estate forms that apply to your practice and ask a local real estate attorney to review them. A good real estate attorney will review contracts for just a few hundred dollars. Make certain you fill in the forms correctly.

Too many people rely on real estate brokers to fill out contracts, which is fine for a “standard” deal. However, most brokers aren’t trained in legal matters and often create long contract addendums that are insufficient to protect your interests.

Illegal discrimination

The Fair Housing Act of 1968, as amended, prohibits discrimination on the basis of race, color, religion, nationality, familial status, age, and gender. Many state and local laws also forbid discrimination on the basis of sexuality or source of income and the Americans with Disabilities Act makes it illegal to discriminate against disabled people.

If you harbor any such prejudices and would allow them to come into play when renting a housing unit, then you’re probably not cut out to be a landlord. However, many sincere real estate investors make honest mistakes that result in discrimination lawsuits. The best way to avoid these lawsuits is to be informed.

The Fair Housing Act may appear to be common sense, and most people would never think of discriminating against people of different races or religions or on the basis of gender. However, it’s important to note that the Act extends beyond the screening process and into advertising as well, so watch the wording on your ads.

This is where many landlords and property managers make critical mistakes. Some people scour the classifieds looking for inappropriately worded ads, so they can pounce on them and threaten a lawsuit. While someone must have standing to bring suit, these scoundrels often work in coalitions to ensure that all of their bases are covered.

For example, if you own a rental property in a predominantly Jewish community, its proximity to the local synagogue could be a major feature. But if your ad says “within walking distance of the synagogue,” you could be sending the message “gentiles need not apply” even though this wasn’t your intent.

And keep in mind that you may not discriminate on the basis of whether a couple is married and whether children are to live in the unit. You may also not discriminate on the basis of age. Often, novice landlords aren’t aware of these areas of concern.

And while it’s good that citizens are more aware of their rights today, it can create a bad situation for well-meaning landlords who are out of step with the law.

Be aware of your local laws and use good business sense. State law and local ordinances can extend similar protections granted under the Fair Housing Act to other groups.

For example, California, Minnesota, and North Dakota prohibit discrimination based on source of income. In other words, landlords can’t discriminate against would-be tenants who rely on public assistance.

Putting the political perspective of the landlord aside, such discrimination makes little business sense because people on welfare or social security are virtually assured of a fixed income.

The Americans with Disabilities Act (ADA) prohibits discrimination against the disabled and also requires landlords to make “reasonable accommodations” to disabled tenants. Who decides what’s reasonable? Typically, judges, if it comes to that.

But while most landlords are aware of the ADA and would never stoop to discriminate against a person in a wheelchair, many are unaware that the ADA also protects mentally disabled tenants. A mental disability could also include recovering alcoholics and drug addicts.

On the downside, these people can relapse. If they do, this can cause serious problems for you and other tenants. Everyone deserves a second chance, and many recovering addicts become productive members of society.

Those unable to recover typically have other problems and, thus, if you decide to reject their rental applications, it’s vitally important that you document additional reasons for rejecting their applications.

Improper disclosures

Improper disclosures are a common mistake for real estate investors. It’s critical to be aware of the federal and state requirements for disclosures. For example, federal law requires a lead-based paint disclosure on the sale or rental of properties that were built before 1978. State laws may have additional regulations.

It’s become common practice for real estate brokers to use a property disclosure form as a general-purpose sell disclosure for all aspects of the house.

Even if you’re selling your house on your own, be sure to use one of these forms. Whenever in doubt, disclose what you know, especially something the buyer or tenant may not know about, such as dangerous conditions, water damage, electrical issues, or plumbing problems.

Illegal solicitation of money

Many novice investors try to solicit money for investing via public advertising or mailings. This is commonly referred to as syndication. You may inadvertently cross over a variety of federal and state securities regulations when trying to raise capital.

Chatting with friends over the dinner table about a real estate deal is one thing, but advertising to the public in mass may be considered a public offering. Before soliciting money from strangers, review your marketing, paperwork, and solicitation strategies with a local attorney well versed in this area of law.

You may be able to get away with a good set of written disclosures if you solicit money on a limited basis, but it’s better to be safe than sorry.

Independent contractor liability

The IRS and your state department of labor are on the lookout for employers who don’t collect and pay withholding taxes, unemployment, and workers’ compensation insurance. If you have employees that are “off the books” you’re looking for trouble.

If you get caught, you’ll have to pay withholding taxes and as much as a 25% penalty. Intentionally failing to file W-2 forms will subject you to a $100 fine per form. The fine for failing to complete the Immigration and Naturalization Service (INS) Form I-9 varies from $100 to $1,000 per form.

Your corporation or LLC won’t shield you from liability in these cases, either. All officers, directors, and responsible parties are personally liable for the taxes.

If you hire people to do contract work for you on a per-diem basis, they may be considered employees by the IRS. If any workers fail to pay their estimated taxes, you may still be liable for withholding.

If these workers are under your control and supervision and work only for you, the IRS may consider them employees, even if you don’t. If this happens, you may be liable for back taxes and penalties.

To protect yourself, you should:

• Hire only contract workers who own their own corporation. Or get the business card and letterhead of any unincorporated contractors you may use, so you can prove these workers aren’t your employees.
• Require proof of insurance (liability, unemployment, and workers’ compensation) in writing.
• Get written contracts or estimates on workers’ letterhead that states they’ll work their own hours and you don’t have direct supervision over the details of the work.
• Have letters of reference from other people for whom the contractors worked to show that the contractors didn’t work solely for you. Keep these in your files.
• File IRS Form 1099 for every worker to whom you pay more than $600 per year.

In addition to possible tax implications, an independent contractor can create liability for you if a court determines the contractor is your employee. For example, if your independent contractor is negligent and injures another person, the injured party can sue you directly.

If facts show that you exercised enough control over your contractor, a court may rule that this contractor is your employee for liability purposes. As you may know, an employer is “vicariously liable” for the acts of his or her employees.

The employer is liable as a matter of law without proof of fault on the part of the employer. Make certain you follow these guidelines when hiring contractors and pay particular attention to the issue of control.

Finally, under your state’s law be aware which duties are considered inherently dangerous, such as providing adequate security for tenants in a multi-unit building.

These duties can’t be delegated to an independent contractor without liability on your part, regardless of whether the person you hire is considered an independent contractor or an employee.

However…

If you are not certain whether the tenant has abandoned the property, you should not change the locks. If you have the keys, you could enter the premises, but knock first. Whether or not the tenant has abandoned is often a judgment call, looking at a combination of factors, such as:

• Did the neighbors see them move?
• Are the utilities shut off?
• Did the tenant put in a change of address at the post office?
• Is there any significant furniture left?
• If you have access, are there sheets on the beds?

In some cases, the tenant has been arrested or is in the hospital, which would explain why he hasn’t been around. Or, maybe the tenant has moved, but left behind some furniture to pick up later on. Even if the tenant is not sleeping there, they are still “in possession” if they have their personal belongings in the unit and have not shown an intent to abandon these items.

Some states have specific laws regarding presumptions of abandonment. For example, Connecticut law states:

Sec. 47a-11b. Abandonment of Unit by Occupants. Landlord’s Remedies.
(a) For the purposes of this section, “abandonment” means the occupants have vacated the premises without notice to the landlord and do not intend to return, which intention may be evidenced by the removal by the occupants or their agent of substantially all of their possessions and personal effects from the premises and either

(1) nonpayment of rent for more than two months or

(2) an express statement by the occupants that they do not intend to occupy the premises after a specified date.

If you do intend to claim abandonment, take pictures, gather evidence and cover all bases to prepare for a possible wrongful lockout claim. If you have any doubts, call your landlord-tenant attorney and do the proper legal eviction proceeding.

by Bill Bronchick

William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who’s Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996.

This report will give you perspective and understanding in the realm of your tenant’s mindsets and Modus of Operandi. It’s looking at their situation from their point of view as well as your own.

It goes without saying but I will say it anyway. The better you understand your tenants and their personal situation, the better you can serve their needs and your own. Notice that your needs come after your tenants. Always put your tenants’ needs before your own and they will buy real estate for you in return. That’s a fair trade. Take it!

Many cold-hearted, self-serving, money-grudging, wanna-be landlords don’t understand human nature. Let me tell you right now, if you can’t put yourself in another person’s shoes and see a problem from that person’s perspective with empathy, you will fail miserably in the “landlording” business and in life. Wise up!

Fear not. If your not quite sure what I’m talking about, here come the stories and details of how to be loved and adored by those kind people called tenants.

Let me first dispel the horror stories about landlording. If you follow my advice and teachings, you should have very few tales of woe to tell. You’ve heard the stories and they sound like this: Those damn lowlife tenants. They trashed our house, they disturbed the neighbors, they ruined our lawn, they were filthy pigs who never paid the rent on time, they never did what we told them to do and it cost us a fortune to get rid of them and repair our investment once they finally did move.

Well, guess who’s fault that is. Yep, it is completely and unequivocally the fault of the so-called person that is calling themselves a landlord. The real name for this type of so-called landlord is uneducated dummy and because of these lazy fools the whole industry gets a bad rap!

There is a plus side to the scenario above and that is this: It sets up a perfect opportunity for you to do the exact opposite of the fools and create for yourself an unlimited market supply of excellent trouble-free tenants for life!

Tenants, believe it or not, are human beings. They are not animals or things to be mistreated, abused or taken advantage of. If you will prepare your rentals as if your mother was going to be moving in, your mindset would be realigned in short order. In effect, you will start looking at it from a compassionate point of view. You will not cut corners. You won’t let things go that need fixing. You will use more care, skill and diligence in preparing that dwelling for another decent human being to begin calling home. That’s what you want to achieve.

You want to provide a trouble-free, pleasurable, aesthetically pleasing, creature comfortable, needs fulfilling, safe, secure, affordable and convenient place to live. When you provide those things and screen the population, it’s like striking gold.

The process of getting good tenants begins in your mind. By that, I mean you have to educate yourself to be able to recognize value and acquire properties that are structurally sound, aesthetically pleasing, physically functional and provide safety, security, affordability, convenience and a feeling of pride in your tenant’s mind.

Sounds like a daunting task, doesn’t it? Well it’s not. In fact it is so simple to achieve that once you understand the process you won’t even have to think about it. It will come naturally to you. I promise you that this is true and I intend to prove it to you as well.

I absolutely guarantee that you can do it. So for now, just take my word for it as being a fact, because it is. Here’s an example of using a motto to align your thought process in relation to all the things I just said. Repeat the following:

Landlord’s Creed
I vow never to rent to someone else,
something that I myself would not be happy living in.
Mansions not included!

Now apply that to every prospective property that you evaluate as a potential rental property investment. Human nature is immutable. We all have basic needs, wants, desires and expectations that include fear. When you remove fear and provide comfort and security, you will own your market.

So what you first have to do before you can be a great landlord is to find great places to rent to other people. I explain how to do this in the book at MagicBullets.com, so I won’t go into it here.

The screening process is also outlined in that book as well. I will hit upon a few things that weren’t touched upon already in the processes in the main body of the book, so here are a few nuggets for you now.

The following observations are done after you have already performed the formal screening procedures. I’m rushing you up to the day that your face-to-face meeting occurs with the tenants who have passed your telephone interviews and have succeeded in getting an appointment with you to see your wonderful rental.

Now, here are some things that your uneducated dummy-type landlords can’t begin to recognize, plan for or evaluate when it does appear before their very eyes.

As soon as your potential renter shows up to view your property, take note of the time. Are they on time? Can they keep their first promise to you? Can they follow directions? If their late, did they get lost? I’m sure you gave them good directions and also used landmarks like churches, stores or monuments, so they could find you easily. If they can’t follow simple directions, do you think a lease agreement and those directions are going to be any easier? No, they are harder to follow.

O.K. They showed up on time. This says they respect your time, are able to follow directions and are serious about finding a nice place to live. How did they arrive, on foot, by bike, bus, cab, truck, motorcycle or tractor-trailer? Preferably they arrived in a clean, well-kept passenger car that is in a clean condition.

Now who was driving the vehicle? If it’s a couple are they both going to be renting or is your tenant without wheels. Let’s assume your prospect drives up in their own car. It runs fine so you won’t have cars on blocks and a parts yard for a front lawn in six months when they buy more cheap junk to get around with.

So the car looks O.K. on the outside but how about the interior of the car? Do they smoke and have smashed down McDonalds bags pushed so far into the floorboards that it now resembles carpet? Does this vehicle look like a home on wheels, with garbage bags filled with clothes, a crying baby and a cat in the back window? Watch out if you see this type of telltale evidence. I don’t think I need to paint the picture of what will result if you miss this investigative step.

Pickup trucks with camper-shells can also be loaded to the gunnels with personal effects, including small zoo animals. I encourage you to get a look back there, too!

The bottom line here is people will generally treat your property the way they treat their own, if you’re lucky! So see how they’ve done with their own stuff up to this point and choose wisely based on intuition, gut-feeling and physical evidence.

So the car inspection is over now. How are the appearances of the folks? Are they clean and well groomed? Do they seem to fit the profile of what you had envisioned over the phone interviews or are they 180 degrees out? Have they successfully fooled you or deceived you into believing something else up to this point? Now that they have appeared before you, is it blatantly evident that these persons are con artists?

If you get an uneasy feeling within the first few minutes of meeting these people, don’t brush it off as just some crazy thought. That’s your self-preservation instinct operating and you better listen to it. The book, Magic Bullets will help to protect you, so do not fear. Use this information to protect yourself from the events that lead to horror stories. Don’t give it another thought. Let’s get on with our interview, shall we?

So far they are on time. They have a good clean car and they appear to be honest and decent people who indeed do give you the same impression you developed over the phone. In fact, these people are really more than you expected. Yes, if you’ve done it right, that will often be your experience and it is almost always a pleasure and privilege to rent to such high quality individuals.

Have you noticed something about the process here? There has been no mention of race, religion, national origin, sex, age or marital status. That is discrimination based on federally protected human rights and it’s against the law to discriminate on those issues. This includes the handicapped and a few others groups I may have overlooked.

My point is simply this: If they meet all the criteria that makes for a good quality tenant, than you would be ruling out a potentially excellent long-term tenant based on preconceived notions and that is dummy landlording in the first degree! So Don’t Discriminate On Basic Human Rights Issues.

So many people screw this process up. They also make mistakes by choosing management companies to do this highly developed type of intuitive researched and planned-for event. I honestly know of no management companies who can be as thorough as an owner who takes the time to protect their own interests in this way.

I don’t care how much management companies protest about the above statement. The fact of the matter is, they are not you, so they can never find a tenant that satisfies your own personal preferences the way you can.

I like to personally screen potential tenants because in all cases, I have total control and that’s what real estate is all about – Control!

Think of the opposite of control. That would be the stock market for the small investor. The way I see it, I don’t want to be on the sidelines rooting for someone else to make money for me or more often, hoping they don’t lose it, steal it or mismanage it to my certain demise.

With the way I approach real estate, it is a 100% guarantee every single time that I am going to outsmart, outwit, outperform, over deliver and under promise to the point that I crush my competition. I am in a league of my own.

My tenants are the winners and they know it, too. What kind of loyalty do you think develops in the minds’ of people that look to me for protection? It stands as a testimony and irrefutable, self-evident, empirical fact that I care enough about the people who have entrusted me with their welfare, their time, their money and their trust to deliver on my promises. My tenants don’t move. They either pass away due to old age or they end up buying it from me when I want to sell it. It happens that way all the time.

So think again when you hear a dummy landlord talking about all the trouble they had and then ask yourself one question. Did they read Magic Bullets before they became a landlord? It’s 100% certain they did not. If they had, then their tenants would have loved them and paid for their real estate time and again, and made them rich beyond their wildest expectations…

Snap out of it! Hey, are you with me? OK, your back. Good let’s get back to reality here. What I do works and the only thing about landlording I don’t like is cashing all those darned checks. I’m not kidding. Bank tellers look at you like your some kind of thief because you have so many checks to cash.

Here are a few things that you won’t find out unless you have been around a while but I’m going to save you from the pain of learning the hard way. Now of course you’re going to do everything right by following my advice in real estate but there are a lot of things I don’t know. Yes, I admit it. I don’t know everything but I do know what I’m going to tell you about next and that is…drum roll, please! Watch out for real estate investment property that comes with existing tenants! Here’s why. In general, the new owner takes the property subject to the existing lease and rights of the tenant or tenants. Most often, whatever existing lease or rental agreement that was made with the previous owner will remain in effect.

What could happen if you don’t thoroughly review existing tenants lease agreements? What if the previous owner rented a unit to his good-for-nothing, drug-addicted brother for $1.00 a month for the next five years? That’s a valid lease. You may take them to court for misrepresentation but it’s going to cost you lost rent, lost sleep and maybe your safety.

Anyway, that’s an extreme example of an intentionally designed below-market rent lease agreement but it illustrates my point. Here’s another. Let’s say you’re getting a great deal and you buy it, and find out the reason the owner sold it to you was because the tenants were very difficult and had him over a barrel. And all the while, they are paying lower than average rents and complaining about everything. Now you get them and you can’t raise the rent and they refuse to move. Here comes your eviction lawyer and you have attorney’s fees and more lost rent to boot.

My point is this: Make the Seller get rid of bad tenants before you close on the deal. Do a pre-closing inspection and personally walk through the empty apartment, house, condo, trailer or doghouse yourself. Bring extra locks or call a locksmith and have the locks changed the day before closing. An honest seller will not have a problem with that so long as the title company holds those keys until your check is accepted at the closing table.

The lesson here is it’s always better to install your own tenants because you control the process from start to finish. Don’t Follow a Dummy Landlord or by Default, you could be a dummy, too!

Remember this too: When you install new tenants, you are generally going to get a higher rent from the property because inflation creeps along and landlords have a hard time raising rents on people. I have seen 10-15 year long-term tenants paying the same price for 15 years. You will go broke if you let that happen.

Adjust your rents accordingly every time you fill a vacant unit and if people want to renew their leases, then inform them of an economic reality that currently exists called inflation, and you are just keeping up with it! The Annual Consumer Price Index may be used as a reference. If they don’t understand, they have an option and that would be to go look for a similar rental to yours at a lower price. If you have followed my advice, this elusive lower rental price will not be found and your tenants will be grateful to you for renting out such a clean place at the new price-adjusted rate.

There is a lot of a garbage held out for rent and prices may be lower, but no one wants to live in a pigsty with lime green shag carpet and Brady Bunch orange counter tops, where the roaches tell You what to do.

So the lesson here: Encourage balking tenants to find something comparable to yours at a lower price. If they find it, let them go. Odds are, they won’t. After all I told you, it’s often next to impossible, if you’re a hands-on owner. There is no 10% fee to management companies either. So you can even ask 5% less than investors who use professional management to do their job. So many ways to slaughter your competition…so little time!

Dan Auito is a dual-licensed real estate agent and appraisal assistant. In addition to being a 20-year veteran of the United States Coast Guard, Dan has also founded a non-profit drug prevention corporation, a real estate consulting group and is the author of “Magic Bullets in Real Estate.”

Dan lives with his wife Kimberly and their two children, Brandon and Briana, on the emerald isle of Kodiak Island, Alaska

Landlords incur risks from all sides. They are often seen as wealthy, particularly by the people who write them monthly checks. Their tenants have ample opportunity to develop grievances, real or invented.

The risks call for self-protection, said lawyer William Bronchick. Among all professions, landlords face the greatest threat of being sued, he said.

An active real estate investor and president of the Colorado Association of Real Estate Investors, Bronchick sells do-it-yourself software to help savvy property owners protect themselves with the right legal structure. It is one of several products sold for that purpose.

The right legal structure, he said, often includes a land trust. Such an agreement allows one party, called the trustee, to hold ownership of property for the benefit of another, called the beneficiary.
Land trusts offer several advantages to property owners under the broad headings of privacy, protection from liability, and tax minimization, according to Bronchick.

Want a land trust?

There are many books and software programs that help real estate investors learn the ins and outs of land trusts. Here are some of them:
Software

• Step-by-Step Guide to Land Trusts, legalwiz.com/landtrusts $397
• Land Trusts Made Simple — Basic Home Study Course With Forms $237
• Business Owners Toolkit, forms and information available to paid members

Books

• “Land Trusts for Privacy & Profit: Using the ‘Illinois-Type’ Land Trust in Other States,” by Michael Warda, $34.95
• “JK Lasser’s Real Estate Investing,” by Michael C. Thomsett, $16.95

Other lawyers contend that the liability benefits are illusory. When push comes to shove in court, they say, a land trust will provide no real protection.

In an age when anyone can determine property ownership using public databases, owners sometimes find themselves targeted by private investigators or plaintiffs’ attorneys. Municipal code-violation enforcers as well as journalists may have interests in tracking down property owners.

“Lawyers want to sue people with money,” Bronchick said.

The best defense is to hide your assets, he said. “Make it look like you’re broke.”

An investor with several properties can place each one in a separate trust, making them hard to link together, according to Bronchick. All the trusts in turn may be held by a single corporation.

The choice of corporate structures varies, depending on individual considerations such as taxes. For someone with a total annual income of less than $100,000, for example, a C-type corporation is taxed at a lower rate than an S corporation. Another option is a limited liability corporation, or LLC.

When property is controlled by a corporate entity with limited liability, the landlord enjoys a degree of protection, Bronchick said. Forming a corporation requires legal and tax counsel. Canned software such as Bronchick’s product for land trusts is no substitute, he said.

Denver real estate investor Chris Yates of CM Yates Inc. has often used land trusts for privacy and protection of assets, he said. But tighter lending requirements are making it harder to do.

“In the past, a land trust was often part of creative deal structuring,” he said. “Now when they see a trust in the chain of title, it’s a red flag. They’re more nervous than in the past, and they may think a buyer using a trust is engaged in some sort of fraud.”

Buying property from a trust is generally not a problem, said lender Sean Bennett of Moncor Inc. But lenders may look askance at someone proposing to buy property from a trust that they themselves control as the beneficiary, he said.

The dark side of land trusts, critics argue, is that they enable bad behavior on the part of landlords by allowing them to operate anonymously. A slumlord can escape accountability by using corporate smoke screen.

Denver lawyer John Head, who has represented plaintiffs in many real estate cases, has another take. He doesn’t believe anyone, by using land trusts, effectively escapes liability or pursuit by attorneys.

“There is no legitimate reason for someone to set up a land trust purely for investment reasons,” he said. Trusts do have legitimate purposes, such as when a trustee is assigned to act as the caretaker of a property, he said.

Whether a property is held in a trust or not, debt financing can be a big deterrent to someone hoping to sue. If there’s little equity to recover, the plaintiff’s attorney may pass on the case, Bronchick said.
Trusts can protect against title claims. When a property is sold, typically sellers sign a warranty deed saying there are no liens against the property, dating back to its origin.

If a past lien is discovered later, the seller may still be held liable, Bronchick said. This surprises many sellers who thought they were indemnified by title insurance. If the property had been held and then sold by a trust, normally the trust would now have no assets to recover in a lawsuit.