May 07 2008
Beware of Land Trusts
It has come to our attention that some sellers who are in trouble on their mortgages and are in pre-foreclosure or foreclosure are being advised to set up a “Land Trust” to avoid having other creditors attach liens to the property. After reviewing the documents with our attorneys, we have determined this will be unacceptable and will in fact trigger the FHA 90 day flipping rule among other things.
In the example provided, the seller transfers the title to the property from him/her personally to this Land Trust which may or may not be in the Seller’s name. Many times, this is put not only into the seller’s name but into the name of another individual or entity as well which is what will trigger the FHA flipping rule.
Please make sure when you are reviewing the contracts or title work that there is no reference to a Land Trust being the seller of the property. If you find an instance of this then the 90 day rule must be applied.
Remember you can not use FHA financing to buy the house unless the seller has been in title for at least 90 days. There is an exception to this on bank owned properties and some non profit organizations.