Episode Transcript
[00:00:00] There's a lot of lawyers out there giving out bad advice when it comes to Florida, at least, and also Illinois, that you cannot get a Fannie Mae or a Freddie Mac loan if the property is in a land trust, and that is simply not true in the state of Florida. There are mortgage loan officers out there who understand the land trust in Florida, how it works and how to make it work.
[00:00:37] Hey, I just wanted to address some questions that I get a lot of times about whether a land trust can finance property with a conventional loan through Fannie Mae or Freddie Mac. And this is very common. There are a lot of lawyers out there, a lot of other people who talk about land trusts. And generally, whenever they're talking about land trusts, they're talking about land trusts in other states.
[00:00:59] And what I want to focus on here are land trusts in Florida, because if you're just listening to lawyers who only talk about land trusts in general, they're going to give you a lot of information that is general and doesn't really fit the situation for Florida because Florida has a Florida statute on land trusts. It has case law, and it has companies like ours, like my land trustee, that is a professional third party company that provides land trust services for clients. So I want to talk about today, because a lot of people are always saying there's a lot of lawyers out there giving out bad advice when it comes to Florida, at least, and also Illinois, that you cannot get a Fannie Mae or a Freddie Mac loan if the property is in a land trust, and that is simply not true in the state of Florida. There are mortgage loan officers out there who understand the land trust in Florida, how it works, and how to make it work. And so I'm going to show you here what I'm talking about. This is the Freddie Mac guidelines for lending to a borrower who holds their property in their land trust.
[00:02:18] You can see this is effective as of December 14, 2017. So it's been around quite a while, but a lot of people simply just don't understand how it applies in Florida. So you can see that in Florida, especially if you want to take out a mortgage, a conventional mortgage on a property that you hold in a land trust, you're going to go to section 5103.7 of the Freddie Mac guidelines for their selling guidelines. It's under originating and underwriting, determining borrower eligibility, special borrower eligibility, and coming on down, we're going to talk about, of course, the location of the mortgage. Premises must be located in a state that by statute recognizes and permits the use of land trust Florida recognizes land trusts under Florida Statute 689.071 and 689.073, the beneficiary of the land Trust. At least one beneficiary of the land trust must be a borrower. So in this instance, typically the borrower must be a human, and in the case of it being your homestead, it's your primary residence, which is usually why you are receiving a conventional Freddie Mac backed loan. You would have to be the individual beneficiary of the Land trust anyway. In that event, each beneficiary who is a borrower must be fully underwritten and qualified under the Freddie Mac guidelines according to their individual capacity in the trust requirements. Under the trust, all beneficiaries must be individuals. Again, they cannot be llcs. The trustee of the Land trust must be a corporation or financial institution customarily engaged in the business of acting as trustee for land trusts in that jurisdiction. In this case, our company, Land Trust Service Corporation, has been in the business of being land trustee for over 20 years in the state of Florida, and it is our customary business of what we do. In fact, that's the only thing that land trust Service corporation does. And of course, the mortgage premises must be the only asset of that land trust, which we are always preaching to be the best practice to always have one property per trust, never have more than one property in a trust. And this is just one more reason why you would want to do that in case you ever want to get a Freddie Mac mortgage.
[00:04:53] Also, the property type must be a one to four family primary residence occupied by the beneficiary of the land trust who is also the borrower. Or it must be a second home. Or it must be a one to four unit investment property, provided that at least one beneficiary of the land trust is a borrower. For land trust mortgages, a beneficiary of the Land trust mortgage who is a borrower is deemed to be the owner of the property, the mortgage premises for underwriting purposes. Signing the documents at closing of course, the beneficiary of the land trust, who's the borrower, must sign the note in the beneficiary's individual capacity and the trustee of the land trust must execute the security instrument, which is the mortgage. Special documentation of course, Freddie Mac may have some additional collateral assignment requirements that they want the trustee to sign.
[00:05:49] We never have a problem signing this because we can usually attest that all of these things are true. They may want some extra signatures on those collateral assignments and a collateral assignment form they have a sample Illinois collateral assignment form. There is absolutely no reason that that form should not be able to be used in the state of Florida as well. And by the way, Illinois doesn't have a land trust statute. Illinois has land trust case law that created it. So that's sort of funny that they always talk about the Illinois land trust, but Florida has a statute, and one of their requirements is that the state has a statute authorizing land trust. And of course, the collateral assignment is going to have special representations and warranties. They're going to want title insurance, and they're going to want certain things in their mortgage file that will then be transmitted to Freddie Mac after the loan is completed so that they can ensure that they have everything there that they need. If the mortgage premises are located in a state other than Illinois, they will require a fully executed copy of that collateral assignment of the beneficial interest, which again, we are very accustomed to working with, and it's not uncommon to see. Now switching over to Freddie Mac, Freddie Mac's selling guide, originating an underwriting selling guide. They deal with this in section b, as in Boy 2201, general borrower eligibility requirements. These were last updated December 14, 2022. They will take mortgages that are secured by properties that are held in land trusts. And they have no problem with that. Just like in Freddie Mac, they had to be natural persons who are at least 18 years old. In the, in the state of Florida, they do not accept inter vivos revocable trusts, I'm sorry, they will accept those as well in there. And also for land trusts, they will take that, but they will permit land trusts on a negotiated basis for states where land trusts are widely accepted. In the state of Florida alone, we, on an average hold over 2000 properties in trust. So I would argue that that is pretty widely accepted because we have trusts going in and out, creating and terminating at all times. So again, I would definitely argue that the state of Florida land trusts are widely accepted in this state as a vehicle for holding title to real estate. They are a little less detailed in exactly what they're looking for, but they pretty much go along with exactly the same requirements that Freddie Mac would have to do a loan for a property that is held in a land trust. One thing that they typically do require, though, that Fannie Mae requires that Freddie Mac does not, is they will also typically require that the trustee, as trustee of the land trust, also executes the promissory note, rather than just the borrower, the beneficiary signing the note. So that is one little slight difference between Fannie Mae and Freddie Mac. But it comes back to the fact that Fannie Mae and Freddie Mac will accept conventional mortgages on properties that are held in land trust so long as the borrowers who are the beneficiaries of the land trust are individuals, that it is a one to four family residence that is either the homestead of the borrower or it is a second home or it is an investment property, a one to four unit investment property, they will accept those being held in the land trust. So if you are working with a mortgage broker or mortgage loan originator who says, well, you've got to take the property out of the land trust to finance this. Ask them again. Give them the citations to the Fannie Mae or Freddie Mac. Ask them, is this going to Fannie Mae or Freddie Mac? Which one's this going to? And then give them citations exactly to the chapter and verse in the origination and selling guides for the applicable underwriter that's going to be looking at this loan. It'll probably be bumped up to more of a senior, experienced underwriter at that point for the mortgage loan. But that person should be able to look at these requirements. Talk to the folks that they need to talk to. Talk to us if we're your trustee, to get the certifications that they need. We have at times been required to provide a certification that, yes, the beneficiary is the individual, yes, the beneficiary is the person that they are underwriting on the loan as their borrower. And yes, this is the only property inside this land trust. And then, of course, we sign that extra collateral assignment of beneficial interest and other documents that they will typically require for this. There is absolutely no reason that you should have to take a property out of a land trust inside the state of Florida in order to borrow a conventional Fannie Mae or Freddie Mac mortgage against it. So if you're hearing other lawyers and other states who are telling you, nope, you can't do it, you got to take it out, or you've got to have your yourself as the trustee, which completely destroys your anonymity. You got to do this, you got to do that. Don't listen to that. Pay attention. If the property is in Florida, if you have a third party trustee that is a corporation inside the state of Florida that is customarily engaged in the business of acting as trustee in the state where land trusts are widely accepted as vehicles to hold title to property, there is no reason why you should ever, ever have to take the property out of the land trust so that you can do your conventional mortgage loan, so don't let anybody tell you any different on that.
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