A Lender’s Guide to Land Trusts and Foreclosures

If you are a lender with a borrower who has defaulted on a loan secured by land, you may wonder what options you have. Land can be foreclosed on, even if there is no structure on the land. Land can be agricultural, vacant urban plots, or commercial plots with environmental stipulations. Many real estate investors may add a land trust to their investments to diversify their assets. Additionally, land trusts are often more complicated to foreclose than traditional commercial real estate. A trustee partner with a professional understanding of land trusts and foreclosures is the best partner for lenders dealing with delinquent borrowers.

Trustees are required to follow many of the same compliance procedures as with commercial buildings. “Land trusts add a few layers of complication to a commercial foreclosure,” says Total Lender Solutions CEO Randy Newman. With over fifteen years of experience in commercial foreclosures, the team at Total Lender Solutions has the knowledge and experience to help your team complete a successful land foreclosure and protect your assets.

What Makes Land Trusts and Foreclosures Uniquely Complicated?

Land trusts add layers of complication to foreclosure because they typically introduce multiple ownerships and liens. Different parties have different legal rights and responsibilities. Typically, delinquent borrowers will use this to their advantage to delay a foreclosure for as long as possible (although it is generally understood that delaying a foreclosure is not always the best solution for defaulting borrowers.)

Related Article: How Do Land Foreclosures Work?

Hard money lenders hoping for a deficiency judgment on a land trust are going to find that the trust adds more layers of difficulty to a foreclosure. Many trust organizations privatize their beneficiaries, which makes lawsuits incredibly difficult to enact. More than likely, your best course of action will be to pursue a nonjudicial foreclosure. 

Although the ownership hierarchy of land trusts makes them complicated to foreclose, foreclosures on land do not contend with certain aspects like Balloon notices, Homeowners’ Bill of Rights, or Dodd-Frank unless explicitly stated in the agreement. This may make the foreclosure process simpler, depending on the unique situation of each foreclosure.

Non-judicial states have different compliance regulations for commercial foreclosures. To avoid the steep penalties that come with breaking compliance laws, a lender foreclosing on a land property must give the correct notices to the interested parties.

Once the lender has correctly identified the borrowers and lienholders involved in the property, land foreclosures proceed in much the same manner as real estate. Lenders should not pursue foreclosure without a partnership with a lender advocate.

At Total Lender Solutions, we help lenders looking to maximize recoveries on defaulted loans. Our professional services complete the foreclosure process so that your team can focus on their customers. Contact us today for more information about your defaulted loans.