Avoiding Legal Pitfalls in Subject-To Land Trust Deals
By Joseph E. Seagle, Esq.
The real estate investment world was rocked by a recent lawsuit filed by the State of Arizona against a group of investors, title companies, and law firms involved in fraudulent subject-to transactions. This case exposes the risks of improper structuring and highlights the importance of doing subject-to deals correctly.
🚨 Florida investors who use land trusts for subject-to transactions should take this as a wake-up call!What Happened in the Arizona Case?
In State of Arizona v. Cameron Jones et al, the Arizona Attorney General accused multiple investors of engaging in deceptive subject-to transactions. The lawsuit highlighted several fraudulent practices:
- Failure to Disclose Material Terms – Homeowners were misled into believing they were fully removed from their mortgage obligations.
- Fraudulent Use of Subject-To Agreements – Lenders were not notified of title transfers, leading to due-on-sale clause violations.
- Abuse of Nominee Trustees & Alter Ego Entities – Trusts and LLCs were misused to obscure real ownership.
- Unlawful Evictions & Litigation – Homeowners were evicted or pressured into sales under false pretenses.
- Title Companies Ignored Red Flags – Transactions were closed despite potential mortgage violations.
Lessons for Florida Investors Using Land Trusts
Florida law allows subject-to transactions when structured correctly. Here’s how to do it the right way:
✅ Best Practices for Subject-To Deals in Florida
- Use a properly drafted land trust agreement to protect both parties.
- Provide full disclosure to homeowners that their names remain on the mortgage.
- Notify the lender to reduce risks of fraud allegations and due-on-sale issues.
- Ensure the seller has legal protections through conditional assignments of beneficial interest.
- Work only with ethical title companies that understand land trust transactions.
- Avoid leaseback agreements that could be seen as predatory or deceptive.
- Stay away from FHA, USDA, or VA loans, as they prohibit subject-to transfers.
🚩 Practices That Could Lead to Legal Trouble
- Using a land trust to hide ownership rather than for legitimate asset protection.
- Violating the due-on-sale clause without a backup plan to refinance.
- Filing fraudulent affidavits or clouding title records with misleading documents.
- Predatory tactics against distressed homeowners, which can result in consumer protection lawsuits.
Final Thoughts: Doing Subject-To Deals the Right Way
Subject-to investing is 100% legal in Florida—when done properly. The Arizona lawsuit should serve as a warning for investors who cut corners.
Protect yourself by ensuring full transparency, working with compliant professionals, and always putting agreements in writing. If you follow ethical practices, subject-to transactions using land trusts can be a powerful tool for real estate investing.
💡 Additional Tips for Ethical Subject-To Investors:
- Avoid buying properties subject-to when foreclosure has already been filed.
- Use a title agency for closing instead of handling deeds privately.
- Ensure all agreements, including memoranda, are notarized before recording.
- Document the property condition, renovation costs, and receipts for future protection.
- Never file bankruptcy or probate on behalf of a seller without consent.
- Notify lenders of ownership transfers to maintain legal compliance.