Due-On-Sale Clause

Hi. this is Lee Phillips. I want to talk about
the due on sale clause in your mortgage and
your living revocable trust. Yeah, I’m an attorney. Don’t hold that against me. In fact, I’m a counselor to the
United States Supreme Court. What I want to tell
you is by federal law when you transfer your property,
your real property– the house, the summerhouse, the investment
property, whatever it is, into the standard
living revocable trust, the one you use for estate
planning, by federal law, that transfer does not trigger
the due on sale clause. Oh, what’s a due on sale clause? In your mortgage, since the mid
80s, the Garn-St. Germain Act, you have a clause which
says if you try and transfer the property, sell
the property, transfer the property to somebody other
than in these exceptions, then the mortgage immediately
becomes due and payable. It’s called the
due on sale clause. It’s to protect the mortgage
company in the event that interest rates
go through the roof, and they want to get
the mortgage back if you try and sell
it or transfer it. And we can talk about
due on sale causes in more detail in
another YouTube video. But for now, I want to make the
point that the Garn-St. Germain Act has a specific
exclusion, and that is a trust where the
beneficiary, the trustee, and the grantor are
all the same guy. If they’re all of the same
guy and it’s revocable, then that’s an exception
to the due on sale clauses. So the mortgage
company has nothing to say about your
transferring the property into the trust when you set it
up to do your estate planning. Now you have to transfer
the property into the trust if you’re going to
avoid probate. , If the trust doesn’t own
the property you don’t avoid probate. So this is a critical aspect
of the living revocable trust, to get the property in there. The mortgage company,
by federal law, has nothing to say about it. Now, no, no. Wait a minute, wait a minute. You say, oh, I went to
refinance the property. It was in my living
revocable trust. They made me take it out of the
trust, put it back in my name, and then they said
I can put it back into a living revocable trust. Well, that’s not calling
the due on sale clause. That’s starting with a
property that you own and mortgaging that property. Now there are lots of
different types of trusts, and the mortgage
companies have been burnt because they have done
a mortgage with a trust where they couldn’t exercise
to due on sale clause, where they couldn’t
do this, that, and the other. And the mortgage
companies have said hey, we’re not going to
worry about this. We only give mortgages
to individuals. We don’t give
mortgages to trusts. If you want to use the
Garn-St. Germain Act, transfer the property
over into the trust later, that’s fine with us. But if you’re
going to refinance, if you’re going to
get the mortgage, it’s going to be in your name. When we give you
the mortgage, if you want to transfer it later
for estate planning purposes, that’s fine. Now, a lot of people are
using what we call land trusts as a fraudulent trust. They’re transferring
the property and telling the mortgage company
this is just a standard living revocable trust. Well, it isn’t a standard
living revocable trust that you use for
estate planning. It’s a land trust. And then they try and sell
the beneficial interest in the trust. That will trigger
the due on sale clause, because according
to the Garn-St. Germain Act, we’ve got to have the
same guy put it in, same guy trustee,
same guy beneficiary. If we change the
beneficiary, which happens when we sell
a beneficial interest, then the exception to
the Garn-St. Germain doesn’t apply anymore. The mortgage company triggers
the due on sale clause. So if you’re doing
your estate planning, don’t worry about the mortgage. Oh, by the way, you still
have to pay the mortgage. But if you’re trying to get
around the due on sale clause, the trust isn’t the way to do it
because of the Garn-St. Germain Act. So use the trust. Use it for probate avoidance. Transfer the property
into the trust. You’re fine. Federal law says no calling
the due on sale clause, and no affect to taxes. Now you may have to notify
the state that you’ve made the change so that
they don’t automatically trigger a tax change, for
example proposition 13 in California. But technically, they can’t
trigger any tax aspect, call the due on sale clause,
when you move your property into the standard
living revocable trust that you use for
estate planning.

5 thoughts on “Due-On-Sale Clause

  1. Wow, great information.  I have been looking at multiple videos and information and this really adds value to all that I have found thus far.  Thank you. 🙂

  2. If I use a land trust to transfer rental property into and as a beneficiary assign an LLC which is under my name, can this satisfy the requirements for not triggering the Due-on -Sale Clause? (The goal is to provide good asset protection of the property without activating the Due-on -Sale Clause and not to sell the rental property)

  3. Is my understanding that a trust instrument cannot be legal if the Grantor, the Trustee and the beneficiary are the same person. The law requires the same person to have a max of two titles, but it can't have all three. So how can you create this trust protection from due on sale?

  4. Hi,
    My grandmother wishes to make me the heir to her property. She is worried they will enact the Due on Sale clause since the mortgage is still being paid off. Does the St. Germain act prevent this in this case?

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