Due on Sale Clause

9 Replies

Hey Folks!

New to the scene here. Just had a lawyer due a warranty deed transfer to my LLC that I have recently created. Just curious, has anyone ever personally had a note due on sale (or in this case due on transfer)? Or has anyone ever heard of the bank actually exercising the Due on Sale clause? I'm just curious what peoples experiences have been. My property manager told me that I should create an LLC for the property and have it transferred in. My lawyer said that he has never seen a note get accelerated, but he did make sure I was aware of this risk. I actually had an off the record discussion with the mortgage banker in which he said that as long as I make current payments on it that there would be no problems. Just looking for others experiences! Kinda scary!

Thanks in advance,

Seth

I know of only one very active investor who had a note called by the bank one time when she transferred to her own LLC. The bank withdrew the acceleration when she contacted them and showed she owned the LLC. Acceleration is possible but very unlikely, especially in this time of low interest rates and a lot of problem loans.

@Seth Jacowski I operate in Bloomington-Normal, IL and have quit claimed deeds to my LLC without any problems from my banker. As long as you keep paying the mortgage on time, they generally don't care. Welcome to BP!

Thanks Michael! My property is actually back in my hometown in Janesville, WI. I have transferred it into my LLC.

It happened to this gentleman. Seems the trigger is when the hazard insurance is changed. 

http://www.biggerpockets.com/forums/311/topics/183...

The best solution I have found when talking to my attorney is to get an umbrella policy to "reduce" the risk. It is still insurance so if a law suit does happen unfortunately they will be investigating you for intent in order to decline the coverage. 

Piggy-backing off of this topic if you don’t mind... I am finding myself in a similar boat. I own a rental property which I would like to deed to my LLC. Before doing so, I went through the proper channels and asked permission from my lender. Their response stated that they would call my note due if I deeded my property to my LLC. What now? I’m at risk keeping the title under my own name. Any ideas on how to convince them or otherwise get this done without having my note called due?
Originally posted by @Dane Gullakson :
Piggy-backing off of this topic if you don’t mind... I am finding myself in a similar boat. I own a rental property which I would like to deed to my LLC. Before doing so, I went through the proper channels and asked permission from my lender. Their response stated that they would call my note due if I deeded my property to my LLC. What now? I’m at risk keeping the title under my own name. Any ideas on how to convince them or otherwise get this done without having my note called due?

 Depends on the type of loan. If it is backed by Fannie Mae

"Good news for investors from Fannie Mae

If you’re among the large number of real estate investors who’ve chosen to roll the dice, your finger-crossing days may be over. In November (quietly and with no fanfare) Fannie Mae announced that they now allow the post-closing transfer of title to an LLC."

http://workshopmortgage.com/blog/blog/2018/04/26/f...

If it is some other loan, you can simply make the change and not notify the bank. Perfectly legal. Can they call the Due on Sale Clause if they find out? Yes. Will they? Unlikely. It's a hassle for them and they don't like doing it. If payments are made on time there shouldn't be any problem. You have to actually read your Note. It says "May call" not "have to call" or "Will Call". I won a court case on this. ;-)

@Mike M. , so it’s all up to the servicer in the end anyway, according to the article.  Seems like great news on the front end, but at the end of the day, it almost seems like many investors could be back to square one in the end anyway.  So, if an investor doesn’t work with a lender that can “control” whether or not the loan gets sold to a servicer who “doesn’t mind,” then has anything REALLY changed?  Great article, and I was really excited...until the end.  

Originally posted by @Dane Gullakson :
Piggy-backing off of this topic if you don’t mind... I am finding myself in a similar boat. I own a rental property which I would like to deed to my LLC. Before doing so, I went through the proper channels and asked permission from my lender. Their response stated that they would call my note due if I deeded my property to my LLC. What now? I’m at risk keeping the title under my own name. Any ideas on how to convince them or otherwise get this done without having my note called due?

Transfer your property to a Land Trust where you are still the beneficiary. The Garn St Germain act will protect you against a due on sale clause. Change your insurance to the land trust. Then later on, assign the beneficial interest to your LLC. As this assignment is private and not recorded, no one will know about it.

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