Using Land Trust to Protect From "Due on Sale" Clause

15 Replies

Im curious to know if using a land trust is still an effective way to protect yourself or get around the whole "due on sale" clause when buying subject to? If not is there a more recent method that people are using. 

@Josh Whitney , I don't know that it has ever been tested, either in court or otherwise, but my opinion having researched this extensively, is that a land trust does not "get around" the due on sale clause. If you assign the beneficial interest of the trust to someone else you have violated the clause and the bank can exercise their right to accelerate the loan...if they find out. Of course, what you have done will be much less obvious since it is not necessarily a matter of public record. So you are still rolling the dice to some extent, but you will have shifted the odds more in your favor. I don't know of any better way to do this either.

I'll drop @Laura Richards name here since she is a lot smarter on FL land trusts than I.

@Edward B. That's what I was thinking..."if they find out" But if you don't have to record the assingment of beneficial interest then how are they ever going to know until you sell the property? Is my thinking right on this or am I misunderstanding how this works?

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@Josh Whitney , technically you are correct. To be honest, though, I do not know or understand how all this would work in a Sub2 deal. I have only heard of using it to protect against the acceleration clause when transferring to an LLC or something. Often the borrower dimes themselves out by switching the insurance or sending in payments from somewhere else raising questions about who actually controls the property. In terms of a sub2 deal I would have to defer to someone who is more familiar with using this strategy for that. @Brian Gibbons perhaps.

You want to know if you don't have to tell your mortgage holder about a transfer of interest in a property by hiding behind a land trust? Not only is there likely a reporting requirement in the financing agreement, but that most likely would be fraud. Consult a local attorney.

@Joel Owens , that is an argument I am comfortable making right up to the point that you transfer it to a third party. That's why I was hesitant to comment on the Sub2 aspect of the strategy. If you are transferring it to an entity that you wholly own then I would in good conscience argue that it is for estate planning purposes, but otherwise .... I'll just leave that open ended.

Originally posted by @Josh Whitney :

Im curious to know if using a land trust is still an effective way to protect yourself or get around the whole "due on sale" clause when buying subject to? If not is there a more recent method that people are using. 

 Hi Josh

Land trust in FL are useful.

Sub2 and land trusts often are used together.

You don't get around or avoid the due on sale clause. 

But the DOS is not automatically triggered.

Training is helpful in both land trusts and sub2.

@Joel Owens That's what I've heard as well. That's what I'm confused about. Everyone is worried about the title transfer triggering the DOS, but I'm not seeing how they would even find out. Other than the seller telling the bank or screwing something up with the insurance company.

@Matthew Kreutzer thanks for the advice. Yeah, after all the research and mixed opinions I think contacting a lawyer might be the best bet.

First thing I do is tell the bank that I am the new owner of record and send them a 3rd Party Authorization Letter and POA. If your are afraid or trying to hide something you should not do Sub2 deals. Banks have yet to say "No Rocky we will not do business with you".

@Rocky V. I'm just trying to get my info right on doing a sub2 deal. I'm really not trying to be shady. I just keep reading about the due on sale clause and everyone only talks about how to go around it or fly under the radar with it. Your answer is the first one I've seen that actually contacts the bank. I don't know, maybe I'm asking the wrong questions.

Thanks for the help.

I only speak from experience and I'm not some guru trying to sell BS.  Why would a bank call a performing note due?  Keep in mind I have only dealt with large banks and have been told it's much more likely to have the note called dealing with small banks. 

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Hi @Josh Whitney . You should read up on the Garn-St. Germain Act. This is how people are flying under the radar. You are allowed to transfer the deed if you are still the beneficiary. This was specifically allowed for asset planning, which is why you hear the buzz words.

Usually, you loan agreement will say that the lender must approve in writing any transfer of interest or the note can be accelerated. I would recommend just contacting the lender and asking! Why bother playing with fire when you can just call them or stop in?

@Bryan Otteson, thanks for the help. After a a few memebers comments on here, i was thinking just that as well. (Contacting the lender). Thanks for the link I'll definitely read up on that. Thanks!!

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