Putting deed to a living trust to get around Due on Sale Clause?

5 Replies

So I came across an interesting concept to a subject to deal. A few weeks ago on the podcast someone was talking about getting around the DOS clause when doing a subject to deal. And the method you spoke about was a little questionable because he mentioned companies insuring DOS in that if the bank calls on it, this company will pick up the bill at the same rate and then become the lender for your needs. No one on this forums was able to find a company that does that, the one the guest spoke about was questionable because there was no contact info and the website was under construction. So I started looking and asking around at one or two the investor meet ups I go to. and Someone mentioned that he attended a seminar where an investor mentioned about doing a subject to deal and placing the deed in a trust and having the trust now become the borrower. Does anyone know anything about this method or can help confirm if this method is legit or legal for that matter? Can someone reach out to me and perhaps walk me through how I could accomplish something like this if it were possible. Thanks in advance! :)

There is no getting around the DOS clause.

If you're going to do a subject to deal, it's a horrible mistake to use a trust in my opinion.  Far better to "openly and notoriously" record a deed and make sure that you don't go down the path of trying to be sneaky about it, which could be construed as fraud.  If the loan gets called, be prepared to pay it off or refinance.  If this is too scary of a situation, don't do subject to deals.

@Ernesto Salgado the risk of the DOS is something we have to account for as investors. I heard that podcast as well, and like you I could not find any information on it. As long as you are paying the bank each month, then there should be no reason to be worried unless interest rates go sky high. Just make sure you are always ready and prepared to sell or refinance if that time every does come.

Originally posted by @Andrew Kiel :

There is no getting around the DOS clause.

If you're going to do a subject to deal, it's a horrible mistake to use a trust in my opinion.  Far better to "openly and notoriously" record a deed and make sure that you don't go down the path of trying to be sneaky about it, which could be construed as fraud.  If the loan gets called, be prepared to pay it off or refinance.  If this is too scary of a situation, don't do subject to deals.

John taught you that didn't he? ;-) It's solid advice. 

Thank you all who replied so far. I've been getting more involved with going to investor meetings and the one I go to I like, but its more about talking about what we are doing in our business of investing than discussing strategies. But I've only gone to three so far and that's how its been. Maybe it will get into more depth later. But I did encounter a gentlemen's who said he went to another one in the next county over and it is more of a seminar type meeting and the guest speaker spoke about putting things in a trust where the bank does not know who is actually in the trust and who is paying the mortgage. Because of the scenario I am in with my current investment property I thought it was a great idea because I am kind of doing an arbitrage type deal and the owner is ok with allowing me full access and ownership of the property with the exception that it isn't official because my name isn't on the deed. And when I heard that this person does that I thought maybe that is a strategy I could do. But I don't want this to be fraudulent. Thanks again to all who replied. 

@Andrew Kiel

Actually, buying a property in the name of a trust can NOT be construed as fraud, as long as the warranty deed is recorded properly in the name of the trust. The owner of a property can sell his property to anyone or any entity he wants to, and does not have to pay off an existing lien. If there is a due on sale clause, it is the same effect as any violation of the mortgage or deed of trust, the remedies are spelled out in the document itself and usually include foreclosure.

I believe what you are thinking of is a “fraudulent transfer”, which may be applicable when a property owner files bankruptcy and prior has transferred the deed to a trust that has another person as trustee, but which he is beneficiary and does not report such in his list of assets. Two different concepts completely.