If I transfer a property from my name to a CA LLC, would this trigger due on sale?
Member since 2021 · 25 posts · 7 votes
Hi everyone,
I am learning about CA laws and regulations. I read something about due on sale clause or reassessment of property value. If I transfer a property from my name to a land trust without me being beneficiary or a CA LLC, would it trigger due on sale clause and reassessment of property value? What is your experience?
Thank you,
Gin
Hello Gin,
I hope you're doing well. Generally, it will depend on what kind of loan a person may have with your Lender. Many Lenders that are compliant with Fannie Mae and Freddie Mac may not be concerned if they transfer the property directly into an LLC. However, if the loan is not a traditional loan, then the Lender may utilize the transfer as a justification to trigger the due-on-sale/acceleration provisions even if a person is the only member of the California LLC.
One work around many individuals use are Revocable Grantor Trusts (often times called land trusts) which act like Living Trusts. Transfers of residential property, even if it is for investment purposes, into a Revocable Grantor Trust is exempt from acceleration, but not for any properties classified as commercial. It is the same reason how people can transfer their properties into Wills or Living Trusts without triggering automatically the Due-on-Sale clauses. A person could transfer the property into a Land Trust and then because it is a private document have the beneficial interest assigned to the California LLC for asset protection, all while gaining some anonymity and avoiding reassessment with the proper exemptions being filed when the property is deeded into the trust.
Please let me know if you have any questions with regards to it.
Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
Hello Gin,
I hope you're doing well. Generally, it will depend on what kind of loan a person may have with your Lender. Many Lenders that are compliant with Fannie Mae and Freddie Mac may not be concerned if they transfer the property directly into an LLC. However, if the loan is not a traditional loan, then the Lender may utilize the transfer as a justification to trigger the due-on-sale/acceleration provisions even if a person is the only member of the California LLC.
One work around many individuals use are Revocable Grantor Trusts (often times called land trusts) which act like Living Trusts. Transfers of residential property, even if it is for investment purposes, into a Revocable Grantor Trust is exempt from acceleration, but not for any properties classified as commercial. It is the same reason how people can transfer their properties into Wills or Living Trusts without triggering automatically the Due-on-Sale clauses. A person could transfer the property into a Land Trust and then because it is a private document have the beneficial interest assigned to the California LLC for asset protection, all while gaining some anonymity and avoiding reassessment with the proper exemptions being filed when the property is deeded into the trust.
Please let me know if you have any questions with regards to it.
Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
Thank you for your quick reply! This is very helpful.
Just to make sure I understand correctly: I own a duplex (not commercial). I lived there first but recently converted it to a 100% rental. So according to what you said I should first transfer the property into a land trust, with myself as the beneficiary. This should avoid triggering the due-on-sale clause or property reassessment. After that, I would transfer the beneficial interest into my CA LLC, giving me liability protection. Is that correct?
A few follow-up questions:
1. Who should serve as the trustee— a friend, another LLC I own, a professional third party, or someone else?
2. My mortgage is with BOA at an interest rate below 3%. I’ve read that sometimes lenders call the due-on-sale clause to increase rates. Since BOA is Fannie Mae and Freddie Mac compliant, what has been your experience with them? Do they often call due-on-sale if the mortgage is current and payments are automated?
3. I am considering using a Wyoming LLC to hold the CA LLC for added protection. Would you recommend this?
4. If I only use a Wyoming LLC + CA LLC without a land trust, would that trigger a property reassessment? I do not plan to do so. It seems like adding a land trust is much better. I just want to make sure I understand the situation completely.
Thank you so much for your guidance!
Hi everyone,
I am learning about CA laws and regulations. I read something about due on sale clause or reassessment of property value. If I transfer a property from my name to a land trust without me being beneficiary or a CA LLC, would it trigger due on sale clause and reassessment of property value? What is your experience?
Thank you,
Gin
It’s definitely a risk but I’ve never seen it or heard about it happening. Just don’t make any late payments. Everyone still makes money as long as you are never late.