Your bank or lender may be wrong about what triggers the “due-on-sale” clause. We had a client who was given the wrong information from multiple banks. There’s a law that reads “a lender may not exercise its option pursuant to a due-on-sale clause upon … a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.”
Colin Ley is an asset protection attorney and the co-founder of LayRoots (along with with partner in life & business – Shreya Ley)
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Banks wrong about the due-on-sale clause
Hey Colin and Shreya Ley of LayRoots here, and I want to talk to you about the due-on-sale clause and transferring your real estate into your asset protection trust. It is a popular question. We get it a lot. And before we get into it, if you have questions about your asset protection plan or whatever we’re talking about today, you can schedule a free call with me or maybe her.
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Shreya. Today, I’m talking to a client today. He’s got a number of investment properties, and we set up an asset protection trust for him so he can feel great and live more carefree.
He called all of the lenders for his properties and asked about transferring the properties into his trust. He didn’t need to, but yeah, he did it. Yeah, sure. But it was interesting that he did, because they all gave him some really bad information and they sent them letters that he brought and showed me.
And so first of all, due-on-sale clause, what is it, Colin? Tell us. So if you have borrowed money to buy real estate, basically somewhere in your mortgage it says if you transfer title, you know, you transfer the property to someone else, or like an LLC or some other entity, then they can call in the note. So that means the full amount that’s left on this mortgage would be immediately payable. Yeah. Pay up! There is a federal law, which I keep calling it in Garmin, cause of, you know, Garmin devices. That’s cool. But it’s like Garn-St Germain. It’s basically a federal law that says, Hey, lenders, there are times when you cannot make them pay off the balance of their mortgage. Willy-nilly.
There’s a number of situations, and the most common one that we deal with is if somebody transfers real estate to a trust. They can’t stop you from doing that because it’s just a regular estate planning tool and strategy. But people get a little crazy sometimes when they hear asset protection trust.
Basically all the lenders told them is, you can’t transfer the property unless you are the settler, the person who made the trust, the trustee, the person who manages the trust and the beneficiary of the trust and the trust has to be revocable and they put all these conditions on and they said, if you don’t need all these things, then we will call in the note.
But that is not true. According to the law, it’s not true. According to the law! If you are…*cough You just got too excited. You can transfer your property, your real estate, to an asset protection trust or any trust really. If the borrower who borrowed the money has to be and remain a beneficiary of the trust and you can’t change or transfer any of the rights of occupancy, as long as the borrower is a beneficiary of the trust and they haven’t done anything weird about their right to live there, then the bank can’t make you pay off your mortgage because you transferred it into the trust. It doesn’t matter if it’s an asset protection trust, irrevocable trust, revocable, trust, whatever the requirement is that you, the borrower, are a beneficiary and remain a beneficiary. So NO banks, you’re wrong. What do you think about that, Shreya?
I really, I have no thoughts, I think, I think it’s BS! Shreya is so supportive. This is pretty boring topic today. Yeah, but it’s crazy. If you found this video helpful, do us a solid and hit the like. If you’ve got any questions or comments, leave them down below. We’d really appreciate it. Thank you.
Thanks for listening. Isn’t it weird when people say that? Mmm hmm.