![]() ![]() When one person transfers ownership or interest in something to another through a written deed, this is known as conveyancing. One of these situations arises when you want to transfer ownership to another individual or entity. Telephone conversations and email communications are insufficient to alter the terms of a mortgage loan.The real estate world opens up a book of several different terms. SMART TIP: When obtaining the consent of your lender to transfer real estate into an LLC, make sure that the lender’s consent is in writing, and signed by the lender. Before pursuing this option, be sure you know what the mortgage documents state regarding transfers, and ensure that transferring the property will be a true benefit to your financial landscape. But it can also be fraught with peril thanks to the “due on sale” clause. Transferring real estate into an LLC can provide valuable protection for homeowners and landlords. In addition, lenders may be more amenable to the transfer if the LLC is a going concern and has its own (good) credit history. Many lenders will permit the transfer of the property into an LLC provided that the original borrowers remain liable for the mortgage in the event that the LLC defaults on the payments. Third, as distasteful as it is, obtain your lender’s consent to the transfer priorto the transfer.This course of action will end badly once the lender discovers the ruse. Under no circumstances should anyone try to transfer the property secretly or under the table by not recording the new deed. Second, if the mortgage does contain a “due on sale” clause, do not try to avoid it.Some older mortgages and private mortgages, amazingly, do not. First, check to see if the mortgage documents contain a “due on sale” clause.What does this mean for homeowners who want to transfer the property to an LLC or other corporate entity? Importantly, the Act does not prohibit the “due on sale” clause if the property is transferred to an LLC. The Act provides that the “due on sale” clause is unenforceable if the title is transferred to an heir, if the property is transferred in the event of a divorce, or if the property is transferred to a living revocable trust. Germain Federal Depositary Institutions Act. The arguments fell on deaf ears, as the United States Supreme Court eventually weighed in, and sided with the lenders.Ĭongress subsequently enacted the Garn-St. Homeowners tried to fight the lenders’ actions by arguing that the “due on sale” clause was an unfair trade practice. It also made mortgages due in full when heirs inherited property and when ex-spouses became sole owners of homes in divorce settlements. The clause essentially forced buyers to incur debt at the higher market rate. Lenders ultimately responded to this phenomenon by incorporating the “due on sale” clause into the mortgage contract. Rather than obtaining new financing at the exorbitant rates in which banks demanded, homebuyers were simply assuming existing mortgages after the seller transferred the property to them. The “due on sale” clause originated in the 1970s when mortgage interest rates rose sharply. ![]() ![]() The “due on sale” clause, also known as an “acceleration clause,” typically reads as follows: “ If all or any part of the property herein is transferred without the lender’s prior written consent, the lender may require all sums secured hereby immediately due and payable.” In other words, the lender has the right to choose to accelerate the mortgage so that the entire amount is due at the moment it is transferred to any person or entity (with a few exceptions as discussed below.) If the homeowner cannot pay, the lender can commence foreclosure proceedings. ![]()
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