Posted by: Woodfork Law | July 24, 2013

Investment property into your trust?

One great benefit of a living trust is the ability to place out of state property, or investment property into the trust.  However, unlike transferring your residential home into your trust, if there is a mortgage on your investment property, you must be aware of the “due-on-sale clause.”  As you may know, a due-on-sale clause allows a lender to immediately call in the loan if you sell your home.

The law is clear with respect to your home.  Under Federal Law (“Garn-St. Germain Depository Institutions Act of 1982, 12 U.S.C. § 1701j-3”) a lender is prohibited from calling in your residential home loan if you place your home into your living trust.

But, federal law doesn’t expressly prevent a lender from calling in a loan on a second home, investment property, etc.  If you are thinking about placing investment property into your trust, you could do the following.  You can get consent from your lender.  Additionally, you can argue that a transfer into a trust is not a “sale,” therefore, the due-on-“sale” clause is not triggered.  Finally, practically speaking, if your loan is called in after a transfer, you can re-transfer it back into your own name.


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