| The Garn St. Germain Act carves several
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| | long as there is no change in occupancy).
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| exceptions in which the lender may not
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| | Let's say that you come across a seller
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| enforce the due-on-sale:
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| | who is willing to give you title to his
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| With respect to a real property loan
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| | property. The only "glitch" is that the
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| secured by a lien on residential real
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| | loan is not assumable because the
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| property containing less than five
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| | mortgage has a due-on-sale clause. Here's
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| dwelling units, including a lien on the
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| | the process for getting around it:
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| stock allocated to a dwelling unit in a
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| | STEP 1: Sammy Seller signs a trust
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| cooperative housing corporation, or on a
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| | agreement with you as trustee of his
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| residential manufactured home, a lender
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| | trust. Sammy is named as the
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| may not exercise its option pursuant to a
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| | "beneficiary" of the trust.
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| due-on-sale clause upon -
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| | STEP 2: Sammy Seller transfers title to
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| (1) the creation of a lien or other
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| | the trustee (no violation of the
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| encumbrance subordinate to the lender's
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| | due-on-sale clause).
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| security instrument which does not relate
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| | STEP 3: Sammy Seller quietly assigns his
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| to a transfer of rights of occupancy in
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| | interest under the trust to you (similar
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| the property;
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| | to a transfer of stock in a corporation).
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| (2) the creation of a purchase money
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| | This assignment is not recorded in any
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| security interest for household
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| | public record. Sammy moves out and you
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| appliances;
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| | move in.
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| (3) a transfer by devise, descent, or
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| | STEP 4: You are now the beneficiary of
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| operation of law on the death of a joint
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| | the trust. Your trustee makes payments to
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| tenant or tenant by the entirety;
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| | the lender.
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| 4) the granting of a leasehold interest
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| | Keep in mind that the assignment of Sammy
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| of three years or less not containing an
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| | Seller's interest under the trust to you
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| option to purchase;
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| | does trigger the due-on-sale, but who is
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| 5) a transfer to a relative resulting
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| | going to tell the lender? In reality, the
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| from the death of a borrower;
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| | lender will discover the transfer of an
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| 6) a transfer where the spouse or
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| | interest in real estate in one of three
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| children of the borrower become an owner
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| | ways:
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| of the property;
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| | 1) Change of name on the deed. Not
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| (7) a transfer resulting from a decree of
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| | likely, since lenders don't readily have
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| a dissolution of marriage, legal
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| | "spies" at the clerk's and recorder's
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| separation agreement, or from an
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| | office;
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| incidental property settlement agreement,
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| | 2) Different name on the check received
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| by which the spouse of the borrower
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| | for payment. Not likely, since the bank
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| becomes an owner of the property;
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| | officers are far removed from the
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| (8) a transfer into an inter-vivos trust
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| | clerical workers who process payments; or
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| in which the borrower is and remains a
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| | 3) Change of hazard insurance
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| beneficiary and which does not relate to
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| | beneficiary. This is the most common way
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| a transfer of rights of occupancy in the
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| | a lender discovers a transfer of interest
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| property; or
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| | in the borrower's property.
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| (9) any other transfer or disposition
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| | If you notify your insurance carrier of a
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| described in regulations prescribed by
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| | change in insurance beneficiary, the
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| the Federal Home Loan Bank Board.
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| | lender, who is also a named beneficiary,
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| (The Federal Home Loan Bank Board, which
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| | receives a copy of the change. However,
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| was disbanded in 1989 and replaced by the
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| | if you transferred title into a land
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| Office of Thrift Supervision, takes the
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| | trust, the new beneficiary under the
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| absurd position that the Act only applies
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| | insurance policy will be the trustee of
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| to owner-occupied homes. See 12 C.F.R.
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| | the land trust. The lender will probably
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| 591. However, the clear language of Garn
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| | not object, since it will assume the
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| Act specifically states that it applies
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| | seller has implemented an estate planning
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| to residential one-to-four family homes.
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| | device. If the beneficiary of the trust
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| There is no mention that it must be
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| | is assigned, the lender will not be
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| "owner-occupied." Although never enforced
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| | notified since the insurance beneficiary
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| or challenged, such a direct conflict
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| | (the trustee) has not changed.
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| with the Congressional statute would
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| | This strategy is not much different than
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| probably be struck down in court as being
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| | simply transferring title directly from
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| "ultra vires").
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| | seller to buyer (called taking a deed
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| A land trust is form of a revocable,
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| | "subject to"). However, the chances of
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| living trust which is exempted under the
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| | the lender discovering the change of
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| Garn Act. A land trust, like a living
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| | ownership are greatly reduced. This is
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| trust, is create by two legal documents:
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| | especially true where the lender has
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| 1) A trust agreement between the creator
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| | contracted to use a "servicing" company
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| (called "grantor" in legal terms) of the
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| | to deal with most facets of the loan.
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| trust and the trustee which defines the
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| | If you have had any experience with
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| trust arrangement; and
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| | servicing companies, you may know that
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| 2) A deed from the creator of the trust
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| | most are so poorly managed that they
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| to the trustee.
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| | don't know which way is up (I would wager
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| The trustee holds title for the benefit
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| | that a survey of 100 servicing company
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| of the grantor (in this case, the grantor
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| | employees would reveal that 98 of them
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| is also the "beneficiary"). If you place
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| | wouldn't know the meaning of a
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| title to your property into a land trust,
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| | due-on-sale clause).
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| you have not violated the due-on-sale (so
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|
