Does my Rider delete my "due on sale" clause"?

[Lyn Green]

In reading my 1993 fixed/adjustable mortgage note (5/1) I have the standard paragraph 11 "Uniform Secured Note" statement that can trigger a "due on sale" clause. It reads "If all or any part of the property or any interest in the property is sold or transferred without lenders prior written consent lender may require immediate payment in full of all sums secured by this investment".....and so on.

HOWEVER I have an "Adjustable Rate Rider" on my mortgage which I believe invalidates this clause. Is that possible, I thought most mortgages had this clause? The Rider reads: "This form applies only if form 3522 1/01 are used" (it was). "UNIFORM SECURED NOTE paragraph 11 is deleted in its entirety"

Can anyone share if they've seen this kind of clause invalidating the dreaded "due on sale" before? I will have a pro review my mortgage as I'm looking to put this property into an LLC, but I'm looking for a broad stroke answer first. Many thanks!

[Joe Splitrock]

Originally posted by @Lyn Green:

In reading my 1993 fixed/adjustable mortgage note (5/1) I have the standard paragraph 11 "Uniform Secured Note" statement that can trigger a "due on sale" clause. It reads "If all or any part of the property or any interest in the property is sold or transferred without lenders prior written consent lender may require immediate payment in full of all sums secured by this investment".....and so on.

HOWEVER I have an "Adjustable Rate Rider" on my mortgage which I believe invalidates this clause. Is that possible, I thought most mortgages had this clause? The Rider reads: "This form applies only if form 3522 1/01 are used" (it was). "UNIFORM SECURED NOTE paragraph 11 is deleted in its entirety"

Can anyone share if they've seen this kind of clause invalidating the dreaded "due on sale" before? I will have a pro review my mortgage as I'm looking to put this property into an LLC, but I'm looking for a broad stroke answer first. Many thanks!

It is highly doubtful that the due on sale clause is invalid in your mortgage. This clause protects the mortgage company so they have the option to call the loan when you sell the property. Newer mortgages allow properties to be transferred to LLC if the mortgagee remains the majority owner. Odds are good if you keep paying the mortgage, nothing will happen. Worst case, you will likely be required to transfer it back out of the LLC. Personally I would not even bother transferring it into the LLC, because it will likely provide little protection. Since the mortgage is still in your name, it could be used to pierce the corporate veil. Also based on the age of the property, odds are good you have significant equity in the property. That means in the case of litigation, the property could be taken. Another good strategy is just having high limits of liability insurance on the property. Also be careful if you transfer into an LLC to make sure the insurance names you and the LLC as covered parties. Talk to your insurance agent before making the change.