Due on sale Clause/ LLC/Land Trusts

[Stephen McGrath]

Hello everyone,

I am a new investor with one duplex under my belt and i have scrubbed the forums for information on how to avoid the due on sale clause, for those of you that don't know, this is when you roll the title of a property into an LLC effectively changing ownership. The bank then holds the right to require the loan balance due. I've heard that it "rarely happens" all over the internet but that doesn't sound like a risk I'm willing to take. Some suggest that when interest rate go back up that it could cause this to happen to more investors as the banks will want out of those low interest loans.

I am not a financial expert by any means but in my research I've found a few alternatives that were not easy for me to find:

This "due on sale" clause seems to mainly apply to government backed loans (fannie and freddie). If you get a commercial loan, they don't care if its under an LLC! (I'm in the process of getting a commercial real estate loan and verified this)

Another work around, i spoke with a lawyer for a paid hour consultation. How they recommend and offer to set up (for 5000k one time, then 550 per house added) is to get the property under, or roll it into a land trust. The land trust can then make your LLC the beneficiary. This LCC would then be part of a Series LLC which is sort of like a hub and spoke model with a master LLC (I'm in TX, Series LLC's Are not offered in every state). I was told by the attorney that you are protected under "garn-st. germain act" in which the bank would not be able to call the note due if the property was moved to a trust. The thing i did not like about a land trust is that you need to make someone else the trustee. I have a problem with this because i don't trust items like a cash flowing property with someone else. I was told that the attorney would be the trustee while setting it up than assign the trustee as myself. You also get anonymity with have this type of asset protection in place.

I am not an attorney or a financial expert and advisor so please consult professionals on these matters, i just hope that maybe this could save someone some time and point them in the right direction. 

Feel free to message me with any questions or comment on the thread