Due on sale clause and small portfolio lender

[Bienes Raices]

I know the "due on sale" subject has been beaten to death here, but I haven't seen this aspect covered before. Will a small local bank react differently than the mega-banks if you transfer the deed to an LLC? Is it not a good idea to do this?

[Bryan Hancock]

A banker can probably be of more assistance here, but my understanding is that these loans are generally written to be capable of being sold in the conforming market so the requirements are similar. If you use trusts and assignment of beneficial interest I can’t see how their posture will be much different than those of the big banks. The main difference is that they may be servicing their own note and they have a financial interest in calling the note once they are alerted. This is not true for servicing companies servicing notes on the behalf of other owners.

Many smaller lenders will allow you to take title in your entity as long as you personally guarantee the note. To me this is a true portfolio lender, but my understanding is that they can’t sell this note to FNMA. This presents the investor a tradeoff. Is it worth paying more interest on less favorable terms to immediately protect your assets with an entity and/or trust or do you want to take the risk to using a conforming loan and do the trust/assignment thing after the fact? It is your call, but I know which way I lean. Why pay more interest on less favorable terms so that the lender can dump the loans to GSEs?