Hi. this is Lee Phillips.
I want to talk about the due on sale
clause in your mortgage and your living revocable trust.
Yeah, I'm an attorney.
Don't hold that against me.
In fact, I'm a counselor to the United States Supreme Court.
What I want to tell you is by federal law
when you transfer your property, your real property-- the house,
the summerhouse, the investment property, whatever it is,
into the standard living revocable trust,
the one you use for estate planning, by federal law,
that transfer does not trigger the due on sale clause.
Oh, what's a due on sale clause?
In your mortgage, since the mid 80s, the Garn-St. Germain Act,
you have a clause which says if you try and transfer
the property, sell the property, transfer
the property to somebody other than in these exceptions,
then the mortgage immediately becomes due and payable.
It's called the due on sale clause.
It's to protect the mortgage company in the event
that interest rates go through the roof,
and they want to get the mortgage back
if you try and sell it or transfer it.
And we can talk about due on sale causes
in more detail in another YouTube video.
But for now, I want to make the point that the Garn-St. Germain
Act has a specific exclusion, and that
is a trust where the beneficiary, the trustee,
and the grantor are all the same guy.
If they're all of the same guy and it's revocable,
then that's an exception to the due on sale clauses.
So the mortgage company has nothing
to say about your transferring the property
into the trust when you set it up to do your estate planning.
Now you have to transfer the property into the trust
if you're going to avoid probate. ,
If the trust doesn't own the property you don't avoid
probate.
So this is a critical aspect of the living revocable trust,
to get the property in there.
The mortgage company, by federal law,
has nothing to say about it.
Now, no, no.
Wait a minute, wait a minute.
You say, oh, I went to refinance the property.
It was in my living revocable trust.
They made me take it out of the trust, put it back in my name,
and then they said I can put it back
into a living revocable trust.
Well, that's not calling the due on sale clause.
That's starting with a property that you own
and mortgaging that property.
Now there are lots of different types of trusts,
and the mortgage companies have been
burnt because they have done a mortgage with a trust where
they couldn't exercise to due on sale
clause, where they couldn't do this, that, and the other.
And the mortgage companies have said hey,
we're not going to worry about this.
We only give mortgages to individuals.
We don't give mortgages to trusts.
If you want to use the Garn-St. Germain Act,
transfer the property over into the trust later,
that's fine with us.
But if you're going to refinance,
if you're going to get the mortgage,
it's going to be in your name.
When we give you the mortgage, if you
want to transfer it later for estate planning purposes,
that's fine.
Now, a lot of people are using what we call land trusts
as a fraudulent trust.
They're transferring the property
and telling the mortgage company this is just a standard living
revocable trust.
Well, it isn't a standard living revocable trust
that you use for estate planning.
It's a land trust.
And then they try and sell the beneficial interest
in the trust.
That will trigger the due on sale
clause, because according to the Garn-St. Germain Act,
we've got to have the same guy put it in,
same guy trustee, same guy beneficiary.
If we change the beneficiary, which
happens when we sell a beneficial interest,
then the exception to the Garn-St. Germain
doesn't apply anymore.
The mortgage company triggers the due on sale clause.
So if you're doing your estate planning,
don't worry about the mortgage.
Oh, by the way, you still have to pay the mortgage.
But if you're trying to get around the due on sale clause,
the trust isn't the way to do it because of the Garn-St. Germain
Act.
So use the trust.
Use it for probate avoidance.
Transfer the property into the trust.
You're fine.
Federal law says no calling the due on sale clause,
and no affect to taxes.
Now you may have to notify the state that you've
made the change so that they don't automatically
trigger a tax change, for example proposition 13
in California.
But technically, they can't trigger any tax aspect,
call the due on sale clause, when you move your property
into the standard living revocable trust
that you use for estate planning.