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Harlan Florence

Real Estate Closing Attorneys in Atlanta, Georgia

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Will a land trust help me avoid the due-on-sale clause?

Probably not. While the Garn-St. Germain Act does state that the transfer of a property into a trust, in very limited circumstances, cannot be used to can’t a mortgage’s due-on-sale clause, the truth is that this exemption does not apply to most investor transactions. Subject-to investors should always be aware of the due-on-sale clause and be prepared in case a loan is ever called due.

So why won’t a trust help? Well, the Garn St. Germain Act says that “a transfer into an inter vivoa lender may not exercise its option pursuant to a due-on-sale clause upon … a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property[.]” So, if the property is placed into trust, and the beneficial interest is assigned from the borrower to anyone else, then the Garn St. Germain Act doesn’t apply. Or: if occupancy changes after closing, then the Garn St. Germain Act doesn’t apply. And if the Garn St. Germain Act doesn’t apply, then the lender can call the loan due. It’s as simple as that.

There are times where a trust does serve a legitimate investment purpose. For those times, we recommend Freeport Title and Guaranty.

Harlan Florence is an Atlanta-based boutique law firm that believes there’s a better way to handle your real estate closing. We’d love to work with you. Contact us today, and let’s see what we can do together.

Photo by Possessed Photography on Unsplash

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Harlan Florence, Attorneys at Law. 5775 Glenridge Drive, Building B, Suite 550, Atlanta, Georgia 30328.
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