All Foreclosure My Theory on How to Avoid Triggering Due-on- Sale Clause

Posted by Darryl-CA on August 16, 2004 at 22:54:12:

Has any investor ever had a borrower transfer property into a Title Holding Trust (THT) without he/she or they (some or all parties to the transaction) triggering the Due on Sale Clause? It’s very simple to avoid detection by the lender of an act that triggers it, but how many of us can avoid triggering it altogether?

Even though it is really a “Due on transfer of any interest in the borrower or collateral for the loan clause”, I believe it is possible to transfer the property and disclose the transfer to the lender and not trigger it.

This is how it works.

1. In consideration of the monies the borrower is about to receive from you the investor per the Equity Purchase Agreement, with your help have the borrower create and then irrevocably transfer the property into a (THT) whereby the borrower is the beneficiary and you the investor is the trustee.2. Have the borrower/beneficiary irrevocably grant you the investor/trustee without restriction, exclusive power and authority to convey, sell, dispose of, and receive the proceeds, tax write-offs, depreciation and avails thereof, to manage, control, repair, alter, mortgage, encumber, make, execute, acknowledge and deliver all deeds, releases, mortgages, leases, contracts, agreements, instruments, assignments, and other obligations whatsoever nature relating to the trust property, and generally to have full power of attorney to do all things and perform all acts necessary to make the instruments proper and legal.3. Have the borrower/beneficiary irrevocably waive his/her or their right or power to remove you the investor from your position as trustee as well as his/her or their right or power to appoint a co-trustee, protector trustee or successor trustee.4. Prepare then encumber the trust property with a junior trust deed in an amount equal to the current equity and anticipated appreciation, whereby you the trustee of the THT are the trustor, the pre-printed title company is the trustee and your THT are the beneficiary. I want to clarify that “your THT” means a second THT, which you created, appointed a trustee and are the beneficiary of.5. Have the borrower/beneficiary sign a waiver whereby he/she or they in consideration of monies he/she or they are about to receive irrevocably abandons any present and/or future right to occupy, rent or lease or cause another to occupy, rent, or lease the trust property.

As you can see in my example, there was a transfer of property into an inter vivos trust (THT, living trust etc.) in which the borrower remained the beneficiary and which does not relate to a transfer of rights of occupancy in the property but rather an abandonment of those rights. Also you the beneficiary of the second THT which holds beneficial interest in the junior trust deed, has the power to foreclose if the borrower decides they want to re-take possession prior to you disposing of the property. All the while you the beneficiary of the second THT remain anonymous and never receives any ownership interest in the real property.

It is my theory that these steps will provide the exemption offered by Section 1701j-3(d) 8 of the U.S Code.



Follow Ups: Comments: