Exemption from Lender's Due on Sale Clause

The Due-on-Sale Clause is a clause in a promissory note or deed of trust calling for automatic maturity with full balance due, and payoff of the loan in the event of a sale or transfer of title to real property. There is a DOSC in almost all mortgage contracts.

What the Law Says:

LAND TRUSTS ARE EXEMPT FROM THE DUE ON SALE CLAUSE

A sale of beneficiary interest in a land trust is a private, anonymous, and unrecorded transfer of a personal property interest in a non-personal entity (i.e., is it 'not a sale of real property [i.e., the lender’s security].) Neither does such transfer of Personalty vest the property’s legal or equitable title interest in the beneficiaries. Nor is a mortgagee’s security interest in the property impaired in the process. (re: 103 Ill. App 3d. 174. 430 N.E.2d 708 (2d Dist.) 1981 Wachta v. 1st Fed. and Damen v. Heritage Bank respectively; Williams v. 1st Fed. S&L, Arlington, Va., #80-308A, 6/17/80, Etal.)

•Note, as well, that neither is the letting (leasing-out) of the property to a co-beneficiary of the trust a compromise of the lender’s security interest under the US Code §1701-j-3 (see Garn-St. Germain/ FDIRA 1982).

Placement of real-estate into a living trust (i.e., a land trust) in which the borrower requests no release of liability and retains full directive powers [as trustee or as "directing-beneficiary"] does not trigger a “Due on Sale Clause” action, providing that:

A) the trust is revocable by the borrower;

B) the trust is in the borrower’s name;

C) the borrower is and remains a beneficiary, and

D) the trust itself conveys no rights of occupancy.

• Pub. “Using California Trusts, Planning, Implementing Administering and Terminating,” Cont. Ed. of the Bar, CA. ©1991 Regents - U of Ca.
• Barnet Resnick, “Is There Such a Thing as a California land trust?” LA Bar Bul. 4/73, pp 216-228 Bentley Mooney Jr., Esq., Preserving your Wealth [68-112];
• H. Kenoe on land trusts, etc.

THE TRUST IS NOT REAL ESTATE, IT IS PERSONAL PRIVATE PROPERTY. THE DOCTRINE OF EQUITABLE CONVERSION IS HOW THIS IS ACCOMPLISHED. THAT'S WHY ALL DOCUMENTS CREATED WITHIN THE TRUST REMAIN LEGALLY UNRECORDED, THEY ARE PRIVATE PROPERTY AND YOU CAN BE PROTECTED, EVEN FROM THE IRS. YOU WOULDN'T WANT TO GIVE AWAY ANY MORE RIGHTS OF PRIVACY WOULD YOU? THE SMALL INVESTOR CAN DO VERY WELL DOING WHAT THE WEALTHY DO. IT'S ALWAYS LEGAL.

Once your Trustee takes title, he owns the real property. You own a beneficiary interest in a trust which is categorized by the IRS as securities and listed under stocks and bonds.

MORTGAGE LAW VS. U.C.C. REGULATION (ART. #9)

“Mortgage law" would rarely, if ever, govern a security interest in a beneficiary’s land trust interest.

• Eric T. Freyfogle, “Land Trusts and the Decline of Mortgage Law," University of Illinois Law Review, Vol. 1988, p. 76-99, spec. referring to: “Horney v. Hayes [1957] and its Progeny” (See “Personal Property” below).

IN OTHER WORDS, MORTGAGE LAW NO LONGER APPLIES -- THE TRUST IS PERSONAL PROPERTY COVERED UNDER THE UNIFORM COMMERCIAL CODE.

The Uniform Commercial Code, adopted by all 50 states, characterizes interest in an Illinois-type land trust as Personal Property. However, for federal income tax purposes, the beneficiary/ies of land trusts are treated as if they owners of real estate. Because local laws view a land trust’s beneficiary interest as personal property rather than real property (except in Louisiana and Tennessee who treat such beneficiary interest as realty), it is UCC regulation (i.e., Article #9), rather than mortgage law, which governs the interest of the parties.

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