Land Trusts - Posted by Angela

Posted by Angela on March 17, 2005 at 08:09:17:

Hi, Bill:

The seller was motivated in that she got a job transfer shortly have she bought this property. She leased it to me and I had the right to sublease to a tenant buyer. Well, the first tenants in the house gave me so many problems with paying the rent even though their references were good. I had to evict them right before the holidays. I tried to make the payments even though the house was vacant. So the payments got behind by a month. I put a family in the house in February and then sent in the payments to bring the loan up to date. Meanwhile, the lender found out the property was in a trust and called the loan due.

My attorney is trying to work something out with them. I can’t believe a lender would force a foreclosure when someone is willing to make the payments.


Land Trusts - Posted by Angela

Posted by Angela on March 16, 2005 at 09:58:39:

Has anyone ever had a lender call a loan due because it was in a trust? On this lease option deal, SunTrust Mortgage found out that the property was in a land trust and called the loan due. The payments got behind behind by about a month due to difficult tenants. However, all the payments have been sent to bring the loan current. But now they won’t accept the payments because the property was in a trust for the benefit of the seller. I’m just sick about this. I’m trying to help the seller not go into foreclosure. Any suggestions?

Re: Land Trusts - Posted by John Merchant

Posted by John Merchant on March 16, 2005 at 12:54:41:

While the mtg co. might not have had a valid reason to foreclose, since they’re doing so, you’ve now a limited number of options to head off the foreclosure.

Refi, or file suit to enjoin the foreclosure, or file a bankruptcy procedure to stall it.

Of the 3, really only the first is a real option, as the injunction suit would be quite expensive and the BK filing would only stall the foreclosure for a month or two.

If your credit is still fair to decent you should have little problem refi’ing with a new loan, even though the RE is titled in the trust. You’ll have to sign as personal guarantor/borrower of course.

Re: Land Trusts - Posted by Thomas K. Standen

Posted by Thomas K. Standen on March 16, 2005 at 12:25:38:


Take a look at the language in the Garn St. Germain act.

You will see that the borrower may place the property into a trust, and as long as they maintain a benefical interest in the trust it is a bar to the lender calling the loan due.

I have found over the years when you have a question concerning the right, obligations, and duties of lenders, it is always appropriate to take a look at the statute concerning the issue.

I have listed the section from the due on sale section of the Code (Garn St. Germain Act) below. You will find the section concerning trusts, and it is clear from the reading of the section, that if the owner of the trust kept a beneficial interest in the trust when it was transferred, then the loan cannot be called due. However, if the owner of the trust did not do so, then the loan can be called due.

United States Code
Sec. 1701j-3. Preemption of due-on-sale prohibitions

With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon -

(1) the creation of a lien or other encumbrance subordinate to
the lender’s security instrument which does not relate to a
transfer of rights of occupancy in the property;

(2) the creation of a purchase money security interest for
household appliances;

(3) a transfer by devise, descent, or operation of law on the
death of a joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less
not containing an option to purchase;

(5) a transfer to a relative resulting from the death of a

(6) a transfer where the spouse or children of the borrower
become an owner of the property;

(7) a transfer resulting from a decree of a dissolution of
marriage, legal separation agreement, or from an incidental
property settlement agreement, by which the spouse of the
borrower becomes an owner of the property;

(8) 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; or

(9) any other transfer or disposition described in regulations
prescribed by the Federal Home Loan Bank Board.

Hopefully this will be of assistance to you and others that may have the same problem.

Thomas K. Standen

North American Loan Servicing

Re: Land Trusts - Posted by Angela

Posted by Angela on March 16, 2005 at 13:24:18:

Thomas –

Thanks for the advice. However, the lender is stating that because the seller moved from the property, she is in violation of the due on sale clause, even though the property is titled in a land trust for her benefit. It is surprising to me that a lender will not just take the payments to reinstate the loan instead of forcing a foreclosure. The seller is considering refinancing this loan with SunTrust with another lender. Also, do you think the lender would agree to a short sale since the loan is in default?

Re: Land Trusts - Posted by WAREIA

Posted by WAREIA on March 17, 2005 at 08:04:57:

SunTrust is not calling the loan due because it was placed in Land Trust. They are calling it due because of a late payment or for the reason below. Depending on where you are located, if you pay up all the arrearages they cannot call the note due just because you placed the property into a Land Trust even if the owner does not reside in the property.

Garn St. Germain says that the note can’t be called due if… the owner remains “a” beneficiary and the “Trust” does not transfer the rights of occupancy, does not include a lease of more than three years and does not include an option to purchase.

If the Trust transferred the right to occupy or the Trust has given a resident an option to buy the property then your screwed. You must name the resident “a” beneficiary. If the “private” beneficiary agreement names a co-remainder agent or beneficiary with the right to purchase not an option and that resides in and is responsible for the property you may have a case.

I suspect, based on what you have said, that it may be too late.

Re: Land Trusts - Posted by Bill H

Posted by Bill H on March 16, 2005 at 20:53:14:

Angela, looks to me like the lender is just proteting thier position. Yes, if the owner moved out and it was an “Owner-Occupied” loan then she is in violation. Then, now you add that the loan is in default. How much and how long. Is there more to this?

Good Luck,
Bill H