“Being sued for fraudulent conveyance”? This is a bankruptcy-related
claim when someone transfers assets to defraud a creditor. At least
one court decision has declared that a buyer on a sub2 transfer cannot
be sued by the bank for fraud:
The investor may have been named as a matter of course in a
foreclosure action because they are a necessary party to the action
(because they have title), but a bank has no cause of action against a
buyer who takes sub2.
As for lenders calling the due on sale for a transfer to a land trust, I’ve
seen a few lenders balk when you ask them for permission, but never
seen them actually foreclose. “Don’t ask, don’t tell” is the best course
of action, since there’s no action for misrepresentation if you don’t ever
make any representation.
Posted by Rachel on December 01, 2004 at 11:23:41:
I know a good deal about land trusts. I’m an investor in Atlanta, GA and have been using them for years. I was trying to tell a friend of mine about the law Congress passed preventing banks from calling the loan due when a property is placed into a land trust for estate planning purposes. (This sounds silly, but) I know how say it, but not how to spell it. To me, it sounds like the “Garner St Jermaine Federal Institutions Act of 1982”. I know I have some of the wording incorrect, and would like to know the correct terminology for both spelling and speaking.
this is a question that I know many investors ponder.
I have taken many properties subject to…never had any problems…
Recently though, my associates have had the due on sale clause exercised, (and there was not one late payment or one penny of tax being owed…there was nothing in the way of finances being late on these properties)…Also, they are being sued by the lender for “fradulent conveyance”…now this may pose a possible caveat to the way I have always ran my investing business.
I grabbed the phone and touched base with my RE attorney…she told me that yes…this is becoming quite a touchy area…she herself had just filed 3 demands on behalf of Bank of America this morning.
What gives?? What is happening out there??
Jim, have you ever had any problems…or have you heard of anyone who has had any repercussions from any lenders??
I have a property that was deeded to me…and I am ready to record the deed…my attorney is urging me NOT to do it the “old reliable” way…she would like me to call the bank and ask to legally assume the loan.
Otherwise, I may end up like my associates…being sued…do NOT want to go there!!
Posted by Bill H on December 01, 2004 at 21:28:53:
Be careful…land trusts do not protect you from the Due-on-sale clause.
Note para 8 of the other post…says "If beneficiary remains… and there is no transfer of occupancy rights…
The normal subject-2 deal violates both of the provisions when you transfer the benefical interest and the original owner moves out and someone else occupies the property.
Will it be called??? Probably not as long as the interest rates stay low and the payments are kept current.
However it can be called if the lender finds out and decides to play hardball.
? United States Code
o TITLE 12 - BANKS AND BANKING
? CHAPTER 13 - NATIONAL HOUSING
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 borrower;
(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.