Way back around 1980 when interest rates were climbing, mortgage companies wanted to make sure they got in on the action instead of being tied into 30-year mortgages at the lower, previous rates. Wouldn't it be nicer for them
if they could ensure that if any property was transferred, any remaining debt would have to be refinanced at the current higher rate?
Thus was born the due-on-sale clause. The Garn-St. Germain Act of 1982 made the enforceability of the due-on-sale clause a federal issue. Lenders do not have to include a due-on-sale clause, but nearly all do. The lender has the right, but not the obligation, to call their note due when the property sells or transfers from one owner to
another.
Historically, the due-on-sale clause has rarely been called. This is because interest rates dropped lower and lower in the decades since the law was passed. Why ask a new owner to refinance if the new rate will be even less favorable to the lender?
Now there is no place left for interest rates to go except up. They have held pretty steady for the last few years, but are poised to grow. And when they do, you can bet that
due-on-sale clauses will come in mighty handy for the lenders.
Luckily, the Garn-St. Germain Act provides exceptions to the clause, one of which is transferring your ownership into your living revocable trust. See my article at
http://www.llcwizard.com/watch-out-due-on-sale-clause for information on how this affects your business and my
video on how to use the exceptions of the clause for estate planning purposes.
Lee PhillipsP.S. Many more
issues like this that affect your estate and business will be covered in our Boot Camp this March 9 and 10.
Register here now! 
