Transferring Property Ownership without Activating the Due-on-Sale Clause

In this episode of Coffee with Carl, attorney Carl Zoellner explains how the differences between titled ownership and liens work when it comes to transferring ownership of a property to your entity structure.

Updated December 1, 2020

Frequently, investors approach me with questions about transferring ownership of a property to another owner or entity, such as a land trust or LLC, when there is a mortgage on the property. What we’re getting at here is titled ownership versus lien interest, and there are a few things you’ll want to keep in mind in this regard.

First, let’s say I purchased an investment property in my own name with financing tied to me personally. Then, I want to transfer ownership of that property to an LLC. One question that always arises is, “What about the due-on-sale clause?” or, “What if the lender accelerates the note?” So, let’s look at the steps to this process.

From a big-picture, simple overview, titled ownership involves whose name is on the property. If I buy a property individually and my name is on title, but I use leverage, then there is also a lien on that property. The lien secures the lender’s interest. So, even if the owner’s name on title changes from myself to another person, or from myself to an LLC, the lien remains affixed to the property itself.

Many people often get concerned at this point and want to list their LLC on their mortgages or inform their lenders. This is not really necessary because the lender is just as protected as they ever were. The lien is still affixed to that property. There is no taxable event from a sale perspective, and the lender’s interests remain protected. It’s an entity owned and controlled by you, so as long as your mortgage is current, in most cases, I have not seen this become an issue.

While transferring a property into an entity (such as an LLC or land trust) changes titled ownership (the owner who appears on title), nothing about the lien changes.

If you’d like to discuss the best entity options for your individual situation, schedule a complimentary Strategy Session today. On the call, you and a Senior Advisor will go over your unique facts and circumstances to build out the best asset protection and tax reduction entity structure for you. You can schedule online or by calling 888.871.8535.


Watch as Carl explains the differences between titled ownership and liens and their ramifications regarding transferring the title of a property to a different owner or entity.


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