getting around the due on sale clause

What are the opinions of more experienced investors about this article which discusses methods of by passing the due on sale clause(DOSC). Here’s the link:

Thanks for any comments and/or suggestions. It would appear a NARS PACTrust really does not avoid a DOSC according to the author. I’m a newbie seeking wisdom from the those who are in the trenches.

Read the discussions in these forums by Gary Mialocq about the NARS Landtrust…he gives a pretty detailed explanation.

Warning: Some of the discussions get a bit heated because several stubborn folks are poking each other in the eyes with sharp sticks.

Hint: use the search function!;action=search


John T. Reed is a joke. He makes his living attacking virtually every “guru” on the Internet with his “I do not recommend” comments and does not buy or sell real estate himself. He attacked Robert Kiyosaki, Robert Allen and even Bill Bronchik who disagrees with Reed on the DOSC. Russ Whitney sued him for his slanderous comments. He even “does not recommend” Success Magazine! Look him up on Google. In my humble opinion, he’s a real nutcase.

Since you brought up NARS, I will post the response to Reed by NARS Trust creator, Bill Gatten, a couple of years ago.

Understand that violating a lender’s due-on-sale clause is never against the law (i.e., DOSC = A lender’s warning that the property can be foreclosed upon and the loan called should it be sold or transferred without authorization). A violation of the DOSC merely compromises the lenders wishes and can result in termination of the mortgage and foreclosure on their security at the lender’s discretion. In the event of such action, it would be sanctioned and fully supported by law (FDIRA 1982/12USC1701-j-3) EXCEPT UNDER CERTAIN CIRCUMSTANCES, one being the placement of the property into an inter-vivos trust (such as in the land trust).

An analogy: It’s not against the law to talk during a movie: but with proper advance warning the theater owner is supported by law should he chose to eject you for doing so. In this regard is is important to clearly understand that placement of a mortgaged property into a land trust and leasing it out to an unrelated co-beneficiary is authorized (indirectly by non-prohibition) by law [the Garn-St. Germain Law]: FDIRA 1982/12USC1701-j-3.

The NARS Trust has been used successfully for 21 years without legal challenge. Every trust is reviewed by the legal staff before use. I hope this clarifies the issue for you.


Glad to meet you.

Russ Whitney did sue John T. Reed and if you look real close is seems Whitney settled with Reed as his slanderous remarks proved to be true and are still on Reed’s site.

So I would think if he said something about a course writer that was slanderous or untrue that course writer would sue Reed to retract his statements, this is called defending your position, otherwise a reader at Reed’s site would consider his opinion fact.

John $Cash$ Locke

To illustrate Mr. Reed’s methods, here is what he says about Lease Options:

"Lease options are explicitly named in numerous laws and legal documents as triggering events. They trigger almost all mortgage due-on-sale clauses. They trigger reassessment for property-tax purposes in California, thereby wiping out the protection California homeowners normally get from Proposition 13.

Another problem is the legal doctrine of substance over form. It is possible to do a lease option that is clean. But the various gurus advocate doing lease options in a way that arguably triggers the doctrine of substance over form.

That doctrine says that what you call something does not necessarily determine what the law will regard it to be. Calling a lease option a lease option does not mean the court will treat it as a lease option. In fact, I believe they will treat most guru-designed lease options as land-contract sales in substance. The legal implications of such a determination are amazing in their number and seriousness. You could have a tax-free exchange invalidated. You may find that you are unable to evict the tenant. IRS may say that all your lease options were installment sales and that you must pay overdue tax and penalties on them, tax that will be inflated by the typically inflated option prices.

The gurus are not interested in finding out what the law really is on lease-options. I have long urged them to obtain an IRS private letter ruling on the income-tax legality of their lease-option agreements. The cost of such letter rulings was just drastically lowered. But not a single lease-option guru has ever requested such a ruling, in spite of the fact that it would help his clients and help him market his material. The fact is they know what they advocate is probably illegal and they are afraid to get a ruling.

I cannot give you the whole picture here because I am in business to sell this information, not give it away. To get all the details on lease options, you should read my special report, which is only $29.95. Heck, given the astronomical prices they charge, the other lease-option gurus probably expect you to tip them more than that."

On his website, he has put the “I do not recommend” tag on virtually everyone he reviewed. His most positive comment is about Bill Bronchik in which he said “I don’t agree with him about the DOSC”.

What a scam artist. He is the Geraldo Rivera of the Internet. Who needs facts when you can scare the hell out of everyone about everything and get them to pay you to do it? $29.95 to learn about lease options when there are several experts on lease options on this very forum.

As to Cash’s comments that unless someone sued, the assertions were true, give me a break. Did he sue Charles Ashmore for his comments about him?

Has anyone here actually had a lender call the loan due because of title transfer? All of the reading I have done, and all of the people I have talked to…I have not heard of one being called. I’m sure it may have happened…but I haven’t heard of one.

Even with my limited knowledge, common sense tells me that with foreclosures going through the roof, lenders would be happy to have a loan being paid. The only common sense reason that I could see for them to call one do is if it had a lot of equity, which also would seem to be very unlikely.

I know as I proceed in my business, dealing with sub 2 deals…the due on sale clause won’t enter my mind, for the above reasons.

If someone knows of a loan being called due, either personally, or someone you know, I would be interested to hear about it.

Regards, Tony

I have a horror story from Colorado. You may have heard me say in other posts that some lenders seem to want to be in the REO business, especially in a hot, high appreciation market like Co. In stagnant markets, the banks typically don’t want to own, they’re much more likely to work out forebearance arrangements…anything to prevent the house coming back to them.
Anyways, one of my company’s clients changed his mind at the 11th hour that he was not going to OO the home and had a Lease Option arrangement for positive cash flow and a nice back end profit. Despite his Loan Officer’s insistence of full disclosure, he took the OO financing. Thank God she got a Release from Liability from the client. WAMU (I believe it was) did a follow up inspection about 6 weeks after close to ensure the owner was indeed living there. He wasn’t. The DOS was invoked by the lender and called due in 45 days. Lawsuit’s still raging.


This was not a Subject To deal, this was loan fraud from someone purchasing a property and saying they were going to live in it and then Lease Optioned it out.

Big difference…

John $Cash$ Locke

I agree, it was loan fraud. However, the lender’s argument is that they have the right to call the loan due based on the Lease/Option and the resulting DOS violation. So, it really was a Sub2. Again, I believe that had this occurred in Podunk, Nebraska the lender really wouldn’t have cared. They probably would have just charged a higher rate from the onset based on the NOO status.


remember, one must remove the lplank from one’s own eye before complaining about the speck in another’s. :slight_smile:


In the state of Michigan, any agreement you enter into with a seller in which you take subject to the existing mortgage must have specific notifications given to the seller however the wording may vary. I would think this is to prevent the buyer form intentionally/unintentionally defrauding the seller. Also the buyer may not tell the seller that they should not tell their mortgage company.

So what should a buyer explain to the seller about the DOS when they ask about the loan being called due?

445.1627 Contract for sale or transfer of residential property subject to mortgage; provisions in boldface type.
Sec. 7.
Each contract for the sale or transfer of residential property which is subject to a mortgage shall provide in boldface type substantially as follows:
“Seller understands that consummation of the sale or transfer of the property described in this agreement shall not relieve the seller of any liability that seller may have under the mortgage(s) to which the property is subject, unless otherwise agreed to by the lender or required by law or regulation.”

History: 1984, Act 351, Eff. Oct. 15, 1985

We do many NARS land trusts in Michigan. In fact, I am working with a builder who plans to do hundreds of them. The key to your statement is " Each contract for the SALE OR TRANSFER of residential property which is subject to a mortgage shall provide …"

A trust is personalty (personal property), not real property. There is NO SALE OR TRANSFER of residential property in a land trust. Assigning beneficial interest after creation of the trust is an unrecorded event and has an added benefit, from a lenders standpoint, of a clean chain of title, avoiding any seasoning issues, assuming ther intent is to refi at some point. That is why the NARS Land Trust does not trigger the DOSC.

The Seller merely places it in a land trust as is his right under Federal Law which allows him to place it in trust and appoint a remainder agent. See the Garn-St.Germain Act of 1982.

For my own personal experience, I had my home in California in trust with a owner occupied loan from Countrywide. When I triple net leased it to my RB Tenant, I called the lender and notified him. He read the law and No problem and no DOSC violation.

After reading Dave’s post above about a subject 2 violating the DOSC in Colorado, it makes the land trust more attractive as a safe means of purchasing subject 2.

The following question is only for the sake of discussion…if a person owns a house, and has the deed in his name, has a mortgage…if he adds someone to the title, but still stays on it himself, does that trigger the due on sales clause? Thanks in advance for any answer.

I don’t think it would, but for educational purposes, I just want to know.

No, because the seller has not transeferred title.


I disagree, Keith. Adding another to the title lessens the owner’s interest and does transfer some percentage of title.

Typical “due-on-sale” language states that, “the Lender may, at its option, declare immediately due and payable all sums secured by the Mortgage upon the sale or transfer, without the Lender’s prior written consent, of all or any part of the Real Property, or any INTEREST in the Real Property.” A reading of the language shows that the term, “due-on-sale” is misleading. In fact, the mortgage may be called in if there is any transfer of ANY interest in the real estate, and not just a sale of the property.

Therefore, adding someone to the title is a transfer of interest, just not 100%

Some examples may show how far reaching the “due-on-sale” clause can be. The most obvious example is a land contract, also known as a Contract for Deed. Since a Contract for Deed passes equitable title to a potential buyer, such a contract is a violation of the “due-on-sale" clause, even though the seller retains legal title. This entitles the Lender to call in their mortgage and demand payment in full.

It is possible that even a long term Lease will allow the Lender to accelerate their mortgage, especially if the Lease contains an option to purchase. There is some case law indicating that any lease longer than three years will trigger the “due-on-sale” clause. But any Lease that contains an option to purchase will be sufficient to call in the loan if it contains an option to purchase the property, regardless of the length of the Lease.

For tax and probate purposes, some people transfer their property into a Land Trust, also know as a Living Trust. These Trusts do not trigger the “due-on-sale” clause, if the current owners are also the sole beneficiaries of the trust. However, if you transfer your home into a Land Trust with your children as beneficiaries, the Lender may call in the loan.

My source for this information is Secured Title Comnpany. Hope this helps.

You may be right, Gary but I think that this is even a lower likelihhod of call than any other transaction…


I agree, Keith. It is an uncommon occurrence when Lenders call loans due because of the DOSC. I was just trying to answer the question as to whether or not they had that option.

Witness, Gary I did read the Garn-St. Jermaine act. Ain’t Google wonderful?

(c)(1) In the case of a contract involving a real property loan which was made or assumed, including a transfer of the liened property subject to the real property loan, during the period beginning on the date a State adopted a constitutional provision or statute prohibiting the exercise of due-on-sale clauses, or the date on which the highest court of such State has rendered a decision (or if the highest court has not so decided, the date on which the next highest appellate court has rendered a decision resulting in a final judgment if such decision applies State-wide) prohibiting such exercise, and ending on the date of enactment of this section, the provisions of subsection (b) shall apply only in the case of a transfer which occurs on or after the expiration of 3 years after the date of enactment of this Act, except that–,

(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

This is the exclusion that all of the Trust people seem to quote. However it does say that the borrower must remain a beneficiary, so a trust for the purposes of transfer is in violation of the DOS. Yes I know, that if it is not recorded it does not trigger it. But my point is, if you use the trust and the seller decides it is a raw deal he can gripe about and apparently win in Michigan. That sets you up for a fraudulent transfer if you in turn sold it to someone else.

My question was, how does someone talk to a seller about the DOS without specifically telling them they might not want tell the Lender that they did indeed sell it. Don’t ask don’t tell I suppose. Another would be to tell them that there is no DOS jail as Bill Bronchick pointed out.

So why not just take it subto don’t worry about the DOS, don’t lie about it if asked, and be upstanding about your business affairs. I say let them know that the bank may call it due and that they can be considered to be required to tell about the transfer to the lender but inform them that it for the most part is never a worry if the payments are being made.

I was wondering what the specific language was one might use if put in that situation with a seller, without seeming to tell them not to do it.

For the record I am not worried about Subto and the DOS. Just the legalities of trying to hide it. And why hide it if what you are doing is honest and straight forward. It seems to me that is the essence of a trust, to “HIDE” as it were. If you were worried about your assets, put it into a couple of corporations, LLC’s, and trusts so that you have some protected venues. At least secure your own personal assets in a trust.

Gary, you wrote

"For tax and probate purposes, some people transfer their property into a Land Trust, also know as a Living Trust. These Trusts do not trigger the “due-on-sale” clause, if the current owners are also the sole beneficiaries of the trust. However, if you transfer your home into a Land Trust with your children as beneficiaries, the Lender may call in the loan. "

These to are also an exception, even if you put it into a trust.
Witness: These sections just before the one about Land Trusts.

(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;

Assuming the people could be proven to be law heirs. Also my Mother has a trust. She is the trustee, and the beneficiary. But in that trust it names her successor trustee. Which is me. The trust dissolves when I dispense with her assets and I have a POA. Neither of which trigger the DOS.

Gary and Keith, thanks for the answers. I was just wondering if they had the right to call the loan due. I am not one who is too concerned about the due on sale clause…I just wanted to know. Thanks again.

Gary, what is the simplest way to describe the different between a regular land trust and a NARS land trust? Thanks in advance.