BooBoo,
I think I understand your confusion. We are talking about two different things. The first is Federal Law, the Garn -St. Germain Act of 1982, passed by Congress, which states that a lender cannot exercise its Due on Sale Clause against: (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; " It is legal and protected.
With a land trust, ownership becomes a private matter. County records will reflect your Trustee as the titleholder in a trust capacity. Privacy and anonymity are among the most important aspects of a Land Trust. No one can tell from the public record who the Beneficiary(s) are, except the Beneficiary(s), and the Trustee. When the title of the property is searched, all that is found out is the property is owned by a Land Trust, no one knows the Beneficiary(s) name.
The use of a “Land Trust” as a method of concealing ownership of property has gained enormous popularity. Professionals such as Physicians, Real Estate Brokers and commodity traders for instance, often establish a land trust to help protect themselves from financial liabilities inherent to their professions.The real estate entrepreneurial community has latched on to the land trust as a creative method to convey interests in property without awakening the institutional “sleeping giant” - the “due on sale” clause contained in almost all Trust Deeds and Mortgages held by Federal and State Chartered Banks. This opportunity exists when sellers of real estate are willing to remain on the existing loan and allow another party to assume all of the costs and tax benefits of the mortgage.
EXAMPLE:
So, for example, You place your property in the BooBoo Trust and name John Locke as your Trustee. You have established your trust legally. Your trustee now holds the deed to your property. There has been no transfer of occupancy rights.
Tony D bops along and takes over your 1st mortgage “subject to” according to the terms of a Triple net lease. You assign him a beneficiary interest making him an owner of the trust as well. You both own personal property, not realty. You have now transferred occupancy rights and assigned a beneficial interest in the trust. You look over your loan papers. There is a Due on Sale Clause. Remember, a DOSC is NOT law. It was NEVER passed by anyone. It is simply words on a contract listing the terms and conditions under which your lender WOULD LIKE to call your loan IF he is allowed to do so by law (WHICH HE IS NOT).
Read your Due on Sale Clause. It will say that transferring rights of occupancy or beneficial interests is a violation of the clause. That is why you thought we are in violation. However, it also says they will call in the loan UNLESS PROHIBITED BY APPLICABLE LAW and they are. That is where you are protected. This clause is meaningless because the lender CANNOT call the loan due to the protection provided under Garn-St. Germain.
Please understand that violating a lender’s due-on-sale clause is NEVER against the law. A violation of the DOSC merely compromises the lenders wishes and can result in termination of the mortgage and foreclosure on their security. In the event of such action, it would be sanctioned and fully supported by law EXCEPT under certain circumstances, one being the placement of the property into an inter-vivos trust (such as in the land trust). It 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.
This has been tried and tested for many years. Hope this clarifies it for you.