Deeding Your Home To An Asset Protection Trust: Due-On-Sale Clause Lies

Recently we’ve heard a lot of rumbling from clients about banks that are just plain uncooperative and unwilling to adhere to any measure of reason with respect to asset protection trusts.  Specifically, it seems that banks are succeeding at scaring people who want to refinance their homes.  The typical situation goes something like this:

A client holds her home in an asset protection trust and decides to refinance it.  The bank, however, has other plans.  The bank offers to refinance the home but only if the trust is amended to erode all of its asset protection features, rendering the trust totally useless.  But our clients are savvy, so they propose to remove the home from the asset protection trust and then refinance it.  Only one problem with that plan, as the bank usually proceeds to scare the bejesus out of the client by stating that if the home is ever deeded back to the trust, the due-on-sale clause will be triggered.  Effectively, that means that the bank can call the entire principal due on the loan.

It’s usually at this point that we get a call from the client asking for help, which is unfortunate since the bank is simply acting nonsensically.  Financing a home held in an asset protection trust does not impair the bank’s rights and security interest in the home at all!  It simply keeps your other creditors away from the home.  In short, the bank is massively wasting everyone’s time.

Federal Law Supports Asset Protection Trusts

For once, the solution to the due-on-sale clause threat can be found in federal law.  Specifically, the Garn St. Germain Act, which states that a due-on-sale clause cannot be triggered upon a transfer of property “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.”  In other words, it would be unlawful for a lender to carry out the threat of triggering a due-on-sale clause if you deed your property into an asset protection trust created for you by Lodmell & Lodmell.

What You Should Do

All this boils down to a simple set of steps you can take if you want to refinance your home that’s held in trust.

1. Deed the home from your trust to your personal name.
2. Refinance the home.
3. Deed the home back to your trust, regardless of whether the bank tried to scare you with a due-on-sale clause scenario.
4. If the bank does try to accelerate your loan, pass your bank a copy of the Garn St. Germain Act.