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#2245510 - 11/13/20 08:57 PM Irrevocable Trust Transfer Question
ComplyCycle Offline
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ComplyCycle
Joined: Dec 2014
Posts: 388
A borrower wants to transfer a recently closed property into an irrevocable trust. We do not allow property to be held in an irrevocable trust and informed the borrower that we would call the loan due and payable (as allowed in our note) if this transfer to the irrevocable trust occurred.

However, the borrower hired an attorney and the attorney is citing a 1982 law (Garn-St. Germain Depository Institutions Act) which states, "A lender may not exercise its option pursuant to a due-on-sale clause upon…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…". I had never heard of this Act until recently.

This Act seems to state we cannot call a loan due and payable if the property is transferred into a trust. How do I reconcile what seems to be conflicting information? On one hand, the note says we can call the loan due and payable if the property is transferred into an irrevocable trust yet this 1982 law seems to state otherwise.

Thank you.

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#2245512 - 11/13/20 09:18 PM Re: Irrevocable Trust Transfer Question ComplyCycle
osucpa Offline
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Posts: 1,400
The easiest way is to get the Bank's legal counsel involved. Customer attorneys get very creative with various laws they cite for their clients.

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#2245515 - 11/13/20 09:39 PM Re: Irrevocable Trust Transfer Question ComplyCycle
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 78,965
Galveston, TX
Well, the attorney is correct, but bank legal counsel should review the trust to make sure it falls within the "inter vivos" definition found in the Garn-St. Germain Act.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2245518 - 11/13/20 09:49 PM Re: Irrevocable Trust Transfer Question ComplyCycle
ComplyCycle Offline
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ComplyCycle
Joined: Dec 2014
Posts: 388
Thank you both. Are you stating that we may be forced to allow a transfer into an irrevocable trust if it is an inter vivos irrevocable trust?

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#2245522 - 11/13/20 10:13 PM Re: Irrevocable Trust Transfer Question ComplyCycle
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 78,965
Galveston, TX
If it qualifies under the Act - you cannot invoke a due on sales clause or you are going to get sued big time.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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