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by Bill J. Gatten

One can have a seller carry an entire non-assumable loan without needing to fear, or even be concerned with, a DOS Violation.  To do so, one need merely place the property into a co-beneficiary land trust in the mortgagor's (seller's) own name and take a partial Beneficiary Interest in it.  The trust would then be set to run for some specified period of time, with the understanding that, at the end of that period the seller's interest will be forfeited to the "buyer."  Such forfeiture merely needs to be in consideration of some future act by the buyer (e.g., prompt payments; strict adherence to contract terms; a share in appreciation or overall profit; etc.).

The Dreaded Due-on-Sale Clause doesn't always say what we or our attorneys THINK it does, irrespective of whether a lender's exercising its rights under a DOS clause are "real," "false" or indifferent. What it says is UNLESS PROHIBITED BY LAW, the lender has a right to foreclose, if ...".

Well...make no mistakes about it!  It IS prohibited by law.  The law (Garn St. Germain Act) prohibits a lender from taking exception to a borrower's placing its property into its own Living Trust (such as a Title-Holding Land Trust) and creating what is tantamount to a legally shielded WRAP (AITD).  This is accomplished by the seller's merely naming you (the buyer) as the Remainder Agent or a Co-Beneficiary in that trust.  For maximum safety, at least 10% of the trust's Beneficiary Interest and 50% of the beneficiary’s Power of Direction should be retained by the seller, with an agreement to forfeit it to you upon disposition of the property at the trust's termination.  Although note that that 50 Power of Direction can be given to the other beneficiary by means of a revocable, limited, Power of Attorney.

When calling on someone whom you want to carry the loan for you: if you really want to be assured of 'getting the Deal,' make it sound so good for the seller that he can't refuse.  Suggest to him that for his own safety and peace of mind, you'll pay to put the property into a neutral trust in HIS OWN NAME, and that he needn't ever transfer the property’s title to you…until you've proven yourself by selling the property and paying off his loan, or refinancing it in your own name.  Explain that you'll consent to merely becoming  a co-beneficiary in HIS trust until his loan is retired in, say, 6 months (or 3, 4 or 5 years…or more). 

Note that this arrangement (called a "NARS PAC Trust") gives you, as the buyer, 100% of the tax write-off; 100% of the Use, Occupancy, Possession; 100% of the Equity Build-Up (principal Reduction); full rights to all rents; and other profits upon the sale or other disposition of the property.  As well, you also have any and all other rights ordinarily available under the so-called "Bundle of Rights" in any form of Fee-Simple Real Estate ownership. 

In a PAC Trust, the seller never has to take any chances with you; and you don't have to take any chances with the seller.  The property is protected from liens, suits judgments, divorce actions or claims, bankruptcies or anything else you can think of…on both sides…including state and/or IRS tax liens.  And the Due-on-Sale Clause becomes pretty much a non-issue in that the properties not being sold; the title is not being transferred (other than to the borrower’s trust);  the is no consideration for purchase; and that which is being transferred (beneficiary) interest is personal property, and not real estate (not the security for the lender’s financing arrangement).