I plan on co-owning a rental property. Soon after closing, the plan is to transfer the title to an LLC for some liability protection and our lender has assured us that the due on transfer clause won't take effect. In fact, he says in 18 years of lending he's never seen a due on transfer clause trigger for anyone.

So what are the kinds of things that actually would trigger the due on transfer? Everything I've Googled talks about how rare it is but not what would actually cause it.

  • Isn't the triggering of the clause a prerogative of the Lender? I don't think it is automatic. – Mindwin May 5 '16 at 15:33
  • Why not just have the LLC buy the property? From what I understand that is preferable. – Pete B. May 5 '16 at 18:58
  • @PeteBelford because noone will lend money to the LLC – littleadv May 6 '16 at 1:28

The fact that they "never saw" it happening doesn't mean it cannot happen. Transferring ownership to a LLC is transferring to a different legal entity (as opposed, for example, to putting your property into a living trust). Thus it is in fact a valid trigger to call on the loan for lenders. Whether they actually do it or not is up to them, but I wouldn't rely on one clerk claiming he never saw it happening.

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