Real estate that guarantees a loan is very likely to have a “maturity on sale” clause. The expiration-on-sale clause allows the bank or financial institution to cancel the promissory note each time the property is sold. A call on the promissory note causes the entire loan balance to be due and payable immediately.

A transfer to a trust with a trust transfer deed is considered a sale by the banks. A transfer of ownership of a property between family members is considered a sale. A transfer of a person’s name to a business entity, such as a limited liability company or a corporation owned by the same person, is considered a sale. In any of these real estate transfers, the transfer is treated as a sale by the financial institution or bank and the loan balance becomes due and payable immediately. There is an exception, real estate trust transfers from one to four family residential properties or single family homes.

Trust transfers of one- to four-family properties or single-family homes are protected from the “maturity on sale” clause by the Garn-St Germain Depository Institutions Act (“the Act”). The Law prevents a lender from exercising its expiration clause on the sale following a transfer to an inter vivos trust in which the borrower is and remains a beneficiary and which is not related to a transfer of occupancy rights to the property.

Commercial real estate, apartment buildings, and land are not protected by law. Any trust transfer of non-residential real estate, commercial property, apartments, or land secured by a loan is considered a sale by the banks. The “expiration on sale” clause goes into effect. To prevent the lender from exercising its right to exercise the “maturity on sale” clause, the owner must obtain written permission from the lender before transferring the real property to the trust.

Investment real estate owners often create a limited liability company, corporation, or other business entity to protect themselves from liability from legal creditors, “slip and fall lawsuits,” and tenants. To maximize the protection of a business entity, the owner transfers the investment real estate to the business entity so that the business entity owns the real estate. The owner of the business entity retains ownership by owning the business that owns the real estate.

Even transfers from an owner as an individual to a corporation or limited liability company owned by the same person are considered sales by banks and the expiration clause on sale goes into effect. To avoid this potential problem, the owner must obtain permission from the bank before the transfer. If the bank does not approve, the owner must decide to keep the property as an individual or seek to refinance the loan with the loan in the name of the business entity.

Parents often consider transferring their home, single family residence, or real estate to their children to avoid probate. The parent adds the child as a joint tenant or makes a direct transfer. A transfer of ownership or the incorporation of a co-tenant may invoke the expiration clause for sale. Joint tenure has more problems than the simple expiration clause.

Joint tenancy is when two or more people own real property and can own the property as joint tenants. When a co-owner dies, his property disappears. The survivor is automatically the sole owner. The lure of joint tenancy is a low-cost approach to estate planning. For the price of a transfer deed, the parent can add a child to the title and the succession plan is done without incurring attorney fees or the use of complicated forms like a trust.

Joint tenancy can be an estate plan for almost no cost. But it is an estate plan that could have unintended consequences. A child is added to the title. Now the creditors and the child’s spouse have an interest in the property. If the child incurs debt, the house can be used to satisfy creditors. If the co-owners divorce, the spouse can claim an ownership interest in the home.

There are also tax consequences. Adding someone other than a spouse to the title is a taxable gift to the fair market value of the home. In California and other states, the county assessor’s office will consider the addition a transfer that could increase the property tax base on the home and could increase property taxes.

Finally, by adding a child in the title, the owner gives up control. In the future, the father will need his son’s permission and cooperation to borrow, improve, or sell the house. If the co-owner son is uncooperative, unavailable, or incapacitated, the father has lost control of the use of the home.

Need help transferring title to your real estate? Deed and Record provides an easy, professional and low cost title transfer service. Deed and Record offers three ways to order: online, by email, or by phone.

Go to our website, http://www.DeedAndRecord.com. Email requests to [email protected]. Call 949-474-0961 to request applications