Presenting a live 90-minute webinar with interactive Q&A Avoiding "Due on Transfer" Provisions in Trusts: Structuring Transfers to Avoid Triggering Acceleration Clauses A Real-World Guide to Garn-St. Germain Act Exemptions WEDNESDAY, MARCH 23, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Jay A. Lang, Partner, Wilk Auslander , New York Marc Selden, J.D., LL.M. (Taxation), Counsel, Wilk Auslander , New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted.
Tips for Optimal Quality FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-866-961-9091 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program. For CPE credits, attendees must participate until the end of the Q&A session and respond to five prompts during the program plus a single verification code. In addition, you must confirm your participation by completing and submitting an Attendance Affirmation/Evaluation after the webinar and include the final verification code on the Affirmation of Attendance portion of the form. For additional information about continuing education, call us at 1-800-926-7926 ext. 35.
Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: Click on the ^ symbol next to “Conference Materials” in the middle of the left - • hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon. •
Avoiding "Due on Transfer" Provisions in Trusts Presented by: Marc Selden, J.D., LL.M. Jay Lang, J.D. March 23, 2016
| TODAY’S SESSION Structuring Transfers Into Trusts to Avoid Triggering Due on Sale Clauses A Real-World Guide to the Garn- St. Germain Act Exemption 6
| AGENDA • What is a “Due on Sale” Clause? • Due on Sale Clause prior to Garn-St. Germain • Due on Sale Clause post Garn-St. Germain • STATUTE vs. REGULATIONS • Drafting Revocable living trust documents to hold encumbered real estate • Structuring the transfer to avoid the acceleration provision 7
| WHAT IS A DUE ON SALE CLAUSE? "Due-on-sale/due-on-transfer" provisions created to protect lenders’ interests 8
| DEFINITION Due on Sale Clause A contractual provision in a mortgage which allows a lender to demand that the borrower immediately repay the entire mortgage loan if the borrower transfers any interest in the mortgaged property without the lender’s consent. 9
| EXAMPLES Due on Sale Clause Residential Mortgage [NY Single Family – Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3033] Agreements about Lender’s Rights if the Property is 18. Sold or Transferred . Lender may require Immediate Payment in Full of all Sums Secured by this Security Instrument if all or any part of the Property, or if any right in the Property, is sold or transferred without Lender’s prior written permission. If Borrower is not a natural Person and a beneficial interest in Borrower is sold or transferred without Lender’s prior written permission, Lender also may require Immediate Payment in Full. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law. 10
| EXAMPLES Due on Sale Clause Residential Deed of Trust [California Single Family – Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3005] 18. Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18, “Interest in the Property” means any legal or beneficial interest in the Property, including, but not limited to, those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to a purchaser. If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law. 11
| EXAMPLES Commercial Mortgage Due on Sale Clause (a) Mortgagor shall not cause or permit, directly or indirectly: (i) any part of the Property or any interest in the Property, to be conveyed, transferred, assigned, encumbered, sold or otherwise disposed of or (ii) any change, transfer, assignment or conveyance of any interest in Mortgagor or in the partners, or stockholders, or members or beneficiaries of, Mortgagor or of any of Mortgagor’s Constituents, or (iii) any merger, reorganization, dissolution or other change in the ownership structure of Mortgagor or its manager (whether a managing member or non-member manager) (collectively, a “ Transfer ” or “ Transfers ”). (b) (b) The prohibitions on transfer shall not be applicable to Transfers (i) as a result of the death of a natural person; (ii) in connection with estate planning by a natural person to a spouse, son or daughter or descendant of either, or to a stepson or stepdaughter or descendant of either or to trusts created for the benefit of any of the foregoing; (iii) of up to a ___ percent (__%) ownership interest in Mortgagor to key management personnel employed by Mortgagor in the management of the Property provided that _________________ and/or his spouse and/or his children (or a trust created for their benefit) retain collectively at all times at least an aggregate fifty-one percent (51%) ownership interest in Mortgagor and a controlling interest in the management of the Property (which in all instances shall include control over day-to-day management of the Property); and/or (iv) among presently existing members of Mortgagor provided that ______________ and/or his spouse and children (or a trust created for their benefit) retain at all times at least an aggregate of fifty-one percent (51%) ownership interest in Mortgagor and a controlling interest in the management of the Property (which in all instances shall include control over day-to-day management of the Property). The Transfers described in clauses (i) through (iv) of this subsection (b) are hereinafter collectively referred to as “ Permitted Transfers ”. 12
| HISTORY PRIOR TO GARN-ST GERMAIN • Pre 1930’s – typical mortgage loan had a five (5) year term with a balloon payment due at maturity – most loans did not exceed 50% of the value of the property • Federal legislation enacted during Depression (FHA created in 1934) to encourage banks to make 30 year self-amortizing mortgage loan to stimulate the economy • Due on sale clauses first appear in mortgages due to the 30 year term • Interest rates relatively low until 1970’s when rates began to rise dramatically resulting in lenders enforcing due on sale provisions • Borrowers successfully challenge due on sale clause in State Courts ( Wellenkamp v. Bank of America, 21 Cal 3d 943 (1978) ) • Supreme Court overturns Wellenkamp in 1972 ( Fidelity Federal Sav. & Loan Assn. v. De La Cuesta, 102 S. Ct. 3014 (1982) ) • Congress codifies enforceability of due on sale clause by enacting Garn- St Germain Depository Institutions Act of 1982 13
| HISTORY 14
| ENTER GARN-ST GERMAIN The Garn-St. Germain Depository Institutions Act of 1982 "An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans," Edwin Jacob “Jake” Garn Fernand Joseph St. Germain "... 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[.]” (The Garn St. Germain Depository Institutions Act of 1982, 12 U.S.C. 1701j-3(d)(8). 15
Recommend
More recommend
