One of the most common concerns landowners raise when they want to transfer real property into a limited liability company is this: Will my lender call my loan the moment I do?

It is a legitimate fear. Most mortgages and deeds of trust contain a due on sale clause — a provision that gives the lender the right to demand full repayment of the entire loan balance if you transfer ownership of the property without the lender's prior written consent. Violate that clause, and theoretically the bank can accelerate the loan and demand you pay it off immediately.

But here is what most real estate owners — and even many attorneys — do not know: federal guidelines issued by Fannie Mae and Freddie Mac expressly permit transfers of mortgaged property to an LLC under certain conditions, and prohibit lenders from enforcing the due on sale clause in those situations.

What Is a Due on Sale Clause?

A due on sale clause is standard language found in virtually every residential and commercial mortgage. It says something like: if you sell, transfer, or convey the property — or any interest in it — without the lender's prior written consent, the lender may declare the entire remaining loan balance immediately due and payable.

Lenders include this clause to protect themselves. If you sell or transfer your property, the lender wants to be repaid so it can issue a new loan, presumably at a higher interest rate, to the new owner. Lenders also want to control who holds the property securing their loan.

The practical effect for real estate owners is this: many people are afraid that if they transfer their property to an LLC for asset protection purposes, they will trigger the due on sale clause and the lender will call the loan. That fear often stops people from taking the right step to protect themselves and their personal assets.

In many cases, that fear is not justified.

Why You Should Transfer Real Estate to an LLC Anyway

Before getting into the legal mechanics, it is worth understanding what is at stake. If you own real estate — raw land, a rental property, a farm, a commercial parcel — in your own name, you are personally exposed to every lawsuit, accident, or liability that arises from that property. A tenant who is injured on a rental property. An environmental issue on a piece of land. A dispute with a neighboring property owner.

When you hold real estate inside an LLC, Arizona law gives you a shield. A creditor who wins a judgment related to the property generally cannot come after your personal assets — your home, your bank accounts, your retirement savings — because the LLC owns the property, not you personally. The LLC absorbs the liability.

That asset protection benefit is precisely why so many real estate owners want to transfer their property into an LLC. And the due on sale clause has long been the obstacle stopping them. The Fannie Mae and Freddie Mac rules described below remove that obstacle for a very large number of American property owners.

Freddie Mac's Rule: Transfers to an LLC Are Permitted

The Federal Home Loan Mortgage Corporation — commonly known as Freddie Mac — publishes servicing guidelines that lenders who sell loans to Freddie Mac must follow. One of those guidelines directly addresses the situation where a borrower wants to transfer mortgaged property to an LLC.

Section 8406.4(b) of Freddie Mac's Servicing Guidelines (effective October 20, 2021) describes "Additional Permitted Transfers of Ownership" and states that Freddie Mac will permit a transfer of ownership of the mortgaged premises to an LLC or limited partnership — without triggering the due on sale clause — when all of the following conditions are met:

There is also an important notice requirement: the servicer must notify the original borrower that if the property is ever refinanced or if the loan is ever modified, the property must first be transferred back from the LLC to the original owner as a natural person. Freddie Mac's underwriting requirements are designed for individual borrowers, not LLC entities.

If those conditions are satisfied, the lender cannot call the loan when you transfer the mortgaged property to your LLC. The due on sale clause simply cannot be enforced in that situation under Freddie Mac's rules.

Fannie Mae's Rule: The Same Protection

The Federal National Mortgage Association — Fannie Mae — has issued a parallel ruling that reaches the same result. Fannie Mae's guidelines, published at Section D1-4.1-02: Allowable Exemptions Due to the Type of Transfer (effective April 13, 2022), require loan servicers to process certain transfers "without reviewing or approving the terms of the transfer."

A transfer of mortgaged property to an LLC is on that exempt list — provided the following conditions are met:

When those conditions are met, Fannie Mae's rules require the servicer to allow the transfer to proceed without enforcing the due on sale clause. The lender has no right to call the loan.

Important Limitations: Not All Mortgages Are Covered

A very large percentage of residential mortgage loans in the United States are sold to either Fannie Mae or Freddie Mac after origination, so these rules apply broadly — but not universally. Commercial loans, jumbo loans, and loans originated by community banks or credit unions that hold them in-house are often not governed by Fannie Mae or Freddie Mac guidelines.

You should also keep in mind the refinancing limitation mentioned in the Freddie Mac guidelines: if you later want to refinance or modify the loan, you may be required to transfer the property back from the LLC to your name as a natural person first, because Freddie Mac's underwriting requirements apply to individuals, not LLCs. This is a procedural step, not a permanent barrier to refinancing — but you should plan for it.

How to Find Out If Your Mortgage Is a Fannie Mae or Freddie Mac Loan

You can look up whether your mortgage is owned by Fannie Mae or Freddie Mac in about two minutes using the free lookup tools both agencies provide online. Enter your property address and the last four digits of your Social Security number and you will know immediately.

The Bottom Line

If you have been reluctant to transfer mortgaged property to your LLC because you feared your lender would call the loan, you may have been letting an unfounded fear stop you from protecting yourself. Under Fannie Mae and Freddie Mac guidelines, transfers of mortgaged property to an LLC controlled by the original borrower are expressly permitted — and lenders are prohibited from enforcing the due on sale clause in those situations.

That said, every situation is different. Loan documents vary, and not every mortgage is governed by Fannie Mae or Freddie Mac guidelines. Before you transfer any mortgaged property to an LLC, consult with a qualified attorney who understands both real estate law and Arizona LLC law.

About Richard Keyt Richard Keyt is an Arizona LLC attorney at KEYTLaw, LLC in Scottsdale, Arizona. He has practiced Arizona law since 1979 and has formed over 10,000 Arizona LLCs. His LLC packages include a custom Operating Agreement and the Arizona LLC Operations Manual. Richard can be reached directly at 480-664-7478 or by booking a free meeting at keytlaw.com/calendar.