Question: Can my lender call my loan that encumbers my land if I transfer the land to an LLC I own?
Answer: Probably not. The Federal National Mortgage Association, aka Fannie Mae, has something called Servicing Freddie Mac Mortgages Series 8000. Section 8406.4(b) Additional permitted Transfers of Ownership Effective 10/20/2021 states:
“Permitted Transfers of Ownership subject to conditions. In situations where all of the following conditions are met, Freddie Mac will permit a Transfer of Ownership of the Mortgaged Premises:
- At least 12 months have passed since the Origination Date and
- The transfer is to a limited liability company (LLC) or limited partnership (LP), provided that:
The managing member/general partner of the LLC/LP is the original Borrower. If there are multiple Borrowers, all of them must be members/partners of the LLC/LP, and at least one of them must be a managing member/general partner. If the transfer results in a permitted change of occupancy type to an investment property, such change must not violate the Security Instrument (e.g., the 12-month occupancy requirement for a Primary Residence), and
The Servicer notifies the original owner or natural person that the Mortgaged Premises transferred to an LLC/LP must be transferred back to the original owner or natural person prior to any subsequent refinance or modification application to meet Freddie Mac’s underwriting requirements
Fannie Mae ruling D1-4.1-02: Allowable Exemptions Due to the Type of Transfer (04/13/2022) says due on sale clauses cannot be enforced if the borrower transfers the encumbered land to a limited liability company. The rule states:
“the servicer must process the following exempt transactions without reviewing or approving the terms of the transfer: . . . A transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to a limited liability company (LLC), provided that
- the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and
- the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).”
Bottom line is Fannie Mae approves transfers of encumbered land without the lender being able to enforce a due on sale clause.