Land Trusts and the Garn-St. Germain Depository Institutions Act of 1982

As real estate investors ourselves, we understand how difficult it can be to keep up with all the compex legislation surrounding real estate. Today, we’ll discuss a piece of legislation that can seem intimidating at first, but is actually straight forward in its application.

The Garn-St. Germain Depository Institutions Act (Garn-St. Germain Act) was enacted October 15, 1982. The act, which was an initiative of the Reagan administration, enjoyed vast support and passed 272–91 in the House. Below is a quick guide on the connection between the Garn-St. Germain Depository Institutions Act of 1982 and land trusts, as well as how this act can impact your bottom line.

Avoiding the Due on Sale Clause with a Land Trust

The purpose of the Garn-St. Germain Depository Institutions Act is: "to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans." In pursuit of this, the act allows individuals to place their personal property in a land trust without triggering a due on sale clause.

A key exception found in the act that some use as a basis for avoiding the due on sale clause states: “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, (U.S.C.) 1701j-3(d)). Thus, the Garn-St. Germain Depository Institutions Act freed individuals to put their property in a land trust for estate planning and anonymous property ownership without fear of lenders calling their loan due.

Why You Shouldn’t Worry About the Due on Sale Clause

Banks rarely apply the due on sale clause if payments are being made regularly on a property. Banks profit of mortgage payments, thus if an individual is making timely payments, enacting the due on sale clause and possibly foreclosing on a property doesn’t make business sense. However, we don’t recommend relying on the individual business decisions of each bank. A more proactive approach would be to hold title to your property in a land trust, which provides anonymity, a savings on transfer taxes and potential avoidance of the due on sale clause. Our expert legal team can answer any questions you have regarding transferring property and establishing an asset protection strategy.

Last Updated: 
June 14, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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