Whether a lender can exercise a due on sale clause is not related to how the county treats a transfer for property tax reassesment purposes. Most due on sale clauses allow the lender to accelerate and call due the entire loan on any sale or transfer of the encumbered property without the lender’s prior written consent. Almost all mortgages contain them.
There is a long legal history to treatement of due on sale clauses. In the late 70s, in was a major issue as interest rates were skyrocketing. In 1979, California’s Supreme Court in Wellenkamp v, Bank of America ruled that due on sale clauses were unenforceable as they constituted unreasonable restraints on alienation of property. Subject to sales with old low interest financing back then were huge.
In 1982, the bank lobby was successful in getting passed the Garn-St Germain Depository Institutions Act. This federal legislation preempted and overruled State Court decisions such as Wellenkamp and allowed Lenders the right to call due loans on property that were transfered without their prior consent. The act does exempt certain transfers from the effect of a due on sale clause:
“12 USC Section 1701-j-3(d) Exemption of specified transfers or dispositions
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—
(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) 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; or
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.”
So there is no exemption that I am aware of that covers tranfer to an LLC. As a practical matter, most lenders these days don’t care so long as you are making your payments, but if interest rates were to start increasing, it could be a very different ball game.
