What is Garn-St. Germain Act?
The Garn-St. Germain Depository Institutions Act of 1982 is the federal law that prevents lenders from enforcing due-on-sale clauses in certain enumerated situations — including transfers to a revocable trust where the borrower remains a beneficiary.
The Act lists nine specific exemptions from due-on-sale enforcement, the most important for investors being §341(d)(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."
For subject-to operators, this exemption is the foundation of the land-trust strategy. The seller first transfers the property into a land trust naming themselves as beneficiary (protected by Garn-St. Germain). Then the beneficial interest is assigned to the investor — a private transaction not visible in public records.
The protection isn't absolute. The Act applies only to 1-4 unit residential property the borrower occupied as principal residence. It also applies only to federal lenders subject to the Act — most are, but state-chartered lenders may not be. Always consult an attorney before relying on the exemption.
Concepts that connect.
A "subject-to" deal is when an investor buys a property and takes title, while leaving the seller's existing mortgage in place — the investor makes payments on the seller's loan. Used to acquire properties with locked-in low rates or when the seller is behind on payments and needs to walk away.
A land trust is a legal entity that holds title to real estate on behalf of a beneficiary, with a trustee managing the property per the trust agreement. Used by investors for privacy, asset protection, and as a workaround for due-on-sale clauses on subject-to deals.
Creative finance is the family of non-conventional real-estate transaction structures — subject-to, seller financing, wraparound mortgages, lease options, land contracts. Used when conventional financing doesn't fit the deal or when the seller has motivation to preserve a below-market loan.
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