Land Trusts as a Due-on-Sale Workaround? STILL a No from Me. Let’s Talk Lease Options Instead.

 

By Hope Richards, the anti-attorney attorney

Richards Law, PA

Hope@RichardsLawPA.com

Let’s revisit an oldie but a goodie and I wrote about way back in 2016 - the myth that putting property into a land trust magically keeps lenders from noticing that you sold a house without paying them their money back. Spoiler: it doesn’t. Not then, not now, not even with a fancy Latin phrase like inter vivos in your back pocket.

If you missed my first blog on this topic, here’s the Cliff’s Notes version:
Transferring property into a land trust does not make you invisible to the bank. The Garn–St. Germain Act has a narrow exception that gets twisted more than a soap opera plot. You’d need the borrower to still live in the property and remain a beneficiary. Show me a Subject-To investor that’s keeping the seller as both owner and roommate, and I’ll show you an HGTV episode I’d actually watch.

Now, here’s where the sleight of hand gets dangerous: it’s not just the strategy that’s flawed—it’s the way people sell the strategy to homeowners that should make you nervous. This idea gets peddled like it’s a foolproof legal hack. It’s not. It’s a strategy with more holes than a screen door in a hurricane. And I’ve seen more than one investor (and seller) get left high and dry when the lender finally decides to flex their due-on-sale muscle.

Just like land trusts were used to get around resale provisions in short sales back in the day - the banks will catch on and there will be consequences. 

So what’s a better play? Lease Options.

In interest of never wanting to be labeled as an attorney that kills deals; I'll always try to think of a better solution (unless your idea really is just crazy illegal; then you're on your own). If you’re trying to get creative without stepping into legal quicksand, lease options are the safer, cleaner cousin to Subject-To deals. Let's think about it:

  • No Title Transfer = No Due-on-Sale Trigger.
    You’re leasing the property, not transferring ownership. The deed stays put so the lender stays calm.

  • You Collect Rent To Pay The Mortgage.
    The tenant/buyer pays rent each month, which you can use to cover the mortgage. No big lump sum “buy-in” required like in some Subject-To deals.

  • Subleasing? Absolutely.                                                                                                                      Investors don't do these deals out of the kindness of their heart. This is what they do for a living; they have to make money in the deal somehow.  Let the tenant/buyer sublease and make a profit. 

  • You Still Give Them a Path to Ownership.
    The option to buy is the same as the balloon payments described in subject to's. With a lease option, in 2-3 years they have the option to purchase the property. With a subject to the buyer MUST refinance you out of the loan in 2-3 years or they get the lovely pleasure of facing foreclosure on that almost certainly ill drafted wrap mortgage that is sitting in the mound of subto paperwork that everyone signed, but pretty much no one understood.  

  • Timeline = Flexibility.
    Set the option to buy in 2–3 years. That gives time to fix credit, secure financing, or for the market to catch up.

If you’re trying to help sellers who are stuck or investors who want to get creative, steer them toward lease options. It’s still outside the box—just not outside the law and way less risky for all involved.

And if you're someone thinking about doing these kinds of deals, please, for the love of due diligence and legal sanity, stop trusting TikTok and start talking to an attorney. (Preferably one who doesn’t take herself too seriously but does take your risk seriously. 

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