Much has been written about the due-on-sale clause and how to "get around" it when selling property. You will find the due-on-sale clause language in paragraph 17 of the standard FNMA and FHLBB mortgage and trust deed forms. Basically, the Clause will benefit the lender if a transfer of interest in the property takes place. The Lender would then be able to "call the loan due" and force the new owner to either pay off the Lender or refinance at a higher interest rate. As far back as 1980 a Virginia court found that transfer of Beneficial Shares of a Land Trust (from one owner to another) constituted a default under paragraph 17.

From a practical standpoint (in our current national financial condition), no lender would intentionally force a current loan into default because of the Due-on-Sale clause. However, as the economy recovers and interest rates begin to rise lenders may become more agreesive.

The real questions is, "How would a lender know that the beneficiary of a land trust sold his/her shares to someone else?" This type of transaction is not recorded at the local court house. And typically the lender that makes you the loan does not keep the loan "in house" for servicing. Your loan may actually be sold and transferred multiple times barring the lender's ability to track the checks making the loan payments.

The point here is that if you are trying avoid the due-on-sale clause you can probably  accomplish it easier by using a land trust than by any other means.

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