Subject-To, Wraps & Seller Carry in Utah — For Investors

The due-on-sale clause — read this first

Most home loans let the lender demand the full balance if the property is sold or transferred. Federal law lets lenders enforce that clause (12 U.S.C. § 1701j-3(b)(1)). A wrap, a subject-to transfer, and a contract for deed are not on the federal exemption list (§ 1701j-3(d)).

Nobody can promise you the lender won't call the loan. Plan as if it could happen: know the payoff, keep an exit ready (refinance, sale, or reserves), have a third-party servicer pay the underlying loan, and put the risk in writing so both sides signed knowing it.

FHA or VA loan? Don't wrap it. FHA and VA loans are generally assumable: with the servicer's approval, a qualified buyer can take over the loan itself at its current rate. A wrap keeps the seller on the hook and adds due-on-sale risk to a loan that could have been transferred properly. Ask the servicer about a formal assumption first.

Sub-to vs wrap vs novation vs contract for deed — what's the difference?

They differ in who holds title, whose name stays on the loan, and what security the seller keeps. Here's how they typically compare.

	Subject-to	Wrap (AITD)	Novation	Contract for deed
Title	To the buyer	To the buyer	To the buyer	Stays with the seller
Seller's loan	Stays, in the seller's name	Stays, in the seller's name	Lender releases the seller	Stays, in the seller's name
Buyer pays	The seller's lender	The seller (or a servicer)	The lender	The seller (or a servicer)
Seller's security	Often none unless documented	Recorded all-inclusive trust deed	Not needed	Legal title
Due-on-sale exposure	Yes	Yes	No — the lender agreed	Yes, if a loan stays

Novation and the typical structures above are practice descriptions, not statutory definitions.

How do you manage due-on-sale risk?

You plan for acceleration instead of hoping it doesn't come. Federal law lets the lender enforce the clause (12 U.S.C. § 1701j-3(b)(1)), and none of these transfers is exempt (§ 1701j-3(d)).

A refinance plan with a date, not a someday.
Reserves or a credit line sized to the payoff gap.
A servicer that pays the lender first and gives the seller proof every month.
Insurance that protects the lender, the seller, and the buyer — how to structure it is a question for your agent and attorney.
A written disclosure signed by the seller. If a licensee is involved, it's required (Utah Admin. Code R162-2f-401a(6)(d)).

What about FHA and VA loans?

Don't wrap them, and don't take them subject-to. FHA and VA loans are generally assumable: with the servicer's approval, a qualified buyer can take over the loan itself at its current rate. That's a cleaner deal for everyone than leaving a government-backed loan in the seller's name under a wrap. On a VA loan, the seller's entitlement generally stays tied up until the loan is paid off or a qualifying veteran buyer substitutes theirs. Utah has a state-approved Assumption Addendum for this (Assumption Addendum (Jan. 1, 1999)). If you can't qualify to assume, that tells you something about the deal. This is practice guidance — confirm the specific loan's terms with the servicer.

How is an all-inclusive trust deed recorded?

Like any trust deed: signed at closing and recorded with the county recorder, which gives constructive notice (Utah Code § 57-3-102). The state-approved All Inclusive Trust Deed form dates from October 1, 1983 (All Inclusive Trust Deed (state-approved form, Oct. 1, 1983)). In practice, a recorded AITD sits behind the seller's existing trust deed, so the buyer's protection depends on the underlying loan staying current.

Do the Dodd-Frank exclusions apply to repeat investors?

Yes, and the count matters. The three-property exclusion covers any person, including an LLC, financing three or fewer properties in 12 months — with no balloon and a good-faith ability-to-repay determination (12 CFR § 1026.36(a)(4)). The one-property exclusion, which allows a balloon, is only for a natural person, estate, or trust (12 CFR § 1026.36(a)(5)). Past five dwelling-secured loans a year, you're a TILA creditor (12 CFR § 1026.2). Run your facts through the licensing checker.

What about Utah's licensing and servicing rules?

Utah exempts a seller who takes back a trust deed for the purchase price, with no numeric cap (Utah Code § 61-2c-105(2)(i)). The DFI notification rules exempt casual lenders making fewer than five mortgage loans a year (Utah Code § 70D-2-103). Selling a note you've carried is selling a security, which has its own licensing rules (Utah Code § 61-1-13(1)(x)).

What will Greg paper — and what won't he?

Greg drafts seller-carry notes, all-inclusive trust deeds, and contracts for deed where they fit, with the risks written into the documents. He won't draft a structure that hides the transfer from the lender, leaves the seller with no security, or skips the disclosure a licensee owes. If the numbers only work when nothing goes wrong, he'll tell you that too.

This site is for general information about Utah law and is not legal advice. Using it does not create an attorney-client relationship. Every transaction is different — talk to an attorney about yours. Attorney advertising.