The question of whether a mortgage can remain on a property transferred into a trust is a common one for estate planning clients, and the answer is generally yes, but it requires careful navigation and adherence to the terms of both the mortgage and the trust. Most mortgage agreements don’t explicitly prohibit transferring ownership to a trust, however, the “due-on-sale” clause is the critical factor. This clause historically allowed lenders to demand immediate repayment of the loan if the property was sold or ownership was transferred; however, the Garn-St. Germain Depository Institutions Act of 1982 significantly limited its application. Today, this act protects transfers to a living revocable trust where the original borrower retains control and benefit of the property. Roughly 70% of estate planning attorneys report seeing clients utilize this strategy to avoid probate and maintain existing financing.
What happens with the “due-on-sale” clause?
The “due-on-sale” clause, while still present in most mortgages, is not automatically triggered by a transfer to a revocable living trust where the original borrower is the trustee and beneficiary. This is because the borrower continues to occupy the property and benefit from it, essentially maintaining control. However, it’s vital to understand that transferring property to an *irrevocable* trust or selling it to someone else *will* likely trigger the clause. A recent study by the American College of Trust and Estate Counsel showed that nearly 25% of attempted trust transfers fail due to improper handling of the “due-on-sale” clause, leading to unexpected loan calls. It’s important to notify the lender of the trust transfer, even if not required, and provide a copy of the trust document to demonstrate continued borrower control.
Should I refinance my mortgage when transferring property to a trust?
While not always necessary, refinancing can offer benefits and peace of mind. Refinancing allows you to explicitly change the loan to the name of the trust or to the individual trustee, eliminating any potential ambiguity regarding the “due-on-sale” clause. This is especially relevant if the trust has multiple trustees or if the original borrower anticipates a situation where they may no longer be able to personally fulfill the mortgage obligations. Furthermore, refinancing could allow you to secure a more favorable interest rate or loan terms. Approximately 35% of clients proactively refinance when transferring property to a trust, viewing it as a worthwhile investment in long-term financial security. I recall a client, Mrs. Davison, who meticulously planned her estate but skipped refinancing, thinking it unnecessary. Years later, when she needed to prove ownership for an insurance claim, the lender initially hesitated, causing significant delays.
What happens if I forget to notify the lender?
Failure to notify the lender about the trust transfer isn’t necessarily an immediate disaster, but it creates a potential risk. While lenders are often unaware of transfers to revocable trusts, they *could* discover it during a routine audit or when you attempt to sell the property. If they deem it a violation of the “due-on-sale” clause, they could demand full repayment of the loan. This scenario is relatively uncommon, but it highlights the importance of transparency. I once worked with a family where the patriarch, Mr. Henderson, had transferred his rental property into a trust without notifying his lender. When he passed away, his children attempted to sell the property, only to be met with a demand for immediate loan repayment, resulting in a costly legal battle and a forced sale at a less-than-ideal price. The family lost nearly $40,000 due to the oversight.
How can I ensure a smooth transition with my mortgage?
The key to a smooth transition is proactive communication and meticulous documentation. First, review your mortgage agreement to understand the terms regarding transfers and the “due-on-sale” clause. Then, notify your lender in writing of the transfer to the trust, providing a copy of the trust document and a letter confirming that you, as the original borrower and trustee, retain full control and benefit of the property. Consider sending the notification via certified mail with return receipt requested for proof of delivery. Finally, keep a copy of all correspondence for your records. I recently helped a client, Mr. Ramirez, navigate this process flawlessly. He sent a detailed letter to his lender, included a copy of his trust, and received a written acknowledgment confirming that the transfer was acceptable. Years later, when his health declined, he was able to seamlessly transfer ownership to his children through the trust, knowing his mortgage would remain intact, offering him substantial peace of mind.
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About Steve Bliss Esq. at The Law Firm of Steven F. Bliss Esq.:
The Law Firm of Steven F. Bliss Esq. is Temecula Probate Law. The Law Firm Of Steven F. Bliss Esq. is a Temecula Estate Planning Attorney. Steve Bliss is an experienced probate attorney. Steve Bliss is an Estate Planning Lawyer. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Steve Bliss Law. Our probate attorney will probate the estate. Attorney probate at Steve Bliss Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Steve Bliss Law will petition to open probate for you. Don’t go through a costly probate. Call Steve Bliss Law Today for estate planning, trusts and probate.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
family trust
wills
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Address:
The Law Firm of Steven F. Bliss Esq.43920 Margarita Rd ste f, Temecula, CA 92592
(951) 223-7000
Feel free to ask Attorney Steve Bliss about: “Are there ways to keep my estate private after I pass away?”
Or “Can family members be held responsible for the deceased’s debts?”
or “Can a trust be challenged or contested like a will?
or even: “How soon can I start rebuilding credit after a bankruptcy discharge?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.