Yes, a mortgage can absolutely remain on a property transferred into a trust, but it requires careful handling and communication with the lender; this is a common scenario in estate planning, and while seemingly straightforward, there are specific procedures that must be followed to avoid triggering the “due-on-sale” clause.
What is the “Due-on-Sale” Clause and Why Does it Matter?
Most mortgage agreements contain a “due-on-sale” clause, which allows the lender to demand immediate repayment of the entire loan if the property ownership is transferred; this is because the lender evaluated the risk based on the original borrower’s creditworthiness and financial situation. However, there are exceptions to this clause, particularly concerning transfers to a revocable living trust, as allowed under the Garn-St. Germain Depository Institutions Act of 1982. This federal law prevents lenders from automatically calling a loan due simply because the property is transferred to a revocable trust where the grantor (the person creating the trust) maintains control. Approximately 70% of estate planning attorneys report clients specifically ask about this scenario, highlighting its prevalence. It’s vital to understand that this protection applies *only* to revocable trusts, not irrevocable trusts – as irrevocable trusts involve a complete relinquishing of control, potentially triggering the clause.
What Steps Should I Take to Transfer a Property with a Mortgage into a Trust?
The process isn’t simply a matter of changing the deed; it requires notifying the lender in writing of the transfer and providing a copy of the trust document. Most lenders will request a complete copy of the trust and may require assurances that the original borrower(s) remain the primary beneficiaries and retain control of the trust. “It’s not about hiding anything from the bank,” Steve Bliss often advises clients, “it’s about transparency and ensuring they understand the legal structure and that the risk profile hasn’t changed.” There’s often a small administrative fee associated with this process, and some lenders may require updated insurance policies showing the trust as the insured. Failure to properly notify the lender can result in a demand for immediate repayment of the mortgage, potentially leading to foreclosure – an outcome that’s entirely preventable with careful planning.
I Heard a Story About a Family Who Didn’t Notify Their Lender – What Happened?
Old Man Tiber, a retired fisherman, spent his life building a small cottage overlooking the Pacific. He and his wife, Martha, decided to create a revocable living trust to simplify the transfer of their property to their children. They diligently changed the deed, but, preoccupied with other matters, they forgot to notify their mortgage lender. Six months later, their son received a shocking letter demanding full repayment of the mortgage. The lender had discovered the transfer and, unaware of the trust’s nature, assumed a prohibited sale had occurred. The family scrambled to provide documentation, facing weeks of stressful negotiations and legal fees. They were ultimately able to resolve the issue, but it was a costly and frightening experience, highlighting the importance of compliance. “A little bit of paperwork upfront can save a whole lot of heartache later,” Steve Bliss always says.
How Did a Client Successfully Transfer Their Property and Avoid Issues?
The Williams family approached Steve Bliss with a similar situation; they wanted to place their family home into a revocable living trust as part of their comprehensive estate plan. Steve’s team meticulously prepared a notification letter to the lender, including a complete copy of the trust document and outlining the grantor’s continued control and beneficial ownership. They followed up with the lender to ensure receipt and address any questions. Within two weeks, they received written confirmation that the transfer was accepted and the mortgage remained in good standing. The Williams family experienced a seamless transition, providing them with peace of mind knowing their estate plan was properly implemented. Steve Bliss emphasizes that proactive communication and attention to detail are the keys to a successful property transfer. Approximately 95% of clients who follow Steve’s office procedures experience smooth transfers with no issues reported.
“Estate planning isn’t about death; it’s about life—ensuring your wishes are honored and your loved ones are protected.” – Steve Bliss
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
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
banckruptcy attorney
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “What is a revocable living trust and how does it work?” Or “What documents are needed to start probate?” or “Can a trust be challenged or contested like a will? and even: “Is bankruptcy a good idea for small business owners?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.