Is Entire Mortgage Loan Due When You Transfer Home To Trust?

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Many people, during their lifetime, want to transfer their home to a trust. There are many reasons people transfer their home to a trust, including but not limited to, avoiding probate, protecting the value of the home from state Medicaid estate recovery rights to the extent Medicaid paid nursing home expenses, and some people want to transfer their home to a trust because they fear losing their home if they get sued or if they get a judgment against them.
Mortgage loans have a due-on-sale clause which stipulates that a lender may require that the full balance of the loan must be repaid in full upon the sale or transfer of ownership of the property used to secure the loan.
Any answer or reference to this issue must include the Garn-St. Germain Depository Institutions Act, passed by Congress in 1982. The Act provides for many things regarding mortgages, but one of the many provisions in the Act states that a lender may not exercise its option pursuant to a due-on-sale clause upon a transfer to a living trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.
So, the transfer of your home to they typical "Avoid Probate Revocable Living Trust" is one of those transfers exempt from the due-on-sale clause in your mortgage loan documents.
Note that there are other exemptions in the Act, including transfers to a relative resulting from the death of a borrower, and a transfer where the spouse or children of the borrower become an owner of the property.
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This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.
Paul Rabalais
Estate Planning Attorney