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Do I Need To Notify My Mortgage Lender If I deed My Real Estate?

Jason Neufeld
January 22, 2023

Will I need to notify my mortgage lender if I transfer my real estate into a revocable trust or an irrevocable trust? It's today's question. 

And what they're really asking when they ask this question is, will it trigger the "due on sale" clause? Every mortgage has a "due on sale" clause where if you transfer the property to someone else, it immediately accelerates.

That's why when you sell your property, if you have a mortgage on it at closing, you must pay off the mortgage first, right? They won't let you just sell it and then walk away from it. That's part of the obligation. 

Change Real Property Title And Not Trigger the Due-On-Sale Clause

However, there are situations where you can change the title of the property and not trigger that due-on-sale clause. And that really is the subject of this video. 

It's what's covered in a law called the Garn Saint Germain Act, which is federal law. This applies across all 50 states. Essentially, there are certain situations where you can change the property's title, and it will not trigger that due-on-sale clause. The mortgage lender cannot get upset. One of the very common scenarios is if you are with an estate planning attorney, if you're in Florida, hopefully, that's with Elder Needs Law

But we are often working with people who own a home, and they want to transfer into a revocable trust. Sometimes it's going into an irrevocable trust in either situation. If the owner maintains the full and unrestricted right to live in that property for the rest of their life, it will not trigger the due-on-sale clause. They remain what's called the beneficial owner, and therefore the loan is not accelerated. 

There are a couple of other situations where the Garn Saint Germain Act applies as well. And that is, if, for example, you're adding a spouse or a child, if you're transferring ownership of the property to a spouse or child or if a partial interest in the property to a spouse or child, that also will not trigger the due on sale clause. 

Using The Ladybird Deed To Transfer Real Estate

So people own property, they get married, they want to add their significant other now spouse to the deed? Not a problem. We often utilize a tool called a Ladybird Deed. It's a way of transferring real property to someone else after you pass away. If we're naming a spouse or children as the people to inherit the house and that ladybird deed, it will not trigger the due on sale clause as well. 

In addition, if you need to get a second mortgage on the property, that will not trigger the due-on-sale clause. There are a couple of other exceptions to this Garn Saint Germain act, but a second mortgage is a big one. However, it does not apply to a reverse mortgage. That is a special carve-out and kind of an exception to the exception. What if you had a reverse mortgage that can trigger the due on sale clause, but a second mortgage will not? In a nutshell, there is significantly more to it than that. 

But these are some of the more common scenarios that we see people worried about as to whether or not they need to call their bank. Certainly, it is a good idea if you're going to transfer the title to let the bank know and make sure that they don't interpret the Garn Saint Germain Act any differently. But broadly speaking, transferring property into your revocable trust or an irrevocable trust if you retain the right to live there, which is kind of the scenario that we see most often are dealing with Ladybird Deeds, if it's going to children, or a spouse- there is never going to be an issue there. 

Speak To Us About Setting Up A Revocable Living Trust

Again, more to it than that. If you want to talk more about the Garn Saint Germain Act or want to talk about estate planning, Medicaid planning, or probate at all, we serve the entire state of Florida. Schedule a consultation with an attorney at Elder Needs Law.

I hope you found this video informative. If you have, please like it, please share it, and you know we're trying to get good information out there. Thank you very much for watching.

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Jason Neufeld

Jason Neufeld is the Founder and Managing Partner of Elder Needs Law, a Florida estate planning and elder law firm he created in 2017. With more than 15 years of experience practicing law, he represents clients in a wide range of legal matters, including Medicaid planning, estate planning, elder law, probate, Medicare, and life insurance.

Jason received his Juris Doctor from the University of Miami — School of Law and is a member of the Florida Bar and the Broward County Bar Association. He has received numerous accolades for his work, including being named a Rising Star and Super Lawyer by Super Lawyers and among the Florida Legal Elite by Florida Trend in 2022.

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