Transferring A Mortgaged Home in NY To A Trust

Mortgages commonly contain something called a “due on sale clause.”  These are clauses that allow lenders to “call in” the loan and require that the borrower pay the entire balance of the loan when a borrower transfers title to the mortgaged property.

This idea makes sense – when a homeowner sells their property, they are required to pay the balance of their mortgage at the time the property is transferred.  However, there are other common scenarios that involve the transfer of a mortgaged property that do trigger the due on sale clause.  For instance, if the borrower died and you are the surviving tenant by the entirety of your home the due on sale clause will not be triggered.  Despite rules preventing banks and other mortgage lenders from calling in loans in certain scenarios, they may still attempt to do so and it is important to be apprised of your rights as a borrower or as the heir to a mortgaged property.

The Garn-St. Germain Depository Institutions Act of 1982 is the federal statute that governs the enforceability of “due on sale” clauses on loans and mortgages and this act contains exceptions to due on sale enforceability.  The act states that a lender may not exercise its option to enforce a due on sale clause after a “transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety”, a “transfer to a relative resulting from the death of a borrower” and a “transfer into a inter vivos trust in which the borrower and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.”  This means that if you are a joint owner on your parent’s home and they die, the mortgage may not be called. If you inherit a house from a relative that you are making monthly mortgage payments, the due on sale clause may not be triggered.  Further, if you transfer your house to a living trust for Medicaid or estate planning purposes the mortgage lender may not call in the loan.

The exception made to mortgaged properties (other than those encumbered by a reverse mortgage) when transferring them to a Medicaid Asset Protection Trust for long term care planning purposes is an important one for older clients and their elder law attorneys.  A Medicaid Trust will provide the owner/borrower who transfers their property into the Trust the right to occupy the trust making them a beneficiary of the Trust thereby preventing the Mortgage Lender from accelerating the loan.  This means that if you wish to engage in long term care planning to protect the value of the equity in your home, your existing mortgage need not be a barrier to doing so.  In addition, the Garn-St. Germain Act provides relief to grieving spouses and relatives who inherit mortgaged properties.  It allows them the time to grieve and make plans for the property without worrying that the lender will require that the outstanding mortgage immediately be paid in full.


If your home currently has a mortgage (other than a reverse mortgage) and you wish to transfer it to a living Trust or you are concerned about the rights of your heirs upon your death, contact the Law Offices of Roman Aminov to discuss your plans with an experienced attorney.

This article is for educational purposes only - to provide you general information, not to provide specific legal advice.  Use of this post does not create an attorney client relationship and information contained herein should not be used as a substitute for competent legal advice from a licensed attorney in your state.

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