If you’re considering transferring your home into a trust, you might be worried about a scary-sounding mortgage clause called the “due-on-sale” clause. You’re not selling your home—you’re just putting it in a protective wrapper (aka, your trust)—but does your lender see it that way? Could they suddenly demand you pay off your entire mortgage in one lump sum?
Take a deep breath. Thanks to a federal law called the Garn-St. Germain Depository Institutions Act of 1982, transferring your home into a revocable living trust will not trigger the due-on-sale clause.
Let’s break it down.
What Is the Due-on-Sale Clause?
Most mortgages have a due-on-sale clause, which allows the lender to demand full repayment if the property is sold or transferred. This is to prevent homeowners from secretly passing their mortgage to someone who may not be financially qualified.
But what if you’re not selling your home? What if you just want to move it into a trust for estate planning purposes? That’s where the Garn-St. Germain Act comes in to protect you.
The Garn-St. Germain Act: Your Mortgage Safety Net
This law specifically prevents lenders from enforcing the due-on-sale clause when a homeowner transfers their property into a living trust—as long as two key conditions are met:
- You are the beneficiary of the trust. (If you have a revocable living trust, this is already the case.)
- You retain the right of occupancy to the property. (The protection is primarily for your residence, rather than rental property, but this can be a gray area.)
As long as these conditions are met, your lender cannot call your loan due just because you moved the title into your trust.
Why Transfer Your Home into a Trust?
There’s a reason estate planning attorneys recommend putting your home into a revocable living trust:
- Avoid Probate: If your home is in a trust, it doesn’t have to go through probate when you pass away. This saves your loved ones time, money, and a whole lot of stress.
- Keep Control: While you’re alive, you still own and control your home just like before. You can refinance, sell, or do anything else you normally would.
- Simplify Things for Your Family: If something happens to you, your named successor trustee can step in and manage the home without waiting for court approval.
What About Rental or Commercial Properties?
The Garn-St. Germain Act protects owner-occupied residential properties, but if you have a rental, vacation home, or commercial property, it’s a good idea to check with your lender first before transferring it into a trust. Some lenders may allow it, while others may not.
A Quick Word of Caution
Not all trusts are created equal! The due-on-sale protection only applies to revocable living trusts. If you transfer your home into an irrevocable trust, LLC, or another entity, you might trigger the due-on-sale clause. This is why it’s important to work with an experienced estate planning attorney before making any changes.
Let’s Get Your Estate Plan in Order
If you’ve been putting off estate planning because you’re worried about complications with your mortgage, rest easy—this is a common, straightforward process that we handle all the time. Transferring your home into your revocable living trust is a smart move that keeps your loved ones out of probate court, and your mortgage will stay right where it is.
Have questions? We’re happy to help. Schedule a consultation with us today to make sure your home (and the rest of your estate) is properly protected.