Occasionally, we’ll have a client voice the concern that transferring their home into their newly-created Revocable Living Trust might violate the “due-on-sale” clause contained in their mortgage.
A “due-on-sale” clause is a standard mortgage provision that allows the bank holding the mortgage to call the loan immediately due and payable if the property securing the mortgage changes owners.
Fortunately, under federal law, a bank can’t call your loan due if you transfer your primary residence into your Revocable Living Trust. Going a step further, it’s generally accepted that even transferring real estate other than your primary residence (like investment property) into your Revocable Living Trust won’t result in your mortgage being called due. This type of transfer is not a “sale” in the traditional sense; there’s no exchange of money involved, and you’re generally transferring ownership from yourself as an individual to yourself as Trustee.
Depending on the details of your transaction, your estate planning attorney might recommend that you notify your lender prior to the transfer. In some situations, this helps to eliminate any confusion or misunderstandings between you and your bank.