Transferring real estate with an existing mortgage into a Revocable Living Trust (RLT), often called a CRT, is a common estate planning strategy, but it requires careful navigation and understanding of the lender’s terms; approximately 65% of Americans own their homes with a mortgage, making this a frequent concern for estate planners like Steve Bliss. While generally permissible, it’s not a simple process and ignoring proper procedures can lead to complications, including the dreaded “due-on-sale” clause being triggered. The primary goal of including real estate in a trust is to avoid probate, streamline the transfer of assets to beneficiaries, and provide for management of the property if the grantor becomes incapacitated; however, the existing mortgage introduces a layer of complexity that must be addressed proactively.
What happens if my lender invokes the “Due-on-Sale” clause?
The “due-on-sale” clause in most mortgages gives the lender the right to demand immediate repayment of the loan if the property ownership is transferred; according to the Consumer Financial Protection Bureau, while these clauses exist in the vast majority of mortgages, they are not always enforced, and lenders often waive enforcement if the transfer is to a revocable living trust created by the borrower. However, relying on this leniency is risky; in 2008, a client, let’s call her Eleanor, excitedly told me she’d transferred her beach cottage into her trust without notifying her bank. She envisioned a smooth transition for her grandchildren after she was gone. A few years later, her children discovered the bank had sent a notice of default, citing the trust transfer as a violation of the mortgage terms. It was a stressful and costly situation requiring immediate legal intervention and negotiation, ultimately resolved with hefty legal fees and a significant amount of anxiety. It highlighted the importance of transparency and proactive communication with lenders.
How do I properly transfer mortgaged property into my Trust?
The key to avoiding issues is following a specific procedure; generally, this involves notifying the lender in writing of the trust creation and providing a copy of the trust document. Many lenders have specific forms or procedures for acknowledging trust transfers. It’s also crucial to ensure the trust document includes language that specifically addresses the mortgage and confirms the borrower remains personally liable for the loan. This demonstrates to the lender that the borrower retains control and responsibility, reducing the risk of a due-on-sale clause being triggered. Steve Bliss recommends clients consult with both their estate planning attorney and their lender to ensure complete compliance. A recent study by the American Bar Association indicated that over 40% of homeowners are unaware of the potential implications of transferring mortgaged property into a trust.
What if my lender refuses to acknowledge the Trust?
If a lender refuses to acknowledge the trust transfer, despite proper notification and documentation, it’s crucial to seek legal counsel; a qualified attorney can review the mortgage documents, communicate with the lender, and potentially negotiate a resolution. In some cases, it may be necessary to refinance the mortgage to remove any ambiguity or risk of enforcement of the due-on-sale clause. I once worked with a couple, the Harrisons, who had transferred their home into a trust years prior. When they attempted to sell the property, their lender unexpectedly refused to release the deed, claiming the trust transfer violated the mortgage terms. After a tense negotiation, facilitated by our firm, the lender finally agreed to waive the violation, but only after a significant delay and substantial legal expenses. This situation emphasized the importance of clear communication and documentation throughout the entire process.
Can’t I just avoid putting the mortgaged property in the Trust to simplify things?
While you can certainly exclude mortgaged property from the trust, doing so means that property will still be subject to probate; probate can be a lengthy, costly, and public process, potentially taking months or even years to complete. For many, the benefits of avoiding probate outweigh the complexities of dealing with a mortgaged property within the trust. By proactively addressing the lender’s concerns and following the proper procedures, you can successfully transfer the property into the trust and ensure a smooth and efficient transfer of assets to your beneficiaries. According to a recent study, the average cost of probate in California can range from 5% to 10% of the estate’s value, making probate avoidance a significant financial benefit. In the end, careful planning and open communication are the keys to successfully incorporating mortgaged real estate into your estate plan.
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
- living trust
- revocable living trust
- irrevocable trust
- family trust
- wills and trusts
- wills
- estate planning
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “What’s the difference between an heir and a beneficiary?” Or “What happens if the will names multiple executors?” or “What if a beneficiary dies before I do—what happens to their share? and even: “How do I prepare for a bankruptcy filing?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.