When it comes to estate planning trusts, many who are considering such a living trust will have concerns about the kinds of assets that can be placed in the trust. One of the biggest areas here? Putting a house into a living trust, particularly if there’s a mortgage on the house.
At MDF Estate Planning, we’re here to help with these and all similar concerns. Let’s look at the basics behind putting a home with a mortgage into a living trust, and how this works.
Mortgages and Trusts
Let’s start with the basics: Yes, you are allowed to put real property into a living trust, even if it has a mortgage still remaining on it. This is very common, in fact – most people don’t fully own their home when it’s time to set up a living trust, and blocking those people from being able to include their homes wouldn’t make sense. The majority of homes that are put into trusts do still have mortgage amounts remaining.
Making Mortgage Payments
An important factor to remember here: You still have to make mortgage payments in the same way as you did before. Putting the house in a trust does not protect it from being foreclosed on if you don’t make mortgage payments, meaning you can still lose the home if you fall behind too badly.
If you choose to refinance your home after you’ve already placed it in a trust, the lender may require you to first take the home out of the trust while you obtain a new loan, then put the home back in the trust. While this might be a tad annoying to do on your end, it’s not necessarily always going to be asked of you and it won’t complicate the process.
No “Due On Sale Clause”
In the 1980s, federal legislation was passed saying that this sort of transfer does not trigger a “due on sale” clause in a mortgage. This clause can allow lenders to demand a full repayment of the loan when you place the home into a trust, similar to if you’d sold the property to a new owner. Because of that law, however, this is not required and you can keep your mortgage while placing your home in a trust.