Can You Put a Mortgaged House in a Living Trust?
In most cases, yes. Federal law generally prevents a lender from calling the loan under its due-on-sale clause when a borrower transfers a one-to-four unit residence to a revocable trust of which the borrower is a beneficiary and keeps living in the home. It is still wise to tell the lender, confirm your title insurance policy carries over, and keep making payments in your own name or as trustee exactly as before.
The due-on-sale clause
Most mortgages say the lender can demand full payment if you sell or transfer the property. A trust transfer technically changes the title. Federal law, in the Garn-St Germain Act, lists transfers that lenders cannot treat as triggering the clause, and one of them is a transfer into an inter vivos (living) trust where the borrower remains a beneficiary and the property is owner-occupied residential real estate with fewer than five units. That covers a typical Texas family home.
Limits to know
- The protection is for owner-occupied residential property. A rental property or a second home does not fit the same rule, and a due-on-sale clause may apply.
- It covers transfers to a trust where you remain a beneficiary. Transfers to irrevocable trusts, LLCs or other people are a different analysis.
- The rule limits the lender's right to accelerate the loan. It does not stop the lender from asking for information.
Practical steps
- Read your loan documents for due-on-sale and transfer language.
- Tell the lender in writing that you are moving the home into your revocable living trust. Some lenders want a copy of the certification of trust.
- Keep paying the same way. Payments can continue from your personal account.
- Update insurance. Ask your homeowner's insurer to add the trustee as a named insured so a claim is not disputed.
Title insurance
Owner's title insurance protects you if a hidden title problem surfaces. When you deed the property to your trust, ask whether your policy continues in force or whether the title company can issue an endorsement that keeps coverage for the trust. Many policies continue coverage for transfers to a trust of the insured, but the wording varies, so confirm it before you record the deed.
If you are refinancing
If you plan to refinance, many lenders prefer you close in your own name first and move the home into the trust afterward. Otherwise they may require the trust to sign loan documents. Your attorney can sequence the deed and the loan so neither step causes a problem. For the rest of the funding steps see how to fund a living trust.
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Book Free ConsultationFrequently asked questions
Do I have to tell my mortgage company?
The law does not always require notice, but telling the lender in writing avoids surprises and gives you a record that you disclosed the transfer.
Does this work for a rental property?
Not under the same federal protection. A due-on-sale clause could apply, so check your loan terms and talk to the lender first.
Will my interest rate change if I transfer the home to a trust?
For a protected transfer, the lender generally cannot change your rate or accelerate the loan because of the transfer.
Does my homeowner's insurance need to change?
Usually the trustee should be added as an additional named insured. Ask your agent before you record the deed.