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Avoiding the Due on Sale Clause

In most cases, the real estate you seek to transfer to a Trust is subject to a Mortgage and the due-on-sale clause in that Mortgage.  The typical due on sale clause states that the entire balance of the Mortgage is due if the homeowner sells or even contracts to sell the property.

There is thus valid concern that a transfer of your real estate to your Revocable Trust may trigger the due on sale clause in your Mortgage.  Your Revocable Trust is frequently treated as a separate legal person for these purposes, thus triggering this valid concern when you prepare a deed to “fund” (e.g., transfer) your house to your Revocable Trust, your mortgagee will object and declare the loan due in full.

A Federal statute exempts transfers to a revocable living trust if you (the grantor) are a beneficiary of the trust. U.S. Code §1701j-3(d)(8).  There are other requirements, such as the provision that the transferred property must contain no less than five dwelling units.  A transfer of your homestead property will thus almost always meet this requirement.

It still remains necessary to review your Trust to determine if your intended transfer qualifies for this exemption. Before you make any such transfer, you should check with us to ascertain whether your Trust qualifies for this exception.

Caution: This article provides general information and is not intended to be legal advice. Your personal circumstances likely vary from those discussed in this article. You should contact Lambert Law if you are seeking specific legal advice as to your contract or circumstances.

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