Home mortgages typically have a Mortgage acceleration clause, called a “due on sale” clause. This is a clause that says that the mortgage becomes due and payable if the Property is sold or transferred to another individual without the lender’s prior written consent. There is a federal law that prevents lenders from applying that clause when the homeowner transfers their property to their spouse or children. It’s known as the Garn -St.Germaine Depository Institutions Act of 1982, which is in the U.S. Code of laws at 12 USC.1701j.

Section d. specifies the situations in which a lender may not enforce the due-on-sale clause. The exemptions that are most relevant for elder law and estate planning are these:

“(d) Exemption of specified transfers or dispositions  …. (3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety; (4) the granting of a leasehold interest of three years or less not containing an option to purchase; (5) a transfer to a relative resulting from the death of a borrower; (6) a transfer where the spouse or children of the borrower become an owner of the property; (7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;  (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property …. “

There are times that transferring the ownership of residential property makes good sense for asset protection purposes. No transfer should be made without legal advice, as there are so many considerations to take into account. For example, can the new owner in the family pay the mortgage? if not, who will pay it, and is that person going to be making ongoing gifts to the new homeowner, or is there some other legal relationship at play? But it’s good to know that there is this protection available when there’s a mortgage on the property. Preferably, the Deed itself should make reference to the mortgage that’s on the property at time of transfer.

Call us for advice on asset preservation planning and real estate transfers … 732-382-6070

 A post by Linda Ershow-Levenberg, Esq. for Fink Rosner Ershow-Levenberg Blog.

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