Why You Can Transfer Your Mortgaged Home Into a Trust
If you’ve ever looked into creating a living trust, you’ve probably heard that your mortgaged home can (and usually should) be titled in the name of your trust. But if you have a mortgage, you might wonder, will that transfer violate the loan agreement or trigger the lender to call the loan due?
That’s where the Garn St Germain Depository Institutions Act of 1982 comes in. This federal law quietly makes it possible for homeowners to move their residence into a trust without upsetting their mortgage lender.
The “Due on Sale” Clause Problem
Most mortgages contain what’s called a due on sale clause. It says that if you sell or transfer your mortgaged property, the lender can demand full payment of the loan right away. That’s designed to protect the bank if a property changes hands, but it can cause trouble when you’re just trying to retitle your home for estate planning purposes.
Before the Garn St Germain Act, transferring property into a trust technically counted as a transfer that could trigger that clause. In theory, the bank could accelerate the loan, forcing you to pay off your entire balance immediately.
The Law’s Key Protection
Fortunately, Congress recognized that families use living trusts for legitimate estate planning, not as a way to dodge loans. So the Garn St Germain Act created an exception.
Under this law, a lender cannot enforce a due on sale clause when:
- You transfer your personal residence (one to four dwelling units) into a revocable living trust,
- You remain a beneficiary of that trust, and
- The transfer does not change who lives in the mortgaged home.
That means you can safely move your home into your living trust without having to refinance or pay off the mortgage, as long as you continue to live there and keep making payments.
Why This Matters for Your Estate Plan
This protection is one of the reasons living trusts work so well for homeowners. Placing your home in a trust allows your family to avoid probate, simplifies management if you become incapacitated, and makes transferring the property after your death far easier.
Without the Garn St Germain Act, many people couldn’t take advantage of those benefits without upsetting their lender. Thanks to this law, you can enjoy the peace of mind that comes with a properly funded trust while keeping your mortgage intact.
A Few Practical Tips
- Use a revocable living trust. The Act’s protection doesn’t apply to irrevocable trusts or transfers into LLCs or other entities.
- Keep occupancy the same. The borrower (you) should remain the person living in the home.
- Let your attorney handle the deed. A properly prepared transfer deed ensures the title change complies with the law and the trust terms.
- Notify your lender. While not required, some homeowners prefer to send a courtesy notice to avoid confusion later.
The Bottom Line
The Garn St Germain Act quietly supports one of the most effective estate planning tools available: the living trust. By protecting homeowners from unintended mortgage consequences, it lets you organize your estate, protect your family, and simplify what happens to your home, all without fear of your bank demanding full payment.
If you’re considering a living trust and want to know how to handle your home or other real estate, let’s talk through your options.