Transferring a mortgaged house into a trust is allowed, and for most homeowners it will not trigger the due-on-sale clause in the loan. A 1982 federal law, the Garn-St Germain Depository Institutions Act, blocks lenders from calling the loan due when you move a residential property into a living trust where you stay a beneficiary. You do not pay off the mortgage first. What you do have to get right is the deed, the lender notification, and your insurance.
The Federal Protection That Makes This Work
Almost every mortgage contract lets the lender demand full repayment if the property’s title changes hands. Without a carve-out, moving your home into a trust would technically fall under that clause. The carve-out exists. Under 12 U.S.C. ยง 1701j-3(d)(8), a lender cannot enforce a due-on-sale clause when a borrower transfers residential property “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.”1Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions
Three conditions have to hold:
- The property is residential, meaning fewer than five dwelling units. A single-family home, duplex, triplex, or fourplex qualifies. A five-unit building does not.
- You remain a beneficiary of the trust after the transfer.
- The transfer does not hand someone else the right to live in the property. You keep occupancy, or the right to it.
One practical wrinkle sits in the implementing regulation. Under 12 CFR 191.5, the lender can require you to give it a reasonable way to receive timely notice of any future change in the trust’s beneficial interest or in who occupies the property.2eCFR. 12 CFR 191.5 – Limitation on Exercise of Due-on-Sale Clauses Refusing to cooperate on that request can void the exemption, so do not ignore the lender’s follow-up paperwork.
The Mortgage Stays in Your Name
This is the part people miss. Transferring the deed does not transfer the debt. The trust becomes the legal owner of the property, but you remain personally liable on the loan. Your credit is still on the line, your name is still on the mortgage, and if payments stop, the lender comes after you, not the trust.
For a typical revocable living trust where you are trustee, beneficiary, and payer, this is invisible day to day. The payments come from the same account they always did. It becomes more complicated if you are transferring the property to a trust controlled by someone else while staying on the loan yourself. That is a situation to run past an estate planning attorney rather than solve from a checklist.
Revocable Trusts Are Safer Than Irrevocable Ones
The statute protects transfers into any “inter vivos trust” (a trust created during your lifetime) so long as the three conditions hold.1Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions It does not say the trust has to be revocable. In practice, an irrevocable trust is much likelier to lose the exemption.
A revocable living trust usually leaves you as both trustee and beneficiary. You keep control, you keep occupancy, and the Garn-St Germain conditions are simple to meet. An irrevocable trust often removes your control and may name other beneficiaries. If you are no longer a beneficiary, or if the setup effectively hands occupancy rights to someone else, the protection falls away and the lender can accelerate the loan.
If your plan needs an irrevocable trust for asset-protection or tax reasons, get written confirmation from your lender before you record the deed. Verbal assurances are close to worthless, especially because your loan can be sold to a servicer that never made the promise.
Preparing and Recording the Deed
The transfer requires a new deed naming the trust as the owner. Before you draft it, pull three documents:
- Your current deed, so you can copy the legal description of the property exactly. A small error here can cloud the title.
- Your mortgage agreement, to check for notification requirements. Some loans require you to inform the lender within a set number of days after a title change.
- Your trust document, so you have the trust’s full legal name, which typically includes the trustmaker’s name, the word “trust,” and the date the trust was created.
A quitclaim deed is the usual instrument for moving property into your own revocable trust. You are effectively giving and receiving the property, so the title warranties in a warranty deed serve no purpose. On the new deed, you are the grantor under your individual name, and the trust (full legal name, including its date) is the grantee. Copy the legal description word for word.
Sign in front of a notary, who will notarize the document. Notary fees are capped in most states and generally run from $5 to $25. Then file the deed with the county recorder or register of deeds in the county where the property is located. Recording fees typically fall in the $50 to $150 range. Recording is what makes the transfer legally effective against third parties; a signed but unrecorded deed accomplishes nothing.
Most states exempt transfers into a revocable trust from real estate transfer taxes because no money changes hands and the same person effectively controls the property before and after. Confirm with your county recorder’s office before you file so a transfer tax is not a surprise at the counter.
Will Your Property Taxes Get Reassessed
Almost never, for a revocable living trust. Because you remain the beneficial owner and can revoke the trust at any time, most taxing authorities do not treat the transfer as a change in ownership, and your bill stays the same. The risk is higher with an irrevocable trust, where state rules may treat the transfer as a genuine change in ownership. Separately, when the property eventually passes to your beneficiaries after your death, that later event may trigger reassessment under your state’s laws. The transfer into the trust itself is usually the easy part.
Notifying Your Lender
Once the deed is recorded, send your mortgage servicer a letter explaining that you transferred the property into a revocable trust for estate planning purposes. Include a copy of the recorded deed. You are not legally required to cite the Garn-St Germain Act in the letter, but naming it signals that you know the transfer is protected and tends to prevent unnecessary pushback from a servicing department that does not see many trust transfers.
The lender may ask for a certificate of trust instead of the full trust document. A certificate of trust is a short summary that confirms the trust exists, identifies the trustees, states when the trust was created, and confirms the trustee’s authority to manage property on behalf of the trust. It gives the lender what it needs without exposing the private terms of your estate plan, such as who inherits what.
Fannie Mae, which backs a large share of U.S. mortgages, recognizes inter vivos revocable trusts as eligible to hold title to a mortgaged property, provided the trust meets its requirements.3Fannie Mae. Inter Vivos Revocable Trusts If your loan is Fannie Mae-backed, the servicer should already have a process for handling the notification.
Update Your Homeowner’s Insurance
Call your insurance company as soon as the deed is recorded. The trust is now the legal owner of the property, and your policy has to reflect that. Ask the insurer to add the trust as an additional insured or to update the named insured to include the trust.
Do not let this slide. If you file a claim and the policy lists only you as the owner while the deed shows the trust, the insurer can argue that the named insured has no insurable interest in the property. Claim denials on those grounds do happen. The fix is a single phone call to your agent.
Check Your Title Insurance
Your existing owner’s title insurance policy may or may not continue to cover the property once the trust holds title, and the answer depends on the edition of the policy. Older ALTA policies generally define the “insured” as the named policyholder and successors by operation of law. A voluntary transfer to a trust is not a succession by operation of law, so under those older policies coverage can lapse when the deed changes hands. The 2006 ALTA owner’s policy expanded the definition of “insured” to cover certain entity transfers, but whether that language reaches your specific trust depends on the exact wording.
Call your title insurance company before the transfer and ask whether your existing policy will continue to cover the property after the trust takes title. If it will not, you can usually buy an endorsement extending coverage to the trust and its trustees for far less than the cost of a new policy.
If You Plan To Refinance Later
Refinancing after the transfer can add a step. Some lenders will originate a new loan with the trust as the borrower; many will not. Lenders that follow Fannie Mae guidelines can work with trust-held property directly, because Fannie Mae allows inter vivos revocable trusts as eligible borrowers.3Fannie Mae. Inter Vivos Revocable Trusts
If your lender refuses, the workaround is a round trip. The trustee (usually you) signs a deed transferring the property back into your individual name, you close the refinance, and then you execute a new deed moving the property back into the trust. Because Garn-St Germain protects the second transfer the same way it protected the first, this does not put your loan at risk. You do pay recording fees twice, so build the extra steps into your refinance timeline.