Are you allowed to move your house into your living trust if you still have a mortgage on it?
The short answer is yes. But there are things you need to do to avoid triggering the acceleration clause on your mortgage, which could let your lender demand that you pay off the entire loan now. Here is what to do, and the mistakes to avoid.
Yes, You Can Transfer a Mortgaged Home Into Your Trust
Maybe you set up a trust to protect your house from probate, and now the next step is to move the house in by recording a new deed that transfers title from you to your trust.
Generally, you can do this even though you still have a mortgage, especially if it is your primary residence. By law, banks are required to let you transfer title of your primary residence into your revocable living trust.
One thing to confirm first: make sure your trust is revocable. Most people have a revocable living trust, which lets you amend or revoke it whenever you want, and typically says that when you die everything goes to your spouse or your children. If yours is irrevocable, talk to a lawyer before transferring the property in.
How to Avoid Triggering the Acceleration Clause
Consider Notifying the Bank Before You Transfer
You don’t strictly have to, but you may want to notify your lender by phone, email, or letter before transferring. If you do, most lenders will ask for a draft of your deed and a copy of your trust to confirm you are transferring it into your own revocable living trust and not to someone else. After that, they’ll approve the transfer.
Again, this step is optional for a primary residence, because the bank is required to allow the transfer.
If It Is a Commercial Loan, Notify the Bank First
This one is not optional. If the property carries a commercial loan, definitely talk to your bank or lender before you transfer.
Other Mistakes to Avoid
Transfer the Property Correctly
There are many wrong ways to transfer a house into a trust. Do it incorrectly and you can trigger a property tax reassessment, or leave the house unprotected from probate. Make sure the transfer is done properly.
Notify Your Homeowners Insurance and Add the Trust as an Additional Insured
Once you transfer the house, your trust is technically the owner. Contact your homeowners insurance agent and ask them to add your trust as an additional insured. You as an individual should be insured, and your trust should be insured too, so the insurance company has no excuse to deny a claim.
Only Transfer Your Own Interest
If you co-own the property with someone, like a brother or a friend, make sure you only transfer your interest, not theirs. Your deed and transfer forms should be clear that you alone are transferring your specific interest into your trust. People get this wrong often, especially with property held as joint tenants.
Put the House Back Into the Trust After You Refinance
People often ask if they can still refinance after putting the house in the trust. The answer is yes, especially with a revocable living trust. But most lenders will make you move the house out of the trust and back into your individual name for the refinance, then put it back into the trust once the loan closes.
The problem is that a lot of lenders skip that last step. So during the refinance negotiation, ask your lender directly: when this is done, will you prepare a deed transferring title back into my trust? The answer should be yes. If it’s no, you’ll have to pay a lawyer or real estate professional to put it back yourself.
This matters more than people realize. The rule is that your trust needs to own the property while you are alive. If the house comes out for a refinance and never goes back in, and then you pass away, the house can end up in probate even though you have a trust.
There is a partial safety net. When you set up a trust, you most likely also set up a pour-over will, which pours everything you own into the trust. But in this scenario, your family would have to take the pour-over will and your trust to court and petition a judge to move the house into the trust. That costs time and money you don’t want to put your family through. So always move the house back into the trust after a refinance.
Ready to Transfer Your House the Right Way?
Educate yourself on this whole process before you hire a lawyer or do it yourself.
Take the free trust class. I teach you how to set up a trust and how to properly transfer real estate into it, with confidence and without mistakes. Register at freetrustclass.com.
Book a free phone consultation. If you would rather have it handled for you, talk with our team about a plan built around your family. Call us at (408) 412-1913 or visit treeoflife.legal.
Subscribe on YouTube. I post new videos every week on living trusts and how to do it yourself.
My goal is to help you keep more money in the family and give you the peace of mind you deserve.
Disclaimer: I am not your lawyer, and this article is not legal advice. It is information only. Reading it does not create an attorney-client relationship. If you have a legal question, please talk to a lawyer.
