The Truth About Mortgage and Property Transfer

Common Questions About Mortgages After a Property Transfer

… My spouse died, and I am the surviving tenant by the entirety of our house?

… My parent died, and I am the surviving joint tenant of our house?

… I inherited a house from a relative and now reside in it, and have been making the monthly mortgage payments?

… I transferred my house to a living trust for Medicaid planning and/or to avoid probate?

The answer to all four of these questions is an astounding: NO!

However, sometimes banks and mortgage lenders will still try to enforce a “due on sale” clause on an existing loan or mortgage. Due on sale clauses allow lenders to accelerate or “call in” the loan or mortgage. They can demand payment of the entire balance upon the transfer of the title to the property securing the loan.

What Is the Garn-St. Germain Act?

The Garn-St. Germain Depository Institutions Act of 1982 is a federal law that governs when lenders may enforce due on sale clauses in loan and mortgage contracts. Under this law, certain property transfers are protected, meaning lenders are prohibited from demanding immediate repayment.

Protected Property Transfers Under Federal Law

The Garn-St. Germain Act prevents lenders from enforcing due on sale clauses in several situations, including:

• Transfers due to the death of a joint tenant or tenant by the entirety

• Transfers to a relative who inherits and resides in the home

• Transfers into an inter vivos (living) trust where the borrower remains a beneficiary and occupant

These protections apply to most mortgages, excluding reverse mortgages.

Transferring Property to a Medicaid Asset Protection Trust

One important exception applies when a homeowner transfers property into a Medicaid Asset Protection Trust for estate planning or probate avoidance.

A Medicaid Asset Protection Trust is a type of living trust in which:

• The grantor remains a beneficiary

• The grantor keeps the right to live in the home

• Ownership is transferred for planning purposes

Under the Garn-St. Germain Act, this type of transfer does not trigger a due on sale clause.

When Lenders Are Prohibited From Calling a Loan

In all of the situations outlined above, federal law bars lenders from accelerating or calling in the loan balance. This protection applies to surviving spouses, joint tenants, heirs, and individuals engaging in lawful estate planning.

Why These Protections Matter

Losing a loved one is already emotionally difficult. Worrying about a lender demanding immediate payment only adds to the stress. The Garn-St. Germain Act recognizes both the rights of surviving family members and the importance of responsible estate planning. It allows property owners to plan for the future without risking their home.

Get Professional Guidance Before Transferring Property

Understanding and exercising your rights under the Garn-St. Germain Act can be complex. Before transferring property with an existing mortgage, whether during life or after a death, it is important to consult with experienced attorneys.

Russo Law Group has knowledgeable professionals who can guide you through the process and protect your interests. If you would like to speak with an experienced elder law attorney regarding your situation or have questions about something you have read, please do not hesitate to contact our office at 1 (800) 680-1717. We look forward to the opportunity to work with you.

Disclaimer: The information provided above is for general informational purposes only and is not legal advice.