Woodland Park, CO · Member since 2015 · 11 posts · 48 votes
Does anyone have any experience with transferring a mortgaged rental property to a revocable living trust, where the trust is created by the current owner and is also the trustee. Does the bank holding the mortgage have to be notified? Should the bank be notified to avoid problems? Does the bank have the right to cancel the loan on the basis that this is a sale? Thanks
"There are certain exceptions to enforceability of due-on-sale clauses. These are generally contained in Title 12, Code of Federal Regulations, Section 591. For example, borrowers may place their home in their own trust without triggering the due-on-sale clause. "A lender may not exercise its option pursuant to a due-on-sale clause upon a transfer into an inter vivos trust in which the borrower is and remains abeneficiary and which does not relate to a transfer of rights of occupancy in the property." (12 U.S.C. 1701j-3(d)(8)..[5].) Note that abeneficiary means possibly among multiple beneficiaries."
The typical application of this statue would be when someone places their own home in trust, but the statue wording is not so limited.
Since in my case the beneficiary of the trust the property is transferred to,is the the same as the borrower and since the property was bought as investment and continues as an investment rental there is nothing that relates"to a transfer of rights of occupancy in the property." So the due on sale clause is not triggered because of the statutory exclusion.
So really there seems to be no need to get a bank's permission in this situation and why would they even care since nothing has changed substantively.
Where you will likely get hung up is the insurance.
If what you are trying to do is to buy a property, have the owner put into a THT preferably named with the last name of the transferor. If then buying the beneficial interest belonging to the trust only, then lender is not the wiser.
Get letter authorizing lender to release info to you, the "asset manager" or successor trustee.
Name your entity as additional loss payee on policy.
Rick, this is for a rental property already owned in my name and I want to transfer it to a living trust that I have. (actually for a friend that wants to do this)
FYI I have had no problem getting the insurance company to name the trust as an additional insured.