My mother has a reverse mortgage with Bank of America (formerly Seattle Financial) and is setting up a Living Trust. In order to fund it, she is going to transfer the title to the trust but is concerned that the bank will demand full repayment of the outstanding balance.
Elder Law Attorney
Hate to disagree with a fellow practitioner but the Garn-St Germain Act does prohibit this... "... 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 a beneficiary and which does not relate to a transfer of rights of occupancy in the property[.]” (The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)(8).
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Real Estate Attorney
There is no federal law that precludes mortgage acceleration when title is transferred to a living trust. However, most living trust loan documents will allow such a transfer if the beneficiary of the trust is the same person that borrowed the money on the reverse mortgage. You need to take all of your mother's reverse mortgage loan papers to a real estate attorney who practices in the area of real estate lending and mortgages and have him or her make sure your mother's reverse mortgage loan documents allow such a transfer to a living trust.
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Elder Law Attorney
As David notes the Garn- St. Germain Act protects certain transfers in trust.
The Act appears as follows at 12 USC § 1701j-3 - Preemption of due-on-sale prohibitions--Garn-St. Germain Depository Institutions Act of 1982 Pub.L. 97-320, H.R. 6267
(d) Exemption of specified transfers or dispositions
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon--
(1) the creation of a lien or other encumbrance subordinate to the lender's security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) a transfer 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; or
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.
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Lawrence Friedman, Bridgewater, NJ. Certified as an Elder Law Attorney by the ABA approved National Elder Law Foundation, former Chair NJ State Bar Association Elder and Disabilities Law Section, Member Board of Consultors of NJSBA Real Property, Trusts & Estates Law Section, Vice Chair Special Needs Law Section of National Academy of Elder Law Attorneys, and Master of Laws (L.L.M.) in Taxation from N.Y.U. School of Law.
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