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Can you put a home in trust that still has a mortgage?

Can you put a home in trust that still has a mortgage?

Full question:

I had a paralegal set up a revocable trust for me and my spouse. She told me that the leinholder on my home would not let me put the home in the trust because I owed them money. I only owe one seventh of the value of the home. Is this correct?

Category: Real Property
Subcategory: Deeds
Date: 04/07/2025
State: Alabama

Answer:

Most lenders require that the mortgage or deed of trust contain a due on sale clause. This is an acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the transfer or sale of a property. Such a clause permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance due and payable immediately if the property securing the loan is sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

Should my parents put their assets in a trust?

Whether your parents should put their assets in a trust depends on their financial situation and estate planning goals. A trust can help manage assets, avoid probate, and provide for beneficiaries. However, it may not be necessary if their estate is small or if they prefer to retain control over their assets. It's advisable for them to consult with an estate planning attorney to discuss their specific needs and options.

What is the biggest mistake parents make when setting up a trust fund?

One of the biggest mistakes parents make when setting up a trust fund is failing to fund the trust properly. This means not transferring assets into the trust, which can lead to the trust not functioning as intended. Additionally, not clearly defining the terms and beneficiaries can create confusion. Consulting with a legal professional can help avoid these pitfalls.

Is a revocable trust marital property?

A revocable trust can be considered marital property if both spouses contribute assets to it or if it was created during the marriage. However, the specifics can vary by state. It's important to clarify ownership and asset contributions to ensure proper division in case of divorce or death. Legal advice can provide clarity on how state laws apply.

Can I put my home in a trust if it's not paid off?

You can generally put your home in a trust even if it has an outstanding mortgage. However, the lender may have a due on sale clause that could trigger repayment of the loan. It's essential to check your mortgage agreement and consult with a legal professional to understand the implications of transferring the property into a trust.

What is the downside of putting assets in a trust?

One downside of putting assets in a trust is the potential loss of control over those assets. Once placed in a trust, the grantor may have limited access or decision-making power, depending on the trust's terms. Additionally, there may be costs associated with setting up and maintaining the trust. Consulting with an attorney can help weigh these factors.

What is the downfall of having a trust?

The downfall of having a trust can include the complexity of managing it and the costs involved in setting it up and maintaining it. Trusts require careful administration, and failing to follow legal requirements can lead to issues. Moreover, if not funded properly, a trust may not serve its intended purpose. Legal guidance can help mitigate these challenges.