Client often ask if transferring their home into the Bridge Trust will trigger the Due-On-Transfer clause of their mortgage. The short answer is no. The Bridge Trust is 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. As you can see below this qualifies the Trust for the exception under the Garn-St. Germain Depository Institutions Act.
The Garn-St. Germain Depository Institutions Act, enacted in 1982, includes provisions that protect transfers of real estate from due-on-sale clauses in mortgages. A due-on-sale clause is a provision in a mortgage that allows the lender to demand full repayment of the loan if the property is sold or transferred to a new owner.
Under the Garn-St. Germain Act, certain types of transfers of real estate are exempt from due-on-sale clauses. These include:
(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.
For this reason, if you transfer your primary residence to the Bridge Trust, your bank will not be authorized to call your loan. Note, that this does not apply to other investment property and in all cases it is advised that you consult with your attorney prior to any transfers.
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