Listen to Lawrence…Answer to Irrevocable Trust Mortgage Question

October 27, 2020
Dear clients and friends,
Here is another one of your questions and my response:
I was thinking of finally getting around to putting my house into an irrevocable trust to protect it from Medicaid. A friend of mine told me that if I do that, the bank could call in my mortgage.  I cannot afford to pay off my mortgage at this time. Is this true?
Most mortgages contain what is called a “due on sale” clause. This means that when you transfer a mortgaged property out of your name, the entire mortgage balance is due. Clearly, the banks don’t want to deal with a new owner and of course, we are all deeply concerned about keeping things easy for the banks, right?
However, this is not usually a problem when we are not selling your house but, rather, transferring it for estate planning purposes. In fact, New York and federal law specifically prohibit a mortgage holder from exercising a “due on sale” clause on residential real property containing less than five dwelling units or on a cooperative apartment unit when the property is transferred to a spouse or children of the owner, or a lifetime revocable or irrevocable trust where the borrower retains the right to occupancy.
The bottom line is that you can freely transfer your mortgaged property to a revocable trust (to avoid probate) or an irrevocable trust (to protect your home from Medicaid) without fear of having to pay off the mortgage. I have safely been doing this for clients for more than 30 years.
I hope this helps! Please forward this information to your friends and relatives.
As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
Let’s stay connected.
Stay safe!