Due On Sale Clause: Estate Planning with a Mortgage

When it comes to properties with a mortgage, there's an important aspect to consider: the due on sale clause. Understanding this clause and its implications can help you make informed decisions about your estate plan.

What is a Due On Sale Clause?

A due on sale clause, also known as an acceleration clause, is a provision in a mortgage contract that allows the lender to demand full repayment of the loan if the property is sold or transferred. This clause is standard in most mortgage agreements and aims to protect lenders so they can collect the outstanding debt if ownership changes.

How Does the Due On Sale Clause Affect Estate Planning?

When planning to transfer a mortgaged property to your heirs, the due on sale clause can complicate matters. If the property is transferred upon your death, the lender has the right to demand full repayment of the remaining mortgage balance. This could force your heirs to either pay off the mortgage in full or sell the property to cover the debt.

Estate Planning Strategies

To mitigate the impact of the due on sale clause, consider these estate planning strategies:

Revocable Living Trust: Placing your property in a revocable living trust can help avoid triggering the due on sale clause. Since the trust technically owns the property and you retain control as the trustee, the transfer upon your death does not constitute a sale, potentially bypassing the clause.

Assumption of Mortgage: Some loans are assumable, meaning the new owner can take over the existing mortgage. However, this is less common with modern mortgages. Check with your lender to see if your mortgage is assumable.

Joint Tenancy: Holding the property in joint tenancy with the right of survivorship can also avoid triggering the due on sale clause. When one owner dies, ownership automatically passes to the surviving joint tenant(s), typically without invoking the clause.

Communication with Lender: In some cases, lenders may be willing to work with the heirs to allow them to assume the mortgage or refinance it under favorable terms. Open communication with the lender can provide more options for managing the property transfer.

Legal Considerations and Professional Advice

The due on sale clause is an important factor to consider in estate planning when dealing with mortgaged property.You can have a smoother transfer of property to your heirs while minimizing financial burdens. Always seek professional legal advice to create an estate plan that best suits your needs and protects your loved ones' interests.

For more information, contact our office at Askew & Associates, P.A. by calling 954-546-2699.

Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns