• Martin Flax

Can you put the home you own and occupy into a trust without paying off the mortgage?

That’s the subject of this week’s blog. The answer can be addressed by looking at the meaning of Due-On Sales Clauses and the effect of the Garn—St. Germain Depository Institutions Act.

Due-On Sales Clause

A Due-On Sales clause in a mortgage states that you cannot sell your house to someone without paying off the mortgage. In other words, a buyer cannot assume the mortgage on your house when you sell it. Most mortgages are not assumable.

Garn—St. Germain Depository Institutions Act

In 1982 Congress passed the Garn—St. Germain Depository Institutions Act. Garn—St. Germain is a law that is mentioned frequently in estate planning when a married couple wants to put their family residence in a trust for estate planning purposes. What the Act says is that a lender may not enforce its due-on sales clause on a transfer from an owner to an inter-vivos trust (also called a living trust) where the owner-occupant borrower remains a beneficiary of the trust and the transfer to the trust does not change the rights of occupancy in the property. Without this exception provided by Garn—St. Germain, the homeowner would have to ask permission from the lender or otherwise pay off the mortgage at the time of the transfer to the trust. See below for more information.

12 U.S. Code § 1701j–3 - Preemption of due-on-sale prohibitions | U.S. Code | US Law | LII / Legal Information Institute (

Practical Tip

Consult a lawyer to review your mortgage language; to create the trust; and to advise you throughout the transaction. Once the house is placed in a trust, make sure that you add the trust to the homeowner's insurance policy as an additional insured.

If you would like a free initial consultation to discuss creating your personalized estate plan, please contact the Law Offices of Martin I. Flax, P.C. at

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