What effect does a transfer of property ownership have on an existing mortgage?
Full Question:
Answer:
A deed conveys ownership of the property, usually the entire ownership interest of the grantor(s). The effect is simple - the grantee(s) become the owner of the property (holds title to the property).
The effect on an outstanding mortgage can be significant. Most purchase money mortgages for residential property contain standard language requiring the borrowers of the money to be the owners of the property secured under the mortgage. In fact, most mortgages contain language that states if any ownership interest in the property is transferred while the loan is still outstanding, the lender reserves the right to demand full payment of the loan. This is often called an "acceleration clause." The lender may allow the transfer but the borrowers must first gain the lender's consent.
An acceleration clause is a contractual provision which allows the holder to declare the remaining balance due and payable immediately upon the occurrence of a default in the obligation.
If the grantee of the transfer is essentially the same as the grantor (i.e. borrower in the bank's eyes), the bank may give consent. A LLC soley owned by the original borrowers may be permitted, especially if personal guarantees are given.
