Will My Lender Allow Me to Give My House to My Parents?
Full Question:
Answer:
If there is a mortgage on the property, the transfer may violate a due-on-sale clause in the mortgage which the lender may or may not seek to enforce. Most lenders require that the mortgage or deed of trust contain a due on sale clause. This is an acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the transfer or sale of a property. Such a clause permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance due and payable immediately if the property securing the loan is sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent.
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. I suggest reading the contract terms with the lender carefully or contacting the lender to inquire further.