You and your spouse may have decided to form a living trust, via a trust agreement, to hold your real property or other assets. If you are the mortgagee, or holder of an existing mortgage made by someone else to you, you may desire to transfer that mortgage into your trust as an asset. It may be much more difficult, however, to obtain consent from a lender to transfer a liability, such as a mortgage from a bank or other lending institution, into the trust because it ceases to be an individual liability and becomes a liability of the trust.
Mortgage as an Asset
Locate the original recorded mortgage, either from your records or by obtaining a copy from the county courthouse or online property records. Note the legal name of the mortgagor, or person or entity making the mortgage, date of the mortgage and recording information, such as the book and page number or instrument number used to index it in the real property records. The recording information will be stamped on the recorded document.
Obtain a blank assignment of mortgage form from an online legal document site. Complete the form using your name as the assignor, or holder of the mortgage. Also list the assignee, who is the trustee or trustees of the trust, and full legal name of the trust. Make sure the assignment states the mortgage is being transferred to the trustees solely in their capacity as trustees for the benefit of the trust to avoid any confusion that they might be acquiring the mortgage individually. Fully describe the mortgage being transferred using the names of the mortgagors, dates and identifying recording information. Be sure the assignment conveys all rights, title and interest in the described mortgage.
Sign the assignment on the line provided for your signature in the presence of a notary public who must notarize your signature. Deliver the original completed assignment to the trustee of the trust to complete the transfer and for recording in the real property records for the county where the property is located. Notify the mortgagee of the transfer so that he or she will begin making future payments payable to the trustees of the trust as required by its banking institution.
Mortgage as a Liability
Contact the lender who holds your mortgage to determine if it will allow the transfer of title by deed of assumption to the trust. The mortgaged property will have to be deeded; otherwise, the mortgage cannot be assumed by the trust. An individual or local lender may be more willing to accommodate your request for the assumption than a large national lender.
Prepare a deed of assumption from yourself, as grantor, to the trustees of the trust, making sure the legal names of the current title holders as well as the legal names of the trustees and the trust are correctly recited in the document. Search an online legal document site for the deed form. The deed should contain proper assumption language so that it is clear the mortgage, identified by names, date and recording information, is being assumed by the trustees of the trust. Add a signature line below the grantor and grantee signatures for the lender to sign with language above the signature stating the lender consents to the assumption of the mortgage.
Sign the deed of assumption and have the grantee and lender also sign. All signatures should be notarized with a proper acknowledgment according to the laws of your state. Record the properly executed assumption deed in the real property records for the county where the land is located, typically the county where the mortgage is also recorded.
Before attempting to assign a mortgage to your trust, make sure the assignment is allowed under the terms of the mortgage and the terms of your trust agreement authorize it to hold a mortgage.
A lender may be unwilling to allow the assumption of its mortgage by your trust. Acquire the lender's consent before transferring property; otherwise, you could inadvertently activate a due-on-sale clause contained within your mortgage.
Seek an attorney's advice in preparing a deed if you do not have the necessary skills to do so yourself.
Some state laws may require that the assignee also execute the assignment. Determine your state’s laws before completing the assignment.
Consult with your attorney and accountant regarding any legal or tax consequences resulting from the transfer of a mortgage to a trust.
- Daniel P. Seink Co., Ltd.: Funding Your Living Trust
- Wayne County Register of Deeds: Bernard J. Youngblood
- Nawrocki Center for Family and Elder Law: The Primary Purpose of Having Assets in Your Trust
- California Land Title Association: Title Consumer Series, Understanding Title Insurance Requirements for Insuring Living Trusts
- Justia: 2005 Florida Code – Real and Personal Property Assignment and Cancellation of Mortgages, Chapter 701
- FindLaw: Alabama Code Section 35-4-51
Marie Murdock has been employed in the legal and title insurance industries for over 25 years. Murdock was first published in print in 1979 and has been writing online articles since mid-2010. Her articles have appeared on LegalZoom and various other websites.