Legal Question in Real Estate Law in California

I know of no lender who calls the loan when the property is transferred into a revocable trust as long as you coordinate with them. It is a very common thing and your lender should be familiar with it. In fact most lenders will even refinance property in a trust, although they usually require it to be deeded out of the trust, the new loan recorded, and then the property deeded back into the trust.

I've never heard of the nonsense put forward by Mr. McCormick.

What you are inquiring about is known as a "due on sale clause." At one time, a lender could not enforce a "due on sale" clause in a deed of trust unless the lender could demonstrate that enforcement was necessary to protect against impairment to its security or risk of default. (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 953.) That rule was applied at the time to institutional lenders. A similar rule was applied to noninstitutional lenders, what are commonly called "hard money" loans. (Dawn Invest. Co. v. Superior Court (1982) 30 Cal.3d 695, 702.) It was also later applied to seller financing.

The authority set forth in Wellenkamp was preempted by the Garn-St. Germain Depository Institutions Act of 1982. This federal law makes �due on sale� clauses valid and enforceable, with a few exceptions. A transfer into an inter vivos trust does not trigger the �due on sale� clause if the borrower is and remains a beneficiary and which does not relate to a transfer of occupancy rights in the property. �With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on- sale clause upon - � a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.� (12 U.S.C., � 1701j-3 subd. (d)(8).)

The federal exceptions to the enforceability of �due on sale� clauses are paralleled in California�s Civil Code. �An obligee may not accelerate the maturity date of the principal and accrued interest on any loan secured by a mortgage or deed of trust on residential real property solely by reason of any one or more of the following transfers in the title to the real property:� [a] transfer by an obligor or obligors into an inter vivos trust in which the obligor or obligors are beneficiaries.� (Civ. Code, � 2924.6 subd. (a)(4).)

I agree with Mr. Roach. Homeowners transfer mortgaged property into their living trusts all the time. The law against such acceleration applies only to loans made after 1975, but there are few older loans still around and the balances on them would be tiny.