Estate Planning

I Inherited a House - Do I have to Refinance the Mortgage?

By Gregory Herman-Giddens

No - in most cases.  Mortgages generally contain "Due on Sale" clauses, which say that the lender can call the mortgage due upon transfer of property.  However, federal law (12 USC § 1701j-3(d))
provides a number of exceptions (emphasis added):
 
(d) Exemption of specified transfers or dispositions

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—

(1) the creation of a lien or other encumbrance subordinate to the lender’s
security instrument which does not relate to a transfer of rights of
occupancy in the property;

(2) the creation of a purchase money security interest for household
appliances;

(3) a transfer by devise, descent, or operation of law on the death of a
joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less not
containing an option to purchase;

(5) a transfer to a relative resulting from the death of a borrower;

(6) a transfer where the spouse or children of the borrower become an owner
of the property;

(7) a transfer resulting from a decree of a dissolution of marriage, legal
separation agreement, or from an incidental property settlement agreement,
by which the spouse of the borrower becomes an owner of the property;

(8) 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; or

(9) any other transfer or disposition described in regulations prescribed by
the Federal Home Loan Bank Board.

 

Full post as published by North Carolina Estate Planning Blog on January 13, 2009 (boomark / email).