How can I assume the mortgage on my brother’s house?

[Adam Bijou]

My brother is interested in selling his house to me, however, I’d like to keep the existing 2.9% interest rate on his mortgage. I’m wondering how I can do this without having his loan be called due. I heard this may be a possible by first placing the house in a trust and utilizing the Garn-St Germain act. Wondering if there is any validity to this?Any advice would be great appreciated. Thank you!

Located in: Trenton, NJ 

[Russell Brazil]

Is it a VA or FHA mortgage? If so, just contact the loan servicer.

[Chris Seveney]

Quote from @Adam Bijou:

My brother is interested in selling his house to me, however, I’d like to keep the existing 2.9% interest rate on his mortgage. I’m wondering how I can do this without having his loan be called due. I heard this may be a possible by first placing the house in a trust and utilizing the Garn-St Germain act. Wondering if there is any validity to this?Any advice would be great appreciated. Thank you!

Located in: Trenton, NJ 

 one thing to realize and talk to your accountant about is if you assume it - do you assume it based on his cost basis, which could be a lot lower than the property value and then when you do eventually sell it, you could be hit with a nice capital gains bill. 

[Brad S.]

Quote from @Adam Bijou:

My brother is interested in selling his house to me, however, I’d like to keep the existing 2.9% interest rate on his mortgage. I’m wondering how I can do this without having his loan be called due. I heard this may be a possible by first placing the house in a trust and utilizing the Garn-St Germain act. Wondering if there is any validity to this?Any advice would be great appreciated. Thank you!

Located in: Trenton, NJ 

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My understanding is that technically, No, that would still give the lender the option to enforce the due on sale clause (DOS) and accelerate the loan. But, practically speaking I have never heard of a lender actually accelerating a loan due to a tfr. I have even heard interviews of officials (I think from the Office of Thrift Supervision) where they say they also have never heard of it being enforced. But, there is always that chance.

I think there is a provision in the due on sale clause regarding the borrower keeping the rights of occupancy in the property, if title is transferred into a trust. And there may also be verbiage that the lender should get notice of any change in occupancy. So, technically, getting around the DOS is not that easy.

But, putting the property in a Land Trust, in your brother's name, and then having him tfr the beneficial interest to you at some future date (maybe after letting the lender know of the trust tfr), may help shield the beneficial interest tfr, but technically, may not circumvent the DOS. Also, make sure to keep the insurance in his name, since the lender will get notification of any insurance changes.

So, while it may be possible to do a "shadow title change" through a trust, that may still violate the DOS, but it may not be likely to ever come back and bite you .....but it is can.