I Inherited a House – Do I have to Refinance the Mortgage?
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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.
