Dear Mr. Azrael:
My estate planner recommended that I change my residential property deed, currently in my name only, to a life estate deed. By changing the deed to a life estate deed, upon my death, my home will go directly to the remaindermen listed in the life estate deed and thus avoid probate. I currently have an outstanding mortgage of approximately $104,000.
However, my mortgage company will not allow me to transfer to a life estate deed. The mortgage service representative indicated ... in writing, "Please be advised, [the lender] will neither recognize nor acknowledge a transfer of title to a life estate until after the death of the mortgagor, providing the estate does not enter into probate proceedings." The lender recommended a quit claim deed, but my attorney has indicated ... this is not a good idea.
Can the mortgage company refuse to allow me to transfer my deed to a life estate deed?
Debbie Zink Baltimore
Dear Ms. Zink:
I suggest that you utilize a life estate deed "with powers." The term "with powers" means that you reserve the exclusive right to sell, lease, mortgage or transfer the property during your lifetime without the consent or joinder of the remaindermen.
Because the property transfer takes effect only upon your death, you remain for all intents and purposes the owner of the property during your lifetime. You remain solely liable for the mortgage. There is no need for the mortgage lender to consent, or even to be advised of the life estate deed.
Upon your death, title to the property will vest in the remaindermen, subject to any mortgage you have placed on the property during your lifetime.
The question of whether the mortgage lender can demand payment of the mortgage after your death remains. The lender's rights are governed by the mortgage instrument. Some mortgages expressly state that the death of the borrower is an event of default which gives a right to require full payment.
Typically, however, a lender will not insist that the mortgage be paid immediately upon the death of the life estate holder. Instead, the remaindermen continue to make the required mortgage payments, and the lender gives them time to sell the property, refinance or assume the existing mortgage.
I don't think you should be concerned about the lender's letter stating that it "will neither recognize nor acknowledge a transfer of title to a life estate until after the death of the mortgagor." The lender simply may be saying it will not recognize the remaindermen's interest in the property until after your death. This position is consistent with your creating a life estate with powers, because the remaindermen will have only a contingent interest in the property.