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Real estate often plays a central role when creating an estate plan in California. Given the state’s high property values and unique legal landscape, ensuring a smooth transfer of property to your heirs is critical. One often overlooked issue in estate planning is the Due on Sale Clause in mortgage agreements. Understanding how this clause applies—and how to navigate it within the context of California’s laws—can protect your estate and your loved ones.

What is the Due on Sale Clause?
The Due on Sale Clause is a standard provision in mortgage agreements that allows the lender to demand full repayment of the loan if the property owner dies or if the property is sold or transferred. While it’s designed to protect lenders, it can create challenges when transferring real estate as part of your estate plan.

This is particularly important for California homeowners because real estate is often the most significant asset. A forced loan repayment due to the Due on Sale Clause could disrupt your estate plan, potentially requiring the sale of the property or causing financial stress for your beneficiaries.

The Garn-St. Germain Depository Institutions Act of 1982 provides critical exceptions to the Due on Sale Clause that apply in California:

• Transfers to a Living Trust: Transferring your property into a revocable living trust, where you are the trustor and beneficiary, avoids triggering the clause.
• Transfers to a Spouse: Lenders cannot enforce the clause if the property is transferred to a surviving spouse due to the borrower’s death.

How to Plan Around the Due on Sale Clause in California
By incorporating the right strategies, you can mitigate the impact of the Due on Sale Clause trigger upon death. Consider using life insurance or maintaining cash reserves in your estate to ensure any mortgage obligations can be met without burdening your heirs.

Why Work with a California Estate Planning Attorney?
At Botti & Morison, we understand these intricacies and work collaboratively to create a plan tailored to your needs. Our team approach ensures that every aspect of your estate is carefully considered, giving you peace of mind that your family and property are protected.
If you’re a California homeowner concerned about transferring your property to loved ones, we’re here to help. Contact us today to schedule a consultation and learn how to safeguard your family’s future.

Thanks for reading.
Christopher E. Botti, Esq., Certified Specialist in Estate Planning, Trust and Probate Law

This blog is for informational purposes only and does not constitute legal advice. Every situation is unique, and you should consult with a qualified attorney for advice regarding your specific circumstances.