The Garn–St Germain Act: Transferring Your Mortgaged Home to a Trust in Florida & New York

What Is the Garn–St Germain Act?

The Garn–St Germain Depository Institutions Act of 1982 is a federal law that fundamentally governs when mortgage lenders can and cannot enforce the due-on-sale clause in a residential mortgage. Before this law, transferring a mortgaged property — even to your own trust — could technically give your lender the right to demand immediate repayment of the entire loan balance.

Congress enacted Garn–St Germain to protect families and estate planning strategies from this risk. The law specifically prohibits lenders from enforcing due-on-sale clauses for certain types of transfers involving residential property containing fewer than five dwelling units.

For estate planning attorneys and their clients in New York and Florida, this law is foundational. Without it, even the most carefully drafted revocable living trust could expose a homeowner to immediate mortgage acceleration simply by transferring the deed.

The Due-on-Sale Clause: What It Is and Why It Matters

Nearly every residential mortgage contains a due-on-sale clause (sometimes called an acceleration clause). This provision gives the lender the right to demand full repayment of the outstanding loan balance if the property is sold, transferred, or otherwise conveyed without the lender’s prior written consent.

Lenders include these clauses for a straightforward reason: they want to prevent low-interest loans from being passed to new owners who might not qualify for the same terms at current market rates.

The practical concern for estate planners is this: transferring a home into a revocable living trust, adding a child to the deed as a joint tenant, or making other common estate planning moves could technically constitute a “transfer” that triggers the clause. Garn–St Germain is the federal shield that prevents lenders from weaponizing these clauses against families engaged in legitimate estate planning.

Transfers Protected by Garn–St Germain

The Act identifies specific categories of transfers where lenders cannot enforce the due-on-sale clause, regardless of what the mortgage documents say. For residential property with fewer than five dwelling units, protected transfers include:

• Transfers at death — by devise, descent, or operation of law, including the death of a joint tenant or tenant by the entirety
• Transfers to a spouse or child resulting from the borrower’s death
• Lifetime transfers to a spouse or child, including partial transfers that create joint ownership
• Transfers to a relative upon the borrower’s death where the relative will occupy the property
• Transfers to an inter vivos (living) trust where the borrower remains a beneficiary and the transfer does not affect the borrower’s rights of occupancy

That last category — transfers to inter vivos trusts — is the one most relevant to estate planning. It is the legal foundation for transferring your mortgaged home into a revocable living trust without triggering lender approval or acceleration.

Revocable vs. Irrevocable Trusts: A Critical Distinction

Not all trusts receive equal protection under Garn–St Germain. The type of trust matters significantly, and this is where careful legal structuring becomes essential.

Revocable Living Trusts

A revocable living trust (also called a revocable inter vivos trust) is the most common tool in estate planning and receives the strongest Garn–St Germain protection. When you transfer your home to a revocable trust where you are both the trustee and a beneficiary, and you retain the right to occupy and revoke the trust, the transfer falls squarely within the Act’s protections.

The lender cannot call the loan due. The mortgage continues on its existing terms. Your estate plan proceeds without interruption.

Irrevocable Trusts

Irrevocable trusts — including Medicaid Asset Protection Trusts (MAPTs) and other irrevocable asset protection vehicles — are more complex. The Garn–St Germain protections may still apply if:

• The borrower remains a beneficiary of the irrevocable trust
• The transfer does not affect the borrower’s right of occupancy

However, many irrevocable trusts are specifically structured to remove the grantor as a beneficiary — that is the point of certain Medicaid planning strategies. In those cases, Garn–St Germain protection may not apply, and a lender could potentially enforce the due-on-sale clause.

In practice, most residential lenders do not actively monitor title transfers and rarely enforce due-on-sale clauses against seniors transferring homes for Medicaid planning purposes — particularly when payments remain current. But the legal risk exists, and clients should understand it before proceeding.

Transfer Taxes and Local Recording Fees

Beyond the mortgage concern, transferring property into a trust also requires attention to local transfer tax provisions. In New York, certain property transfers trigger the New York State Real Estate Transfer Tax and potentially the New York City or county-level transfer tax, depending on the property’s location.

Transfers to revocable trusts are often exempt from or subject to reduced transfer taxes — but the specific exemptions vary by county, and the deed must be properly drafted and recorded at the county clerk’s office. Failing to handle this correctly can result in unexpected tax bills or title issues down the road.

In Florida, documentary stamp taxes apply to most deed transfers but certain trust transfers may be exempt if properly structured and documented. Florida’s Department of Revenue has specific guidance on which trust transfers qualify for exemption.

Florida: Federal Law Applies Directly

Florida does not have a state statute that separately codifies Garn–St Germain. Florida estate planning practitioners apply the federal Act directly, relying on its protections as written.

Key Florida-specific considerations:

• Tenancy by the entirety — fully recognized in Florida and protected when one spouse dies. The surviving spouse can continue the mortgage without lender interference under Garn–St Germain.
• Revocable living trusts are widely used in Florida estate planning and are well-established as a protected transfer vehicle under the Act.
• Heirs who inherit are not personally liable on the mortgage note, but take title subject to the existing loan. As long as payments remain current, most lenders will not enforce the due-on-sale clause.
• Florida’s unlimited homestead exemption interacts with trust planning in important ways — transferring homestead property to a trust must be done carefully to preserve homestead status and property tax benefits.

Florida’s lack of a state overlay means practitioners must rely entirely on federal law interpretation, which can occasionally create uncertainty when dealing with more complex trust structures. This is where experienced legal counsel becomes especially valuable.

New York: Federal Law Plus State Codification

New York has gone a step further than Florida by enacting Banking Law Section 6-G, which restates and codifies the Garn–St Germain exemptions within New York state law. This provides New York homeowners and attorneys with an additional layer of legal protection and clarity.

Key New York-specific features of Banking Law Section 6-G:

• The same protected transfers listed under federal law are mirrored in state statute — death-related transfers, spouse/child transfers, and qualifying trust transfers
• New York law explicitly addresses cooperative apartments, which are among the most common housing structures in New York City. Co-op shares are personal property rather than real property, so different legal rules apply — and Section 6-G provides specific guidance
• Having a state-level statute means New York borrowers have a state enforcement mechanism in addition to federal law, providing an additional avenue for challenging improper due-on-sale enforcement
• The statute does not materially expand protections beyond federal law, but its codification provides practitioners and lenders with clear, accessible New York-specific authority

For New York estate planners, the combination of federal and state law creates a robust framework for trust transfers. For Staten Island, Brooklyn, Queens, Manhattan, and Bronx homeowners moving properties into trusts, this dual protection is particularly important given the high property values and complex mortgage landscapes in the New York City market.

Entities Owned by Trusts: LLCs and Asset Protection Structures

A more complex — and increasingly common — estate planning structure involves transferring property not directly into a trust, but into a limited liability company (LLC) owned by a trust. This structure offers potential liability protection in addition to the probate-avoidance benefits of a trust.

However, Garn–St Germain’s protections are specifically tied to transfers to inter vivos trusts. A transfer to an LLC — even an LLC wholly owned by a trust — may not qualify for the same protection. The LLC is a separate legal entity, and a lender could potentially argue the transfer triggers the due-on-sale clause.

In practice, this risk is often managed by:

• Ensuring the borrower remains a member or manager of the LLC (maintaining control and occupancy)
• Reviewing the specific language of the mortgage instrument for any LLC-transfer provisions
• Obtaining a title insurance endorsement that covers the transfer
• In some cases, seeking the lender’s written consent before transferring to an LLC

We analyze each client’s specific mortgage terms, property situation, and planning goals before recommending any transfer structure involving LLCs.

Practical Steps for a Protected Trust Transfer

Whether you are in New York or Florida, a properly executed trust transfer of a mortgaged property involves several coordinated steps:

1. Review your mortgage documents — confirm the due-on-sale clause language and identify any lender-specific notification requirements
2. Draft the trust correctly — ensure the borrower is named as a beneficiary and retains rights of occupancy; confirm the trust type and structure qualify under Garn–St Germain
3. Prepare the deed properly — the deed transferring the property to the trust must be correctly drafted to reflect the trust as grantee
4. Review transfer tax implications — confirm whether state and local transfer taxes apply and whether any exemptions are available
5. Record the deed — file with the appropriate county clerk or recorder; in New York, this means the county clerk’s office for the county where the property is located
6. Update title insurance — notify your title insurer of the transfer and obtain an endorsement if necessary to ensure continued coverage
7. Update homeowner’s insurance — notify your insurer and add the trust as an additional insured on the policy

Frequently Asked Questions