Can a girlfriend take over a boyfriend’s mortgage?

Question: You had a recent column about a daughter not having to pay off the mortgage on a Phoenix home she inherited from her mother. You said that the daughter could just continue to make the monthly payments, even though there was a due-on-sale clause in the mortgage requiring immediate payment of the entire amount of the mortgage upon any transfer of the home. Here is my question: My boyfriend and I live in a home in Goodyear. Because of my bad credit, the deed and the $180,000 mortgage are both only in my boyfriend’s name. The $180,000 mortgage has a due-on-sale clause. We are breaking up and my boyfriend is moving back to Massachusetts. He has agreed to sign a deed transferring the home to me in exchange for me paying him $20,000. Will I be allowed just to continue to make the monthly payments to the mortgage company, or will the mortgage company require me to pay off the entire $180,000 mortgage immediately?

Answer: The legal answer is that you could be required to pay the entire $180,000 mortgage immediately. Under federal law there are certain exceptions to immediate payment of the entire amount of the mortgage after a transfer of the home. These exceptions include a transfer of the home after death to a relative, during lifetime to a spouse or children, or during lifetime to your own Revocable Living Trust. There is no exception for a transfer from a boyfriend to a girlfriend. The practical answer to your question, however, is that you should not have to immediately pay the $180,000 mortgage. You should be able to just make the monthly payments. The reason is that mortgage lenders just want monthly payments, and don’t want to foreclose on homes, even if they have that right under a due-on-sale clause. Mortgage lenders are in the business of making loans, not in the business of owning real estate after a foreclosure.

Note: In the rare circumstance that a lender learns of a transfer of a mortgage that violates a due-on-sale clause, the lender will normally still do nothing, except maybe ask for a small penalty or an increase in the interest rate, which some struggling Savings and Loan companies did during the Savings and Loan crisis in the early 1990s.