Does a Florida Lady Bird Deed Trigger the “Due on Sale” Clause?

An Introduction to the Lady Bird Deed & Due on Sale Clause

For most Florida homeowners, recording a Lady Bird deed does not trigger the due on sale clause in their mortgage.

The reason is simple: a Lady Bird deed (also called an enhanced life estate deed) does not transfer ownership of a home when it is executed. The owner keeps the right to live in, sell, rent, mortgage, or revoke the property for the rest of their life and the transfer to preselected beneficiaries only takes effect after the owner’s death. Because there is no present change of ownership, there are no grounds for a lender to “accelerate” the loan during the owner’s lifetime.

Furthermore, federal law provides express protection for the kinds of family transfers a Lady Bird deed is designed to accomplish. This article explains how those protections work and the narrow situations where caution is warranted.

What is a Florida Lady Bird Deed?

A Lady Bird deed is a very common estate-planning tool in Florida that lets an owner of real estate property pass their interest to their pre-selected beneficiaries automatically upon their passing, thereby skipping probate and retaining complete control of the property during their lifetime.

Technically speaking, a Lady Bird deed splits ownership into two parts:

• First, an enhanced life estate for the owner/grantor. Unlike a traditional life estate, the “enhanced” version reserves the right to sell, mortgage, lease, gift, or revoke the property without anyone’s permission.
• Second, a remainder interest for the individuals named as beneficiaries who receive the property only when the owner/grantor passes away.

Florida is one of the few states that recognizes this kind of transfer deed and when done correctly, it is a powerful tool that allows the owner to preserve their homestead exemption, avoid probate and, as addressed in this article, a lender potentially exercising the due of sale clause.

To learn more about how this tool fits into a broader plan, see our complete guide to the Florida Lady Bird deed. 

What is a Due on Sale Clause

A Due on Sale clause, which is also known as an acceleration clause, is a standard provision in most residential mortgages that allows the lender to demand immediate repayment of the entire outstanding loan balance if the subject property is sold or transferred without the lender’s prior written consent.

Most Fannie Mae and Freddie Mac mortgages, as well as conventional residential mortgages, contain a Due on Sale clause. Such language typically warns that if any interest in the property “is sold or transferred” without consent, the lender “may require immediate payment in full.” And if such payment cannot be made, then the lender may initiate foreclosure proceedings.

It is this risk that makes this topic so important for Florida homeowners. It is important to avoid accidentally causing a lender to exercise the Due on Sale clause when planning one’s estate to avoid probate. For a deeper look at every transfer that can set off this provision, read our companion article on the Florida due on sale clause.

Why a Lady Bird Deed Will Likely Not Trigger the Due on Sale Clause

There are two independent reasons why a Lady Bird deed is generally considered to be a safe option for those seeking to avoid both probate and the effects of the Due on Sale clause:

1. No present transfer occurs. The due on sale clause is triggered by a transfer of legal or beneficial ownership, but with a Lady Bird deed, the owner retains both these rights during their lifetime. The owner can still sell the property, take out a new loan against the property, rent it out etc., because it remains their property. Essentially, the only thing that the Lady Bird deed does at the time it is executed is name the individual or individuals who inherit it later on. This future, transfer on death, is treated very differently from a sale or gift. 
2. Federal law expressly protects the underlying transfer. Even when ownership eventually does pass at your death, the Garn-St. Germain Act steps in to bar the lender from accelerating the loan for the common estate-planning transfers that a Lady Bird deed accomplishes. This second layer of protection is worth understanding in detail. 

The Garn-St. Germain Act Exemptions

The Garn-St. Germain Depository Institutions Act of 1982, codified at 12 U.S.C. § 1701j-3, is a federal law that prevents lenders from enforcing a Due on Sale clause in certain circumstances. Under this Act, lenders cannot call a mortgage due in the cases of the death of the borrower, joint ownership, transfers to certain family members, divorces, transfers to certain types of trusts, short-term leases etc.

Several of these listed exemptions speak directly to the objective of executing a Lady Bird deed. It serves to allow:

• A transfer to a relative resulting from the death of the borrower (§ 1701j-3(d)(5)). This means that when a home passes to a relative of the owner at their death, then the lender may not accelerate the loan on that basis alone.
• A transfer where the spouse or children of the borrower become owners (§ 1701j-3(d)(6)). Naming a spouse or child(ren) as a remainderman falls within this protection.
• A transfer on death of a joint tenant or transfers into certain inter vivos trusts where the borrower remains a beneficiary (§ 1701j-3(d)(3), (d)(8)). These cover related planning structures, such as pairing a deed with a revocable living trust.

Therefore, this federal law was drafted to protect homeowners from being punished by lenders, inadvertently or not, for simply doing routine estate planning and a Lady Bird deed naming a spouse or children is about as comfortably inside those protections as a transfer can be.

When Can a Lady Bird Deed Become a Problem?

“Generally safe” is not necessarily “always safe.” There are a handful of situations that call for a closer review before executing and recording a Lady Bird deed.

1. When the beneficiary is not a spouse, child or relative. The federal exemptions are built around family. So, if a non-family member is named, the death-transfer exemptions may not apply, and a cautious lender could potentially take the position that the clause is in play.
2. When dealing with a reverse mortgage or non-traditional loan. Reverse mortgages, private loans, and certain commercial or investment-property loans can contain unusual acceleration language that does not track the standard form. These deserve a careful, document-specific read.
3. The deed is poorly drafted. The protection depends on the deed actually creating a valid enhanced life estate. A deed that omits the reserved powers, contains a defective legal description, or is improperly executed may be treated as a present transfer (or may create title problems that surface later when your beneficiaries try to sell or refinance). This is one reason a do-it-yourself deed is extremely risky; see our overview of deeds and conveyances. 
4. Confusing a Lady Bird deed with adding someone to the title. Adding an adult child as a co-owner on a standard deed during an owner’s lifetime is a present transfer and will likely trigger the Due on Sale clause. The Lady Bird deed exists specifically to avoid this mistake. See our article on adding a name to a deed in Florida to explore the difference between the two.

Should an Owner Notify Their Lender?

Technically, there is usually no legal requirement to request a lender’s permission before recording a Lady Bird deed, and the Garn-St. Germain protections apply whether or not the lender is told. As such, most homeowners record the deed without notifying the lender at all because no present transfer occurs.

However, the terms of the specific mortgage in question should be reviewed to ensure it does not contain notice provisions. The right call depends on the specific loan documents.

It should also be noted that the Lady Bird deed does not erase the debt: the mortgage stays in place on its existing terms, and whoever inherits the home takes it subject to that balance.

Frequently Asked Questions

Talk to a Florida Estate Planning Attorney

A Lady Bird deed is unquestionably one of the most efficient ways to avoid probate in Florida while keeping complete control of the property and avoiding the risks of the Due on Sale clause.

But the protection depends on careful drafting, the right beneficiaries, and a clear understanding of the specific loan terms.

At ASR Law Firm, we help Florida homeowners transfer property, avoid probate, and steer clear of mortgage surprises like the Due on Sale clause.

If you are considering a Lady Bird deed, a living trust, or another way to pass your home to the next generation, contact us to schedule a complimentary consultation.

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