Can a Property Owned by an Irrevocable Trust Be Foreclosed?

By Marcus Schantz

A living trust is an estate planning tool used to transfer property at death, allowing probate to be avoided. When you place property into a trust, it is retitled or redeeded to the trust. Thus, transferred property legally belongs to the trust. However, mortgaged property held in trust can still be foreclosed upon.

Irrevocable Trust

A "grantor" establishes a trust on behalf of a "beneficiary" by placing property into a trust. A "trustee" is named to administer the trust and holds the property on behalf of the beneficiary. Property placed into a trust must be retitled and redeeded in the name of the trust. When you place property in an irrevocable trust, you cannot end the trust or take your property back. In contrast, you can undo a revocable trust during your lifetime. Property you place in a revocable trust can also be withdrawn from the trust.


A mortgage is an encumbrance held by the owner of property, such as a bank. This type of encumbrance is known as a lien, which is a security interest. Your use of encumbered property may be restricted. For example, you cannot sell property that is mortgaged without the mortgage holder's consent. This is because the lien prevents you from obtaining clear title to transfer the property.

Ready to start your LLC? Start an LLC Online Now


You must make mortgage payments per the terms set forth in the loan agreement. A lender may foreclose if payments are not made as agreed. Foreclosure is the process of a lender taking actual possession of the property from you to pay the debt you owe. If your property is foreclosed, you lose all rights to the property. For foreclosure purposes, property in an irrevocable trust is no different from non-trust property. The only difference is that the trust is the party foreclosed upon as opposed to you individually. Thus, property in an irrevocable trust may be foreclosed.


Even if you haven't missed any payments, your mortgage may be subject to foreclosure when you redeed the property to a trust. This is possible when the mortgage includes "due on sale" language, which states that the entire balance of the mortgage is due at the time of transfer (or conveyance). Consequently, your lender may foreclose if you cannot pay off the mortgage.

Ready to start your LLC? Start an LLC Online Now
How to Disclaim a Beneficiary Deed in Arizona


Related articles

How to Transfer a Deed in a Living Trust

A living trust is an arrangement in which you place assets under the care of a trustee for eventual distribution to beneficiaries. One of the main advantages of a living trust is that trust assets don't go have to go through probate after you die -- instead they can be distributed to beneficiaries at any time before or after you die. A living trust can hold real estate, and the trustee's name will appear on the deed. The trustee may transfer the property represented by a deed to a trust beneficiary or even to a third party, if the terms of the trust authorize him to do so.

Can You Transfer Debt Into a Living Trust?

A living trust is an agreement in which you transfer your assets into the ownership of the trust. You can retain control of those assets by naming yourself as trustee until your death, at which time a successor trustee takes over and distributes your assets to your beneficiaries. While you cannot transfer debt into a living trust, creditors might be able to reach the assets in the trust during your lifetime and after your death.

Can Creditors Get Property Put in Trust Before a Bankruptcy?

The law is full of questions that have both yes and no answers, particularly when it comes to bankruptcy and trusts. Some trusts can protect your assets from creditors, while others cannot. You may lose property in one type of bankruptcy, but not in another. Successfully using a trust to shield assets before you file depends on a lot of factors.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Transfer a Mortgage to a Living Trust

You and your spouse may have decided to form a living trust, via a trust agreement, to hold your real property or other ...

Can a Lien Be Put Against a Living Trust?

A living trust is created to keep the contents of a will private or to guard against the mishandling of funds intended ...

What if My House Is Not Paid for: Can I Put It in My Living Trust?

A living trust is an estate planning tool that acts as a holding area for property. A grantor -- the legal term for a ...

Can a Trustee Sign the Title of a Car Over Upon the Death of the Owner?

Many people establish trusts to avoid probate proceedings for their heirs. Revocable trusts are the most popular choice ...

Browse by category
Ready to Begin? GET STARTED