Can we transfer a house into a trust if there is still a mortgage, and do we need to notify the lender or the insurance company? – North Carolina

Short Answer

In North Carolina, a home can usually be deeded into a revocable living trust even if there is still a mortgage. The mortgage does not disappear; the property remains collateral and the loan payments must continue. As a practical matter, the lender and the homeowners insurance carrier should be notified so the loan and policy records match the new title, and to reduce the risk of coverage or escrow problems.

Understanding the Problem

Under North Carolina estate planning, the key question is whether a homeowner can retitle real estate from an individual name into a revocable trust while a deed of trust (mortgage) is still in place, and what happens next with the mortgage company and the homeowners insurance company. This issue often comes up when a relative is trying to avoid probate and make sure a home passes to a child, especially when the homeowner is dealing with a health crisis and someone is acting under a financial power of attorney. The decision point is whether the transfer can be done now versus waiting until after the mortgage is paid off, and what notices should happen at the time of transfer.

Apply the Law

In North Carolina, ownership of real estate changes by signing and recording a deed with the county Register of Deeds. Deeding a property into a revocable trust does not pay off the loan; it changes who holds title, while the existing deed of trust lien stays attached to the property until the lender records a satisfaction after payoff. When an agent signs the deed using a financial power of attorney, North Carolina requires recording the power of attorney (or a certified copy) with the Register of Deeds so the public records show the agent’s authority.

Key Requirements

Proper trust and deed: The revocable trust must exist, and the deed must correctly name the trustee and trust (to avoid title and closing problems later).
Record the deed (and power of attorney if applicable): The signed deed must be recorded with the Register of Deeds in the county where the property is located; if an agent signs, the power of attorney must be recorded as required for real property transfers.
Manage loan and insurance logistics: The mortgage lien remains in place, so the loan must stay current; the lender/servicer and the insurance carrier usually need updated ownership and “named insured”/mortgagee records to prevent escrow, billing, or coverage disputes.

What the Statutes Say

N.C. Gen. Stat. § 47-28 (Recording power of attorney for real property transfers) – Requires recording a power of attorney (or certified copy) before an agent transfers real estate, and requires the deed to reference where the power of attorney is recorded.
N.C. Gen. Stat. § 45-36.21 (Trustee’s satisfaction of deed of trust) – Provides a statutory form that can be recorded to show a deed of trust has been satisfied when the loan is paid.

Analysis

Apply the Rule to the Facts: The goal described is to move a home and land into a revocable trust while a mortgage will be paid off soon. Under North Carolina practice, the transfer can typically be done by recording a deed from the homeowner to the trustee of the revocable trust; the mortgage lien remains attached and must still be paid. Because a relative holds financial power of attorney and the homeowner is hospitalized, the process often turns on whether that power of attorney authorizes real estate transfers and whether it is properly recorded so the Register of Deeds will accept the deed without avoidable delays.

Process & Timing

Who files: The homeowner (as grantor) or the homeowner’s agent under a valid financial power of attorney. Where: The Register of Deeds in the county where the property is located in North Carolina. What: A properly drafted deed transferring title to the trustee of the revocable trust; if signed by an agent, the recorded power of attorney information must be included. When: Often as soon as the trust is signed and the deed is prepared, but timing can depend on obtaining the correct legal description and confirming the power of attorney’s real estate authority.
Notify and update records: After recording, contact the loan servicer to update its records to reflect that title is now held by the trust/trustee (while payments continue as usual). Contact the homeowners insurance company to update the named insured and ensure the mortgagee clause remains correct; this step helps reduce the risk of a claim dispute and avoids escrow problems if the lender pays the premium.
After payoff (if applicable): When the mortgage is paid, the lender/trustee should record a satisfaction/release so the land records show the lien is cleared. The deed staying in the trust means the property can pass under the trust terms rather than through probate, assuming the trust is properly funded and maintained.

Exceptions & Pitfalls

“Due-on-sale” clauses and lender policies: Many mortgages have language allowing the lender to call the loan due if ownership changes. Transfers to a revocable trust are often allowed in practice, but the safest approach is to review the loan documents and coordinate with the servicer so the transfer does not trigger a dispute.
Power of attorney limits: Some powers of attorney do not authorize gifting, changing beneficiary-type arrangements, or transferring property into a trust without specific language. A deed signed under insufficient authority can create title problems that surface later during a refinance, sale, or after death.
Insurance and escrow mismatches: If the deed is recorded but the insurance policy stays only in the individual’s name, some carriers raise coverage questions after a loss. If the lender escrows premiums, mismatched names can also cause cancellation notices or forced-placed insurance.
Incorrect deed language or legal description: Using the wrong trustee name, omitting trust identification, or using an incorrect legal description can create a “cloud” on title that takes time and money to fix.

Conclusion

In North Carolina, a homeowner can usually transfer a house into a revocable trust even when a mortgage is still in place, because the mortgage lien stays attached and the loan must still be paid. If an agent signs the deed, the power of attorney should be recorded with the county Register of Deeds and referenced in the deed. As a practical next step, record the trust transfer deed with the Register of Deeds as soon as the trust and deed are ready, then promptly notify the loan servicer and the homeowners insurance carrier.

Talk to a Estate Planning Attorney

If you’re dealing with transferring a mortgaged home into a revocable trust and coordinating the lender and insurance updates, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.