Emily, a client of mine triggered their due on sale clause that exact way - the lender later rescinded it but only after they reported a mortgage late (which they removed afterwards) and getting an attorney involved to write a letter, due to it being the the child (the borrower didn't have the same last name as her child), but the mess could have been avoided if they just would have contacted their lender and made a note in the file about what they were going to do. Important information to note: my client could have helped herself out by responding to the first letter that her lender sent about it as well - so it was a combination of an ignorant lender and a client-who-didn't-like-checking-mail.
There are 9 situations where someone is automatically exempt from a due on sale clause. There isn't just "one situation" where it's triggered, the law actually doesn't go into specifics about any event that can trigger it (not even specifically a wraparound mortgage), and as my client can contest, it can be triggered erroneously if you do it haphazardly.
(d) Exemption of specified transfers or dispositions
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause uponâ€”
(1) the creation of a lien or other encumbrance subordinate to the lenderâ€™s security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.
In my opinion it's much smarter to make a free phone call to your lender than just going out and doing it.
If the property is here in California, I am pretty sure when you transfer property interest to a spouse/out of a spouse's name then the Interspousal Grant Deed is used instead of the Quit Claim, at least that is the form that my wife and I signed *after we called our lender up to get their thumbs up* (again not wanting to take any chances we got the OK from our lender, which all it took was discussing the specifics with their customer service department, getting put on hold, and them coming back after confirming with a supervisor that it was permissible - it took about 12-15 minutes total):
We also had to complete a preliminary change of ownership form, Los Angeles county's can be found at: