Many homeowners receive an unpleasant shock when they attempt to refinance their home that’s held in the name of their revocable living trust – and sometimes it happens just before the scheduled closing!
They’re told that the company won’t refinance a home that’s held in the name of a trust (or an LLC, either, but that’s for another article), and that the applicant will need to transfer the home back into their own names if they want to proceed. That means executing and recording another deed from the trustees of the trust to the applicants’ individual names. The homeowner is understandably confused; “But we’re the same people – we’re the trustees and the applicants! We spent good money on estate planning to protect our family and avoid probate, and you’re telling us we have to spend more money and potentially expose our home to probate just to refinance? Why?”
Some companies may state that it’s their policy – period. If you want to refinance, you’ll have to do exactly as they say or they’ll reject your loan application. Others may explain that their concern is that they may not be able to foreclose on a trustee, and to keep costs low they won’t pay for a legal team to review every trust to make sure a trustee has the power to “encumber” trust property or to use trust property as collateral for a loan.
But there are some who will actually allow you to provide a copy of your trust so they can make sure the trust document specifies that the trustee has the necessary powers, and, if it does, you’ll likely sign all the paperwork as “John Smith, individually and as trustee.” That way, you and whoever may later be the trustee is on the hook for the mortgage.
So, if you’re told that you’ll need to take your home out of your trust’s name, and you found the provision in your trust document that gives the trustee the power to “encumber” trust property (it may read something like: “… my Trustee has the power to acquire, sell, assign, convey, pledge, encumber, lease, borrow, manage, and deal with real and personal property interests of all kinds…”), push back. Tell the refinance company that you’ll provide proof that your trust specifically gives the power to encumber to the trustee, and that you’re willing to sign the paperwork as an individual and as a trustee to protect them. Maybe they’ll be willing to work with you.
If not, and you really like the refinance rate, then contact an attorney (perhaps the attorney who drafted your trust), explain what’s going on, and see if you can retain that attorney to draft both deeds for one flat price – the one taking your home out of the trust now, and the one putting it back into the trust after the closing. We’re natural procrastinators, and once you get your refinancing, you’ll likely put off transferring the house back into your trust unless you made plans ahead of time. You spent a good deal of thought, time, and money on your estate plan – don’t let a refinancing mess things up.
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Ready to make sure everything’s in order for your loved ones in the event you become incapacitated or die? Give Manasota Elder Law a call at 941-444-5958. We’ll help you determine whether you’re all set, or whether there are still some things that need to be done to protect what’s most important to you … your family.