Refinancing when your home is in a Living Trust
You want to refinance your San Diego house which is in your trust. Interest rates are reasonable, if not low, for mortgages, or “deeds of trust”. But you fear that rates might rise soon, so you want to work fast in shopping for a good loan. You contact lenders in Mission Valley.
As you talk to lenders, you are surprised to learn that many will not loan money to a revocable living trust. This is because, technically, the trust owns your house; and you are borrowing as trustee of your trust, not as an individual. When you signed your trust, your trust attorney did not mention that some lenders may balk at refinancing because of this.
Does that mean that your trust is defective? Not at all. Your lawyer did not forget to include that provision in the trust. The trust allows the trustee to borrow money. The lender still wants to make the loan. And the lender wants to make it to you, but not to you as trustee.
Why won’t the lender accept the trust? If for no other reason, it saves the lender time – the lender does not have to read the trust, interpret the trust, and deal with the trust.
There is a quick solution. The lender prepares a deed transferring the house from the trust back to you. Since the house is no longer in the trust, the loan is made to you as an individual.
There can be another problem. Most lenders, eager to take the house out of the trust to make the loan, do not deed it back to the trust after the loan closes. They fail to inform or remind the client that the house will remain out of the trust and that it is the homeowner’s job to transfer it back to the trust.
We seldom hear from clients who are about to refinance. In our San Diego practice we had a trust client die after refinancing. Only too late did we learn from his family that his house was never transferred back to his trust. Unfortunately the house went to probate. If you ever refinance and your house is taken out of your trust, make sure the lender will put it back in. If you have any doubts, please call us. We would be happy to assist you.