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Can You Place Your Home In A Living Trust?
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By Igor Krishtul, ChFC, EA
Today, more and more homeowners consider transferring
their homes to living trusts. Living trusts have advantages not
possible otherwise. Thus, it should not be surprising that their
popularity has grown a great deal over the last several years.
many situations, the living trusts are the most efficient tools to own
and manage property. Such property includes your home.
after death, living trusts can provide for disposition of assets.
Property held in trusts avoids probate. Trusts can also help you to
keep the probate courts away in the event of your incapacity.
your house or apartment is not subject to mortgage loans, then no
financial institution can stand in your way if you transfer
you’re your home to a living trust. It gets complicated, though,
when you do have a mortgage.
many American citizens and residents, their homes are their biggest
assets. But, these homes frequently come with strings attached.
Mortgage loans are simply a necessity for many of us to be homeowners.
mortgage loan officer doesn’t want additional headaches. Same
applies to your closing attorney, real estate broker and other parties
involved. Most of these guys (and gals) aren’t knowledgeable in
the area of living trusts. Accordingly, many homeowners are pressured
into not having their homes in living trusts. Don’t be misled and
do what’s right for you – not them.
lenders are aware of the increased popularity of living trusts. Hence,
they cannot simply ignore this fact. The homeowners should also
consider some of the issues involved here from the standpoint of
lenders. By its nature, the mortgage loans involve a lien against your
residence. For lenders, it serves as a security.
mortgage loan is a contract. Some common provisions of such contract
are clearly in favor of lenders. Naturally, they do not wish to lose
anything favorable to them.
of the mortgage loans are sold (and resold) in the secondary market. To
be attractive to investors, these mortgages must meet certain
guidelines. One of the issues is whether the mortgage loan was given to
an “eligible borrower”. Now, can your living trust be
considered an eligible borrower?
lenders has a right to foreclose. In short, if you fall behind on your
mortgage, the lender isn’t going to wait until you recover. He
has the power to force a sale in order to recover his money. Does a
living trust reduce – or eliminate – this important power?
important right is the lender’s ability to get his money repaid
in full when the borrower no longer owns the property. This can be done
under the “due-on-sale clause”. Can the lenders exercise
this power if you transfer your home to a living trust?
above concerns by lenders should help you to better understand what to
expect when dealing with mortgage companies. Many, if not most, of the
revocable living trusts simply don’t take away the lenders’
rights. Even if your revocable trust contains some unusual provisions,
they can be removed or changed.
you transfer your house or apartment to a revocable living trust, you
are no longer the owner on paper. But, you are still a beneficial owner
of your home. When applying for mortgage loans, you are still the
borrower responsible for repaying your debts. The lenders don’t
lose the power to foreclose if you don’t pay your loan as agreed.
mere transfer to a revocable living trust is not really a sale or a
loss of control. Hence, the lenders have no business invoking the
lenders are quite reasonable in dealing with revocable living trusts.
Obviously, they want to review the trust documents and know what your
living trust is all about. Some may require a “certified
copy” of your trust document.
lot depends on who you are dealing with. Don’t assume that the
lenders’ decision makers are necessarily competent. You may have
to be more persistent and request an involvement of knowledgeable
you already own a property, you can simply transfer the title to a
revocable living trust. If you are in a process of buying, consider
getting the mortgage first, going through closing and then promptly
transferring the title to your trust.
headache may occur when a lender is giving you a hard time when you
have to refinance. You can remove your property from a trust and
transfer it back later. This option will involve additional paperwork
and related legal fees.
In any event, make sure your trust is properly drafted so that your transfer won’t trigger an adverse action by your lender.
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