A revocable trust can be set up by anyone who wants to keep their assets out of probate court. The trust’s grantor appoints a trustee to oversee the trust’s holdings and assets.
The assets of the grantor flow immediately to the heirs listed in the trust document upon the grantor’s death. Yet for trusts that contain houses and another real estate, which the grantor may want to remortgage, he must satisfy the mortgage company’s standards.
Definition of Revocable Trust
A revocable trust allows the grantor to amend or dissolve the trust at any time throughout his lifespan. When a grantor dies, however, the Internal Revenue Service recognizes assets in a revocable trust as conventional investments that are liable to income and tax gains, as well as estate taxes.
Refinancing a property refers to obtaining a new or secondary loan on the property, usually at a better rate. Refinancing mortgages get more appealing to borrowers facing high-interest rates, unsustainable monthly payments, or bad debt, such as a situation in which the loan total exceeds the house’s market value.
Specifications of the FNMA
Through the Federal National Mortgage Association, which deals in vast numbers of mortgages, such as those backed by trust assets, real estate held in a revocable trust may be refinanced, depending on specific criteria.
Also, the trust must be established during the property owner’s lifetime and must be one of the trust’s major recipients and trustees. Furthermore, the trustee must be able to take out loans on the property according to the trust regulations.
In fact, the grantor’s main or second residence must be on the land and the promissory note must be signed by the trustee, the trust must be accountable for repayment, and the refinanced property must be used as security.
Some lenders won’t lend to trust properties or let you refinance a revocable trust property. Conversely, lenders will have difficulty dealing with trusts that do not enable trust property to be utilized as collateral or security for a loan.
Consequently, lenders may demand you to re-title the property, which means taking it out of the trust and putting it back into your name. By signing and documenting the deed in your name with the county registrar, you may be able to obtain the loan.
Once the refinance is complete, you can register another deed transfer, this time into the trust, to revert the property to the trust, as drawn up by an escrow or title company engaged in the refinance.
Drafting of Warranty
Some additional procedures and documentation may be required by a lender who permits trust property refinancing. This could include a real-estate attorney’s guarantee that trust assets can be used as security for the second mortgage.
And of course, you will have to pay for the lawyer’s time spent studying the trust documents, as well as drafting the warranty. Also, the loan officer will still verify the information and the trust conditions.