A revocable living trust is a way to have greater control over your assets. By putting property and other assets into a trust, your beneficiaries can sidestep the probate process and the hassles and costs that go with it.
While moving property to a trust means you no longer technically own it, you can still refinance property held in a trust. However, some conventional lenders can’t or won't refinance a mortgage on a property held in trust. To work around this, you’ll have to temporarily move the property out of the trust and return it to individual ownership. After refinancing, you can place the property back into the trust.
We'll discuss how to do this properly, including making sure you’re covered by title insurance throughout the process.
What is a living trust?
A living revocable trust is a legal instrument that places assets in the name of a trust and out of individual ownership. Because individuals don’t own anything (the trust does), it protects your assets from probate court—a process which can drag out for months or years, and worse, eat a hefty chunk of your estate.
Can I refinance property held in a trust?
Yes, properties held in a living revocable trust can be refinanced. However, refinancing a mortgage held in a trust involves specific steps which may occur outside of the refinancing transaction. It’s important to ensure it’s done correctly so there’s no lapse in your homeowner’s title insurance coverage.
Why would I want to refinance property in a trust?
Refinancing a mortgage is the process of obtaining a new loan, often with better terms than the original loan. There are many reasons you may want to consider refinancing property held in a trust. These include securing a lower refinance rate, changing from an adjustable rate mortgage (ARM) to a fixed-rate mortgage, or shortening the length of the term.
What do I need to do to refinance property in a trust?
The best place to start is by contacting your lawyer and financial advisor. You’ll need to find out if the trust gives the trustee the power to take out a refinancing mortgage on the property. If so, the trustee may be able to sign for the loan. In this case, the trust will be responsible for the repayment of the mortgage, using the property as collateral.
But often it’s not as simple as this.
The trust may not allow the trustee to pledge the property to be used as collateral, or, for various reasons, the lender may be unwilling to refinance property held in a trust. If this is your situation, the property will have to be taken out of the trust and returned to individual ownership with a transfer deed. Once this is done and the property is re-titled, you can apply for a new refinancing mortgage on the property.
How to take property out of a trust
Along with the new loan application paperwork you'll have to complete, your lender may require the title to be transferred into your name before refinancing. You can have a lawyer or title and escrow company do the title transfer for you.
Putting the property back into the trust
After you've taken a property out of the trust for refinancing, it’s extremely important to ensure your home is transferred back into the trust after the process is complete. If you or your lender forget to transfer the property back to the trust (it does happen), your asset will be forced through probate, defeating the purpose of the original trust.
To put the property back into the trust, you'll need another deed to transfer the title to the trust. Making sure this is done correctly is important. Your lawyer or title company should help by preparing the document and reviewing what is currently filed on record for the property. Once you have executed the new deed, the title company can help you record it on public record.
If you're looking for a title and escrow company who can ensure accurate and efficient handling of your mortgage refinance, keep us in mind.
Timios offers a wide range of title insurance products and services to ensure your refinancing process is a smooth one. To help you, we offer 24/7 access to your files, real-time status tracking, and an empowered customer service team to answer all of your questions.
We aim to provide a totally transparent and helpful experience, so you know what's happening at every stage of the refinancing process.
Please visit our site to learn more about the title and escrow process and how Timios can help.
With over 250,000 transactions and $40 billion in total closings, remaining true to our values has made Timios one of the fastest growing title and settlement services companies in America.