With interest rates dropping, I seem to get more and more clients asking me, “Can I refinance my house once it is in the Trust?” The answer is…of course you can!
However, you need to be very careful about making sure the house doesn’t inadvertently get left out of the Trust after the refinance is complete.
In many cases, the lender may require that the house be taken out of Trust as part of the refinance process. This would entail having the owners sign a deed transferring the property from the Trust back to themselves. The loan would then get funded, and later, a new deed transferring ownership back to the Trust would be recorded.
Now, this all works fine as long as everybody involved in the refinance (the lender, title company, etc.) knows what they are doing and properly follows the process. Unfortunately, the last step of transferring the ownership of the property back to the Trust is often missed! I have personally seen many examples of this when performing title searches for my clients after they have refinanced.
There are some lenders now that allow homeowners to keep their home in the Trust during the refinance as long as they assert that the Trust meets certain requirements. Usually, this can be accomplished by providing the lender with a “Certification of Trust”, a document that should be part of the Estate Plan prepared by your attorney. This Certification tells the lender and title company that the homeowners, as Trustees, are allowed to take out a new loan under the terms of the Trust, along with other information and assurances that the lender needs to process everything. Hopefully, your lender allows you to handle the refinance in this manner, as it removes the risks discussed above.
But what if they don’t? What if they instead make you take your home out of the Trust for the refinance? In that case, you want to make sure that as part of the refinancing process, the title company prepares a deed for you to sign putting the home back in the Trust after the refi. Failure to retitle the house to the Trust can create difficult scenarios for your beneficiaries if you die, as an expensive and time-consuming court process may be required in order to distribute the property.
If you’ve recently refinanced and aren’t sure if your home is in Trust, let us know and we can check on the status of the property ownership. If necessary, we can help record the proper paperwork to make sure your Estate Plan works the way it is supposed to!