Probate Loans Against an Estate
The assets from an estate cannot be distributed to heirs until after the probate process is completed. Probate can last anywhere from 6 months to 3 years. During this lengthy process, heirs may find themselves in a situation in which they need probate funding. Probate loan solutions allow an heir or probate administrator to borrow against real estate within an estate until the probate can be settled. Borrowing against the real estate within an estate is often a lower-cost option than cash advance probate lenders who provide funds to heirs and then set a larger dollar amount that the lender collects upon close of the probate estate.
Estate Loans – Not Available from Conventional Lenders
Conventional lenders such as banks and credit unions are generally not able to provide estate loan solutions. A bank will not provide a loan to a individual who is not current on title of the property. These types of loans also require additional documentation and legal knowledge which most banks and credit unions do not possess. Conventional lenders cannot make a loan directly to an estate and then have another party immediately assume the loan.
Experienced estate and probate loan lenders such as North Coast Financial have the expertise and flexibility to the make the loan to the estate directly and then allow the heir to assume the loan and take title to the property.
Probate & Estate Loans for Attorneys & Fiduciaries
North Coast Financial works directly with attorneys and fiduciaries who need to borrow against real estate on behalf of a client’s estate or trust. We assist administrators, trustees, and executors in need of fast funding for short-term loans against an estate or trust. The borrowed funds can used to pay attorney fees, pay off other heirs and siblings, pay taxes, settle debts or handle any other obligations of the trust or estate. A probate attorney, administrator, executor, trustee or beneficiary is able to initiate the request to obtain the probate or estate loan.
How to Refinance an Inherited Property to Buy Out Heirs
When heirs inherit property a problem frequently arises when one heir wants to maintain ownership while other heirs wish to sell their interest in the inherited property for cash. The heir who wants to keep the property may not have enough cash to simply pay off the other heirs (siblings) so they must pursue an option for refinancing the inherited property. A home equity loan on inherited property from a hard money lender is often the fastest and easiest solution to raise cash in order to buy out siblings of their interest in an inherited home.
Refinancing inherited property typically cannot be done by a traditional lender such as a bank or credit union. The title to the inherited property is often in the name of the trust or estate. Because the title of the property is not in the borrower’s name, getting a mortgage on an inherited property from a bank will be extremely difficult or impossible. Banks generally aren’t interested in refinancing a property with multiple heirs.
The solution to this problem is working with a hard money lender who understands how to refinance an inherited property to buy out heirs. Prior to refinancing the inherited property, the heirs must agree on the value of the inherited property and determine the amount of cash each heir will receive for their buy out.
Experienced direct hard money lenders such as North Coast Financial have the ability to provide heirs with a home equity loan on inherited property (real estate). These loans have numerous different names such as probate loans, probate estate loans, probate real estate loans, estate loans, trust loans, estate inheritance loans, inheritance loans and inheritance property refinance loans. These loan types all provide the heirs with a cash out refinance on inherited property.
Hard money lenders are able to refinance inherited property as they can make the loan directly to the trust or estate and have the borrower (heir) assume the loan. The loan proceeds are distributed to the heirs receiving the buy out for selling their share of the inherited property.
When the refinance of the inherited property is complete, the borrower/owner will be able to transfer title of the property into their name and apply for a bank loan to obtain a lower interest rate and longer loan term.
READ MORE: How to Refinance an Inherited Property to Buy Out Heirs
Inherited House with No Mortgage vs Inherited Property with an Existing Mortgage
Inheriting a house with no mortgage is the ideal situation as it provides larger equity distributions for the heirs. In a situation where the heirs have inherited property with an existing mortgage, the existing mortgage will need to be paid off, unless the heirs only are only in need of a small 2nd loan behind the 1st. The amount of equity available to the heirs will be reduced by the current balance of the existing loan.
Trust Loans to Beneficiaries
Proposition 58 Loans – Preserving the Assessed Tax Value of the Property
Trust loans to beneficiaries allow heirs to obtain a short-term loan against real estate with the loan proceeds going towards satisfying one of the heir’s interest in the trust. Then the property can subsequently be deeded to the other heir who wishes to maintain ownership of the real estate. There may be favorable tax and property tax benefits for a parent to child transfer of property (Proposition 58). A tax professional or attorney should be consulted to ensure the necessary steps are taken to obtain a Prop 58 property tax reassessment exclusion.
The goal of this type of favorable tax transaction is to have the property pass from the parent’s trust directly to a child (while paying off one or more beneficiary’s interest) in such a way that does not cause a reassessment of the property value. Maintaining the existing tax assessment value may save the beneficiary thousands of dollars each year in the form of lower property taxes. This yearly savings makes the Prop 58 loan an excellent investment.
*Note: Current California regulations may allow a reassessment exemption when property is transferred from a parent to a child (Prop 58) or grandparent to grandchild (Prop 193). Frequently Asked Questions on Proposition 58 from California State Board of Equalization. Regulations in other states may vary.
READ MORE: Can an Irrevocable Trust Get a Loan or Mortgage? Lending to an Irrevocable Trust
Trust Loans to Beneficiaries – An Example
If a trust distributes to two children (trust beneficiaries) and then one of the children acquires the other 50% ownership from the sibling, the property can be reassessed (at least to the 50% interest being acquired) since the transfer from sibling to sibling is not exempt. However, if a trust loan is made to the trust and one sibling receives cash while the other sibling receives the property (100%) from the parent’s trust, then the transfer should be seen as exempt with Prop 58 (parent to child transfer).
Experienced trust loan lenders such as North Coast Financial are able to make the loan to the trust and then make an exception to allow one of trust beneficiaries to assume the loan. Once the title is transferred to the heir receiving the property, the owner can then refinance to a less expensive conventional loan.
Probate Loan Rates – Estate Loan Interest Rates & Fees
Estate and probate loan rates and fees will vary from lender to lender. The structure of the rates and fees may also be drastically different based on the type of lender. Hard money lenders are only able to provide loans against real estate within the estate. Common probate loan rates from hard money lenders for are in the range of 8-10% interest with 2 points. While the interest rate may seem high compared to conventional real estate loans, these are short-term loans and many borrowers only make a few payments prior to refinancing. For heirs who are obtaining an estate loan in order to avoid a tax value reassessment, the total loan costs will be minuscule compared to the thousands of dollars the heir can save each year in the form of lower property taxes.
Other types of inheritance lenders are able to provide an inheritance advance to the beneficiary/heir in the form of a cash advance assignment. These lenders can provide an inheritance advance against any assets within an estate, not just real estate. In exchange, the heir must assign a portion of their anticipated inheritance to the inheritance lending company. This type of inheritance can be very expensive with fees in the range of 10-40% of the inheritance value.
Reverse Mortgage Refinancing for Heirs
North Coast Financial is also also to provide reverse mortgage refinancing to heirs who wish to maintain ownership of a inherited property that has an existing reverse mortgage. Conventional lenders will not refinance reverse mortgages for heirs but direct hard money lenders can provide this type of funding. A loan can be made to the estate which can then be assumed by the heirs. This allows for the heirs to maintain ownership of the property, have the title of the property transfer into the heir’s name and prevent a reassessment of the property value which can save thousands of dollars in property taxes each year (consult a tax professional or attorney).
Contact North Coast Financial Today
North Coast Financial provides estate, trust and probate loan solutions in Southern California, Northern California and Central California. We specialize in the areas of Los Angeles, Orange County, San Diego, Riverside, San Bernardino, Ventura, San Francisco Bay Area, Sacramento and other counties throughout California.
Contact North Coast Financial now and have your probate, estate, trust loan or inheritance advance funded quickly.