Trust Loan Requirements

Trust loan requirements for financing real estate assets held in an irrevocable trust must be understood by the successor trustee prior to moving forward. Unlike traditional mortgages, trust loans involve unique criteria and documentation. The successor trustee must work with an irrevocable trust loan lender that can provide this specialized type of funding.

5 Key Trust Loan Requirements:

• 1. Trust-owned real estate as collateral
• 2. Sufficient equity in the property
• 3. Successor trustee authority to borrow against trust assets
• 4. Trust documentation
• 5. Exit strategy for trust loan

1. Trust-Owned Real Estate

Trust loans require that the trust owns real estate to use as collateral. The title of the real estate must be in the name of the trust. Other assets such as stocks and bonds, retirement accounts, vehicles or cash cannot be used as collateral for with real estate-based trust loan lenders.

2. Sufficient Equity in the Real Estate

The trust-owned real estate must have enough equity to be borrowed against, relative to the loan amount being requested.

Loan to value ratios of up to 60-75% are typically available. If the home already has an existing loan, it may still be possible to obtain a trust loan. An existing 1^st loan can be refinanced into a larger new 1^st trust loan if the loan to value can remain at an acceptable level. In some situations, the existing 1^st loan can remain on the property and a smaller 2^nd loan can be placed on the property by the trust loan lender. 2^nd loans have a lower combined loan to value (~55-60%).

A free and clear property is the easiest and most straightforward scenario for obtaining a trust loan.

3. Successor Trustee Must Be Able to Borrow Against Trust Assets

Trusts typically allow for the successor trustee to borrow against the trust’s assets. Unless the trust explicitly states the successor trustee cannot borrower against trust assets it will likely be allowed.

The trust loan must be approved and completed by the successor trustee(s). A beneficiary of the trust can contact the trust loan lender and initiate the process, but the successor trustee of the trust must review, approve and sign all of the trust loan disclosures and documents.

4. Trust Documentation Required

A full copy of the trust will be required. The trust loan lender and the title insurance company will need to review the trust to determine who is the successor trustee (or co-trustees) of the trust. Any amendments of the trust or reinstatements of the trust will be required as well.

A copy of the affiliate of death of trustee will also be required. This document is filed with the county along with an original death certificate. The recorded affidavit of death of trustee confirms that the original trustee has passed away and the successor trustee now has the authority to act on behalf of the trust.

If the affidavit of death has not yet been filed with the county, the successor trustee can give an original death certificate to the mobile notary during the trust loan document signing. Escrow will prepare the affidavit of death of trustee and have it recorded with the death certificate prior to the trust loan closing.

5. Exit Strategy for Trust Loan

Trust loans are short-term financing solutions that allow a successor trustee to obtain liquidity. Due to the short-term nature of these loans (usually 12 months), the successor trustee will need to have a reasonable exit strategy for the trust loan. The most common exit strategies include:

• Selling real estate

  • Selling the trust-owned real estate will result in the trust loan automatically being paid off through the sales transaction

• Transferring real estate to beneficiary for refinance

  • Once the property is transferred out of the trust and into a beneficiary’s name, the individual can then refinance into a long-term traditional loan

• Selling other trust assets

  • The trust may have other assets to sell that can then be used to repay the trust loan

• Paying trust loan off with cash

  • In some situations, the individual beneficiary has cash available to repay the trust loan immediately. Trust loans are needed as a 3^rd party loan in order to apply for Proposition 19 in California.