Williams McDaniel, P.C.

With our firm’s strong estate planning group, many of our clients have established Revocable Trusts for estate planning purposes and those trusts hold title to the clients’ home. Frequently, clients will call us when they refinance an existing loan on their home or second home and the lender has asked questions about the Revocable Trust or simply told the client they cannot refinance the home while it is in the Revocable Trust. Often the lender will insist that the property be transferred out of the trust and then when the refinancing is completed, the property may be transferred back into the trust. This can be time consuming and expensive. Fortunately, it is not necessary under the current FNMA lending guidelines.

Several years ago FNMA rules were amended to permit you to refinance or mortgage a home and other property which is owned by or in the name of your Revocable Trust. Those rules have been expanded to include second homes and investment residential property. Unfortunately many lenders are unaware of this change, or they are not familiar with ability of the trustees of a trust to deal with real property. There are specific rules that must be followed, but generally:

1.         The trust must be a Revocable Trust created by you during your lifetime;

2.         During your lifetime, you must be one of the primary beneficiaries of the trust;

3.         You must be one of the Trustees of the trust;

4.         The document creating the trust must give the Trustee(s) the power to mortgage the property;

5.         The property, or part of it, must be your primary home or your second home; and

6.         You, as the creator and Trustee of the trust must sign the Promissory Note, the Deed of Trust and one or more riders to the Promissory Note and the Deed of Trust indicating that it is being given by your trust to secure the loan and that you and your trust are liable.

If the trust and the property meet the general requirements, FNMA permits the lender to use your personal financial information to meet its financial requirements and complete the loan even though title to the property is held in the name of your trust and not in your individual name.

With a few special circumstance exceptions, all of the Living Trusts and Revocable Trusts created by our estate planning attorneys meet the FNMA trust requirements. We can assist you and your lender in determining whether or not a specific property qualifies. We can also provide proper documentation and assist your lender with the proper documentation to complete these refinances without the necessity and expense of conveying title out of your trust.

Michael L. Womack, 2011
Williams McDaniel, P.C.
5521 Murray Avenue
Memphis, Tennessee 38119
901-767-8200
www.wmww.com