With interest rates so attractively low, many property owners are refinancing their homes. What happens when we want to refinance property which we have previously transferred to the trustee of a revocable living trust?
At one time, sophisticated lenders realized that property held in a revocable living trust still belonged to the trustor, or grantor. Such lenders would allow the refinance of the property by the trustee, while the property remained “in trust.”
Recently, however, the trend among lenders has been to require that the property be removed from the trust and re-titled in the name of the trustor, who must then sign the refinance note and deed of trust as an individual, and not in his/her fiduciary capacity as a trustee.
This requirement entails the execution and recordation of a quitclaim deed from the trustee back to the trustor, who is typically one and the same person. A preliminary change of ownership report is filed with the county recorder. This form explains that the property should not be re-assessed on the occasion of this transfer.
Once the refinance is completed, it is important to replace the property in the trust. A new deed, from the trustor back to the trustee, must be executed and recorded, and a new preliminary change of ownership must be filed. Failure to take these steps will subject the property to probate if the owner dies, although probate avoidance was the basic reason for forming the trust in the first place.
Typically, the cost of this “double dance step” is modest. Think of it as simply an added cost of the refinance. The details and drafting should be entrusted to an attorney experienced in this field of practice.
Jerry Kessler practices law in Santa Clarita. For further information, please call 661-255-1001.