Lenders, Refinancing, and Retitling Assets In Trust: An Open Letter
Dear Lenders,
Hey! Hope everything is going well.
I just wanted to write you about an issue that's arisen of late with some of my estate planning clients. These clients are finishing up their estate plans, and are also in the process of refinancing. (Very "on the ball" of them, don't you think?) In both of their cases, their mortgage brokers have told them NOT to transfer their residences into their new living trusts prior to refinancing. In fact, the lenders have said that, if they do re-title their residences in the name of their living trusts, they may lose their loan and not be able to refinance.
In the words of one of my favorite recent SNL skits, I have to ask, "what up with that?" I realize that you guys have been burned in the past, because you essentially made loans with no regard to the risks involved. You remember that, don't you? I know I do -- ah, the heady days of the early aughts. I recall the couple that bought their first house and walked away from the closing with $10,000, because they'd financed 105% of the value of their house. And the guy who got the $100,000 loan despite not having any job or income.
Yes, those were the days. I think we can all agree that you behaved like morons. And I understand the desire to impose some standards. I just don't understand the desire to impose THIS standard. As I'm sure you know (?), owning property in a revocable trust is just like owning property in your own name. There's no asset protection here. In addition, clients can bypass your ridiculous rules by refinancing and then transferring title into their living trusts. And as I talked about here, there's really nothing you can do about it.
You might counter by saying, "then why do you care about this rule -- all it does it postpone the transfer until the refi is complete." And you do have a point. But what if my clients die in the interim? Not likely, but it could happen -- if it does, then we have to have a probate, which is exactly what we were trying to avoid by setting up living trusts. And even if they don't die: why should my clients have to wait to start the re-titling process just because you don't understand anything about the law, or about risk?
Anywho, if you want to discuss, just let me know. I promise I won't even yell at you (very much) if you call.
Your pal,
Joel A. Schoenmeyer
