Reverse Mortgages on a Home Held in a Trust
A home held in a revocable living trust can carry a reverse mortgage. This is routine, and in California, where living trusts are the normal way to avoid probate, most reverse mortgage files involve one. The lender reviews the trust to confirm the borrower is the trustee and beneficiary, that the trust is revocable, and that nothing in it prevents encumbering the property. Irrevocable trusts and life estates are harder and sometimes impossible.
See what your home could pay you. About a minute, and the number appears before we ask who you are.
Revocable Living Trusts: The Normal Case
You created the trust, you can undo it, you are the trustee and the beneficiary, and the house was deeded into it. For reverse mortgage purposes you are still treated as the owner.
The lender will ask for the full trust document plus any amendments. Not the certification, the whole thing. Have it ready and this step is quick.
What the Lender Is Looking For
- The trust is revocable.
- The borrower is trustee and a current beneficiary.
- The trust permits borrowing against and encumbering trust property.
- All occupying owners are properly on title.
- Any successor trustee arrangement does not conflict with the loan.
Irrevocable Trusts
Much harder. An irrevocable trust generally means you no longer control the asset, which is precisely what the lender needs you to have.
Some structures can work and many cannot. This is not a question to guess at. If your home sits in an irrevocable trust, that fact should be raised in the first five minutes of the first conversation.
Life Estates and Remainder Interests
A life estate splits ownership between the life tenant and the remaindermen. Because the remaindermen hold a real interest in the property, a reverse mortgage typically requires all of them to join the transaction.
Sometimes everyone signs and it proceeds. Sometimes one adult child declines and it stops there.
Do Not Move the House Without Asking First
Transferring the property in or out of a trust in the middle of an application, or shortly after closing, can create real problems. Talk to the lender and your estate attorney before changing title. Afterward is too late.
