UNDERWRITING benefits of the trust upon the borrower’s death. The borrower must consult with their attorney to decide if they want to revise their trust to include the spouse as a contingent beneficiary, remove their property from the trust and close outside of the trust, or cease proceeding with the HECM loan. Use of a Trust and Power of Attorney
Other Considerations
In summary, trusts can be an important estate planning tool for borrowers. However, if you are not familiar with the different nuances and requirements, it may be difficult to navigate a loan closing in a trust. Learning these nuances will lead to a smoother loan closing for all parties involved. n
UNDERWRITING
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MARKETING
Closing in the Name of Two Trusts: In some instances, a property may be vested in two trusts (one for each borrower). For example, a husband and wife may each have their own trust document. This is acceptable if each borrower is the sole contingent beneficiary of the other borrower’s trust and the house is vested into both trusts. This ensures that upon the death of one spouse, the other receives full rights to the property while they are still living and occupying the property.
Transfer in to or out of Trust After Closing: Borrowers may need to deed in to or out of trust after loan closing. FHA does allow a borrower to transfer the property into a trust after closing if the lender ensures that the trust meets all requirements that would have applied when the loan was closed. The property may be transferred out of the trust or the trust terminated during the life of the loan, as long as one or more of the HECM borrowers continues to occupy the property as a primary residence and retain title in fee simple or leasehold interest.
ORIGINATING
Often, a borrower with his or her property held in trust will also utilize a Power of Attorney (POA) due to mental or physical incapacity. In this case, there are additional considerations. Both the trust and the POA may have requirements on how to determine if the borrower is mentally or physically incapable of signing. For example, for mentally incompetent borrowers, letters from two physicians indicating mental incompetency may be required. These documents should be carefully reviewed to ensure all requirements are met.
Since the trust holds legal title and the beneficiary holds equitable title, two signatures are required on some documents. A POA cannot sign on behalf of a trustee, but may sign on behalf of the borrower as beneficiary of the trust. Therefore, where the borrower is the beneficiary and trustee of the trust, the POA will sign on behalf of the borrower as beneficiary; however, a successor trustee appointed in the trust document will sign as successor trustee.
HMBS SPOTLIGHT
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