Royal Capitol Plaza 1803
Honolulu HI 96813
$629,000
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Agent: Mike King R (A)
Direct: 808-777-0214
 

Trusts and the Lending Process
 

Your financial planner, tax attorney, or maybe a friend has recommended you put your property in a trust. Or maybe you are ahead of the game and already have your property in trust. Today we’ll explore transferring your property into a trust and the procedures when you wish to refinance a property already held in a trust.

Transferring into a Trust:

When you place your property into a trust, you are transferring title from yourself into an entity. That entity happens to be a trust. The process of transferring property is done using a deed. Technically, the process is no different than if you were to transfer the property to someone buying your home.

If you read any standard mortgage document, there will always be a paragraph on transferring title. I don’t want to scare you with what that paragraph says before I explain the concern mortgage holders have. Mortgagors don’t want people they have loaned money to sell or transfer the ownership rights without them getting their money back first. After all, they loaned the money to you, not the person you are transferring the title to. That’s why the standard language states that if you transfer title without the approval of the mortgage holder, the mortgage holder has the right to call in the note and demand full repayment.

The above paragraph explains the letter of the agreement you signed, but that is not what is commonly done. Let’s first talk about reality. So long as you keep making the payments, your mortgage holder will not have a clue you transferred the property, unless they go hunting. Second, there’s a big difference in transferring your property to someone else, versus a trust, where you’ll keep making the payments. It is also important to keep in mind that despite the false claim that lenders want to foreclose and take your property, they really want to avoid that at all cost. That’s why the language in the transfer paragraph says the lender has the right to call your note – but isn’t required to. If you unwind things, that may satisfy the issue.

Should you notify your mortgage holder of your desire to transfer the property into your trust? Following the language in the mortgage document you signed, yes. But I don’t know of anyone that has ever formally requested approval to do so. I have also never heard of a mortgagor accelerating one’s note or foreclosing because the property was transferred into a trust. You should also read the following section that explains how lenders actually ignore the transfer requirement on refinance transactions.

Refinancing a Property Held in Trust:

If your property already sits in your trust and you wish to refinance, there are extra hoops you must go through in order to successfully complete the transaction.

There are two different paths a borrower can take in order to refinance a property held in trust.

Utilizing a Trust Review:

Holding a property in trust is significantly different that if you hold title as a natural person. Trusts are documents that may contain all kinds of special instructions that could affect the mortgage holder’s ability to protect their interest. A good example is what’s called a “Life Estate”. It’s a provision that would allow someone to live the remainder of their life on the property. What happens if the mortgage stops being paid? That Life Estate provision would prevent the lender from foreclosing. When a property is held in trust the lender must have an attorney review the trust document to make sure there are no provisions that hamper the bank’s rights, and if the loan is being sold to Fannie Mae or Freddie Mac, violates any of their requirements either.

A trust review is very common and there are some great attorneys in Hawaii that specialize in trust reviews. A trust review costs about $200. If you happen to have multiple trusts, such as one for husband and one for wife, double that cost. Please note that the attorney will need your entire trust document, what’s called the long-form version, and not the summary document referred to as the short-form document.

Utilizing Deeds:

Another simple and easy way to refinance a property held in trust is by getting two deeds drafted. One deed would transfer the property out of your trust, while the second deed would transfer the property back into your trust. This strategy is what I like to call a Trust Sandwich. Here’s how this process works. When it comes time to record your new mortgage the title company records the first deed taking the property out of trust. That allows the mortgage in your name to be recorded and matches the property ownership. Once the mortgage is recorded, the second deed transferring the property back into your trust is recorded. Yes, that makes for 3 documents being recorded for one transaction.

What’s the benefit of utilizing deeds over a trust review? In many cases the borrower does not wish to provide their private trust documents for review. Not that there’s anything in the trust a lender wouldn’t approve – they just don’t want to openly share their personal financial information.

Here’s the irony of utilizing trust deeds. When the underwriter reviews your title report for your refinance and sees that the property is held in trust, they add a condition to the approval to either obtain a trust review or convey the property out of trust prior to the recordation of the new mortgage. There’s nothing in the approval stating that once the mortgage is recorded that the borrower now has the right to convey the property back into their trust – yet that is exactly what happens all the time. It is a process I have done hundreds of times for clients. And in 24 years of lending, have never had a lender come back and make a demand on a client because they transferred the property into their personal trust.

Holding your property in a trust is a good idea. For anyone wishing to avoid probate or other issues after you die, you should talk with your family attorney or financial advisor as to how to set one up and how to move your assets into that entity. Remember to keep copies of your trust documents. If you wish to refinance in the future, you may need them. Your loved ones will certainly need them when you are gone.

And now the week’s economic news……

Vaccine Progress

With the election results still in dispute, the pandemic was the main focus for investors this week. Fantastic news about progress on a Covid vaccine was offset by rising case counts, and mortgage rates ended with little change near record low levels.

On Monday, Pfizer reported extremely positive trial data for a Covid vaccine, which caused investors to anticipate a quicker return to activities which have been restricted by the pandemic. In the short-run, however, many political leaders are looking at a new wave of lockdowns which could hamper economic growth. The more optimistic future outlook offset more pessimistic current conditions, and the net effect on mortgage rates was minor.

The reduced economic activity resulting from the coronavirus has caused a significant decline in inflation. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In October, core CPI was just 1.6% higher than a year ago. While this was up from recent levels of just 1.2%, it still was far below the readings around 2.3% seen during the first few months of the year.
 

While the final outcome of the election has not yet been completely determined, investors feel that neither party will have overwhelming control. For mortgage markets, divided government typically is viewed as positive, because it makes the passage of large new programs funded by additional bond issuance more challenging.

Special Alerts and Notices for The Hawaiian Islands

Haseko plans 1,850 new homes at Royal Kunia in Central Oahu

Realtors distribute meals to residents in need

Gov. David Ige signs emergency proclamation extending statewide mask mandate + extension on the moratorium on evictions for non-payment of rent

Travelers Transpacific Voluntary 2nd Test Program for the Maui COVID-19 Testing in Kahului, Lahaina, & Kihei

Negative COVID-19 test result required prior to departure to avoid 14-day quarantine in Hawaii

CVS Pulls Out Of Hawaii Testing | Vault + Others Overwhelmed