Dealing with Real Estate in Revocable Living Trusts

With a fluctuating economy, a global pandemic, and other factors, a lot of our trust clients are buying, selling, or refinancing real estate. Unfortunately, dealing with real estate held by a revocable living trust is not something real estate professionals are always familiar with, and it doesn’t help that mortgage companies all have different requirements, and each case may be handled a little differently. It doesn’t matter if the professional is a realtor, mortgage broker, or even real estate attorney; there is no one specific way things are handled across the board. My hope is that this will help simplify things for our trust clients going through these transactions.

The three main situations our clients run into are;
1) they are buying a house and trying to buy it in the name of their trust
2) they are selling their house out of their trust
3) they are refinancing real estate.

Buying Real Estate

When our trust clients are purchasing real estate and wish to buy it in the name of their living trust, they can run into difficulties if there is a mortgage involved. In cash transactions, there are rarely issues. First, the real estate really should be titled in the name of the revocable living trust for probate avoidance and other issues. (For attorneys and other professionals who disagree because of spousal bankruptcy or lawsuit protection, I address this issue in the above video.) However, mortgage companies are not concerned about your estate planning goals. They are concerned that the money they are lending you is legally obligated to be repaid, and that you can’t find a legal loophole to avoid paying just because the property is in a trust. In many cases, this may simply require some additional paperwork be provided, including a copy of the trust or pages from the trust and a trust certification form. (For more specific information on Trust Certification Forms, please check out my recent podcast here.)

What often becomes a simpler way to proceed is for our clients to purchase the real estate in their own name(s), sign the mortgage paperwork as individuals and not trustees of the trust, and then do a quitclaim deed a month or so later moving the real estate into the trust. The fact is the mortgage company doesn’t really care at that point because their deed of trust showing that the individual(s) owe the money was filed with the register of deeds office first, so there is no way to get out of paying the mortgage. Attorneys in different states will charge differently for quitclaim deeds, but our office charges a $256 flat rate for a North Carolina quitclaim deed, so our clients balance the additional “headaches” being imposed on them to originally buy the real estate in the name of their trust versus simply deeding the property in later for $256 and decide which route is easier for them.

Selling Real Estate

This situation is very similar to buying real estate in the name of the trust, except now there are others trying to purchase our clients’ real estate owned by their trust and the people buying the property may need a mortgage. In that case, very similar paperwork is needed except now it is the buyer’s mortgage company requesting additional paperwork. The similar solution of deeding the property out of the trust and into the individual(s)’s names for the sale can be done, but it is now critical that this be known well ahead of time, and, as you’ll read below, there are many times that real estate professionals come up with these issues at the last minute, and the closing could completely fall apart because they waited until the last minute to sort out issues around the trust.

Refinancing a Mortgage

This is, by far, is the most common situation our clients are asking us about, and it is also the area with the most paperwork and problems. Theoretically, this shouldn’t be the case because real estate isn’t really changing hands at all, but instead an existing loan is being renegotiated or a new loan being taken out to replace the old one by the same “owners” whether it is in trust or not. However, the same types of verification are often multiplied, and the frustration among our clients appears to be much greater. In these cases, it is even more important to find out exactly what information is needed well in advance of the refinance closing and provide it, as well as making absolutely sure that the company does not want the real estate transferred out of the trust and into the clients’ individual name(s) with more than enough time to close the loan. In several cases just this year, closings that were scheduled six weeks or more ahead of time ended up being delayed because the company asked for information with only a day or so notice.

Our office is here to help our trust clients by providing whatever information the real estate professionals need. However, I have to be honest that it seems that the real estate industry professionals have not made things easy on us. Here are just some of the problems we have encountered:

  • A real estate professional says they need a “trust certification form” and that “your attorney should have that.” We don’t. A “trust certification form” is the trustees of a trust certifying certain things are true, and the required items that need to be certified as true vary from company to company. (For more specific information on Trust Certification Forms as well as some links, please check out my recent podcast here.)
  • Real estate professionals have asked for an “Attorney Letter” from the estate planning attorney, or a similar form from their company, without saying what needs to be in the letter or form. When we call to follow up and find out, they refuse to put anything in writing and tell us verbally four things that are needed. A day or two before closing, they tell our clients that the attorney screwed up the letter or form because only four of the eight things that needed to be in the letter are present.
  • Realtors, mortgage brokers, or real estate attorneys insist that everything is on track and that they don’t need a copy of the trust, but then a day or two before closing they immediately need to have a copy of the trust or it will delay the closing. (This just happened to some clients who have been talking with us for nearly two months, requested the real estate professionals tell them exactly what was needed about two months ahead of time, was assured they had provided everything necessary, and then after hours on a Wednesday night I happened to see an email come in that the closing attorney needed a copy of the trust or the closing that Friday would have to be delayed.)

To help keep things simple, provide order, and not disrupt the work being done for our other clients with last minute requests, we have developed a form letter outlining everything we need from real estate professionals in order to get them the information they need without disrupting our office. (The “Letter to real estate professional” in .pdf format is available at https://linktr.ee/plainenglishattorney in the “Free Forms” section.) Basically, we simply need the requested form, a sample letter, a complete list of documents needed, or at least all of the specific points to be included in any documentation, in writing or by email, so we can provide it correctly the first time. We ask that our clients provide this form letter to the real estate professional, or provide us the professional’s email address so we can send it to them while they are still in the initial stages of the process.

Real estate sales, purchases, and mortgage refinances are difficult and stressful enough without having multiple, last-minute crises pop up because requests from the real estate professionals were vague, incomplete, or at the last minute. By getting complete requests, well in advance, our firm can hopefully keep this part of the stress off your plate. For continuing and updated information please go to my YouTube Channel, like and follow it at www.youtube.com/nclawyer).