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House Refinance and Trust

It seems like it’s almost daily though I am sure it’s not that often that I talk to a client about re-financing their house. No, I am not a mortgage loan broker. Rather I am an estate and trust attorney.  My clients contact me to ask how best to re-finance their home that is in their living trust. I tell them all that if the loan company, or escrow agents, require the house to taken out of the trust that they mandate to the escrow officer that a second deed be made to put the house back into the trust. That second deed should be signed at the same time as the first one and usually will be recorded in succession with the other loan documents. That is, house taken out of trust by the first deed, deed of trust recorded to secure interest in house to the loan, and then the second deed is recorded to put the house back into the trust.

Other mortgage companies and banks require the attorney to sign a list of things that the attorney “certifies” to be true. I find this to be a funny exercise since I am not the bank’s attorney and it’s really hard for me to certify the trust has not been amended. Plus, there is no law that says you have to have an attorney. These banks and mortgage companies bother me a bit but I will play along for my client’s of course.

Having said all that what about the people that die with the house out of their trust? What to do then?  This is oh so common. The bank or mortgage company requires the house to be out of the trust for the re-fi or line of credit so it’s removed from the trust. People forget to put it back into the trust or are so frustrated after signing 5,000 papers for their loan just can’t sign one more thing.

So, after death I am contacted to put the house back into the trust. We always try to file a Heggstad petition if we think it will work. A Heggstad petition is a probate Court petition, relying on case law (The Estate of Heggstad), that allows a property to be transferred back into a trust retroactively after death. It’s substantially less expensive and less time consuming than a full probate. I have a very high success rate with Heggstad petitions; probably above 95% if I counted all of them I have filed.

In the typical house taken out of trust for re-finance we can generally convince the Court to put it back into the trust. In particular, if the property was listed on the schedule of assets, or in some other way in the trust, we can get it done.  I have only had one Heggstad fail on these facts and I have filed a lot of them!

The Estate of Szanto is an unpublished case from 2008 which went the other way though. It’s from the California 1st Appeallate District and stems from a San Mateo County case. It should be pointed that it was a hotly contested and litigated battle which is unlike most Heggstad petitions.  That is most Heggstad petitions, or California Probate Code 850 petitions, do not have an opponent. In fact, usually there is a pour over will that would put the house into the trust anyway.  Thus the only question is what type of probate procedure is required to get back there; an efficient Heggstad or a long drawn out full probate.  Szanto is really an aberitition and is not “the law” since it is unpublished. However, it’s important to keep it in mind when you debate if you should file a Heggstad or a full probate.

Contact me to discuss your Heggstad facts and I will give you my opinion of success.

-John

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10.0John Bernard Palley
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