The Co-trustees (Two Sons) Want to Encumber the Trust Property

By Dan Harkey Educator & Private Money Finance Consultant 949 533 8315 [email protected] Visit www.danharkey.com

Real Life Example- #10 of 25 -Successful Loan Closing

An older adult’s family trust transfers trustee responsibilities to his sons as co-trustees. ?The sons and co-trustees want to borrow and encumber the property.

The mortgage broker says…

“My client is elderly and has a family trust with substantial trust assets: He was the beneficiary trustor, trustee, and the beneficiary.? He has transferred the trustee capacity and responsibility to his two sons as co-trustees—the sons are now co-trustees and beneficiaries of the trust.? The older adult now lives in a lovely retirement home.? He has almost enough income to pay for his living expenses.

The trustees of the trust would like to borrow money to refurbish a home for rental purposes.? The property needs a substantial upgrade since no upgrades have occurred in at least 30 years.”

Of the net proceeds of the loan, 70% will be used for construction or business purposes and 30% for consumer purposes. ?The use of proceeds is consistent with the requirements of “Truth in Lending, Section 32.”

The lender responds….

“The lender will need to review the entire trust agreement and any amendments to determine who has the authority to sign and encumber the property.? Also, the lender will require substantial documentation that this is a business-purpose rather than a consumer-purpose loan.? Upon reviewing the file, the lender may also request that the borrower’s counsel submit a letter that they have examined the transaction and that all parties agree that the transaction is for business purposes and beneficial to the trust.

Is there a list of upgrades to the property with contractor estimates?? There is substantial equity to make a first trust deed loan.? There will be no need to withhold the proceeds and place them into a licensed- ”construction fund control trust account.”

Results:

The co-trustee sons were responsive and obtained the necessary documentation to satisfy the lender. ?The property has been renovated and rented out with substantial net cash flow; Grandma is happy, secure, and has adequate liquidity.

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Thank You

Dan Harkey

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