Loan Docs are NOT Trust Settlement

A trustee recently made a potentially very expensive mistake. With a house worth $3 million and an adjusted tax basis of just over $1 million, the tax savings with a successful exclusion would be substantial. The trust qualified for the exclusion under Proposition 58. Everything was going well and the loan docs went to the co-trustees for signature. Then it went sideways.

Being in a rush to leave town, the beneficiary/co-trustee keeping the investment property high-tailed it down to the recorders office with a quitclaim deed from the trust to herself and a second one into her trust. Simultaneously, title was taking a final look at the property to close the loan and WHOOPS, the property was no longer owned by the trust so no loan was possible!

The borrower thought that signing the docs was the final step in the process.

Ultimately, a pair of rescission deeds successfully reinstated the property into the trust and the loan was able to close. The takeaway here is to never assume the client knows the process, even something as seemingly straight-forward as signing loan docs does not mean the loan is closed and funded.