Research the Facts Before You Refinance

Physician's Money Digest, September30 2003, Volume 10, Issue 18

With interest rates at rock bottom,many people are refinancingtheir real estate.Refinancing is usually a wise thing todo. However, assuming you have doneyour estate planning and established aliving trust, refinancing may presentsome significant problems.

Address Estate Issues

When you established the trust, or ifyou have purchased property since youestablished the trust, you should havehad your properties titled in the name ofthe trust, which is required to avoid probate.Probably the first thing the refinancing folks will make you do is takethe property out of the trust by havingyou make out a deed as trustee transferringthe property to you as an individual.That isn't necessary, but they usuallymake you do it anyway. If you fight longenough with the attorney for the loancompany, they will sometimes backdown. They don't always understandthat you are still just as liable on theloan, and the house is still securewhether it is in the trust or not, but it'sprobably not worth the fight; just letthem retitle the property.

For asset protection purposes, mywife's trust has owned our house for 20years. When we refinanced the house,they insisted that they not only transferthe house out of her trust, but also transferit into our names as joint tenants. Atthat point, I drew the line. It's her house,not mine. If we go to court in a lawsuit, Idon't want the plaintiff to be able to say,"Look, they move the house back andforth at will." I pointed out to the mortgagecompany they couldn't make her put1 of our names on the title. I finally won,and simply signed as guarantor.

Keep Trust in Check

When the refinancing company getsall through with the loan, they should beable to reissue the deed at the title companydirectly in the trust's name, but notunderstanding the issues at hand, theywill retitle the deed in your name again.(In the case of my wife, it was refitted inher name.) You will then need to haveanother deed made out, in order totransfer the ownership of the propertyinto your trust again. The final transfer isdone to avoid probate. The trust has toown the property.

Yes, this is all totally unnecessary, and Ihave restrained myself from resorting toname-calling. The mortgage folks are setin their ways, and there isn't anything youcan do about it, but be firm in guardingyour interests when you refinance.

Lee R. Phillips, JD, an attorney ofthe US Supreme Court, has taughtmore than 5000 classes to insurance,accounting, legal, medical,dental, and other professionals,and has written hundreds of articles.He welcomes questions or comments at 800-806-1997 or lee@legalees.com.