Rookie mistake? Can't refi from a revokable trust?

Question

I successfully picked up an investment property, trying to do a BRRRR (I'll most likely still be leaving money in the property). Rehab is done, and it's rented out, and it's also cash flowing nicely - better than the numbers I underwrote! Was just speaking with a mortgage broker about the refinance piece, as it'll be 6 months of seasoning in Nov. However, during COVID my spouse and I set up revokable trusts, and this property was quit-claimed to my trust. Our broker said the property needed to be in my name in order to do a refi, and that I would need to quitclaim it back into my personal name, and then the 6 month clock would restart.

Has anyone done a cash-out refinance (or just a refinance) from a property held in a revokable trust? Anyone have recommendations on lenders that might do a no seasoning period that work in Michigan?

Has anyone done a cash-out refinance (or just a refinance) from a property held in a revokable trust?  Anyone have recommendations on lenders that might do a no seasoning period that work in Michigan?

Elise Marquette · Answer

@Erica Larence Thanks! :)

@Kevin Hofstee - You can close a conventional mortgage in a trust, so you should be able to do the cash out refi. As far as circumventing seasoning goes (for residential lending), if you don't own the property 100% with no lien, then Fannie Mae requires you to be on it for 6 months seasoning.

Ned Carey · Answer

@Kevin Hofstee i would think a bank would allow it if the trust is set up properly and the banker knows his stuff. (that will eliminate many if not most bankers, trusts are complicated stuff)

It is important as to how this was set up. Who is the grantor(the person giving the property to the trust)? Who is the trustee? Who is the beneficiary? If you are both the grantor and the beneficiary then I don't see why a bank wouldn't do it. Yet banks have a lot of silly rules. My guess is you will have an easier time with a smaller bank or very smart mortgage broker.

The bank shouldn't be able to call the loan due for putting it into the trust after the refinance, but as you can see it can be a problem beforehand. Trusts for the purposes of estate planning are exempt from due on sale clauses.

Jeff Filali · Answer

Go to another bank, or credit union.  This should not be an issue, but many bankers do not deal with Trusts enough to understand the ins and outs, especially if you were dealing with a newer loan officer.

Kevin Hofstee · Answer

Thanks @Elise Marquette.  My 6 months is coming up in November - we'll see how it goes.  A potential added complication is that my spouse's trust is also on the deed - I honestly wasn't sure how the lawyer did the quitclaim deed (I know, I know I should have been more informed :|), and I had to expand the field to see her trust there.  However, I'm the only one on the mortgage right now at a community bank.

Erica Larence-Penna · Answer

@Kevin Hofstee it shouldn't be an issue with refinancing.  @Elise Marquette maybe you can provide some insight from a lending perspective?

Tom Shallcross · Answer

No, I just had to show the trust, and it was open for less than a year. If you want, I can DM you my attorney who set-up the trust, not sure if he can help or not, but maybe worth a quick convo.

Kevin Hofstee · Answer

@Tom Shallcross were there any issues you ran into with this at all? Any additional questions?

Also, how long had your property been in the trust?

Tom Shallcross · Answer

@Kevin Hofstee - I don't know the in's and out's, but yes my personal residence is in a revocable trust and I was able to refinance it with personal financing in my name.

Rookie mistake? Can't refi from a revokable trust?

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