By Rick Harmon
Mortgage financing is increasingly used by attorneys to as an attractive alternative
to selling probate estate, conservatorship and trust owned real property.
The following seven financing techniques are those which most frequently are
used to provide cash liquidity or give heirs the ability to retain estate owned
property for almost any reason.
Frankly, the possibilities are almost limitless and the resulting variations
permit financing to be tailored to the needs of all parties to an estate, especially
the attorney.
The purpose of this excercise is to demonstrate to you how flexible and timely
financing can be and how powerful these seven techniques potentially are when
applied to any estate or trust. The reasons and motives for every party wishing
to utilize probate mortgages is considerable and we won’t attempt to list them
on these pages.
Consider how financing could help you to close probate sooner…
Financing Technique #1
Borrower signs for mortgage as executor or administrator of estate
Goal: Pay attorney fees, creditor claims and other costs
of administration. Borrower wishes to retain property
Interest in Estate: Has 100% distributive share
Distribution Plan: Fund proceeds go to estate for attorney,
creditor or other distribution. Real property is distributed to heir subject
to mortgage to estate; may elect to personally assume mortgage obligation or
not (see PC 9805)
Timing: (After 4 month creditor period) w/Full Authority,
expect three (3) weeks for noticing and loan processing before loan docs can
be signed and loan funded w/Limited Authority, do Petition to Borrow, expect
five (5) weeks before loan docs can be signed and loan funded
Benefits to Parties: Facilitates fast close of probate; permits
retention of real property without requiring sale; no disruption in living habits;
costs less than selling
Financing Technique #2
Borrower signs for mortgage as executor or administrator of estate
Goal: Pay attorney fees, creditor claims and other costs
of administration. Borrower wishes to retain property for own or others’ benefit.
Interest in Estate: Has fractional (partial) distributive
share interest.
Distribution Plan: Fund proceeds go to estate for attorney
and creditor distribution. Real property is distributed to heir(s) subject to
mortgage to estate. Borrower acts only in fiduciary capacity. No personal liability
by borrower unless loan assumed; may elect to personally assume mortgage obligation
or not (see PC 9805).
Timing: (After 4 month creditor period) w/Full Authority,
expect three (3) weeks for noticing and loan processing before loan docs can
be signed and loan funded w/Limited Authority, do Petition to Borrow, expect
five (5) weeks before loan docs can be signed and loan funded
Benefits to Parties: Can be used to avoid distribution to
heirs as tenants-in-common if that result is preferred.
Financing Technique #3
Borrower signs for mortgage as executor or administrator of estate
Goal: Pay attorney fees, creditor claims and other costs
of administration. Borrower wishes to retain property for benefit of others.
Interest in Estate: Has no beneficial interest; acts only
in fiduciary capacity
Distribution Plan: Fund proceeds go to estate for attorney
and creditor distribution. Real property is distributed to heir(s) subject to
mortgage to estate. Borrower acts only in fiduciary capacity; no personal liability
by borrower. Distributee(s) may elect to personally assume mortgage obligation
or not (see PC 9805).
Timing: (After 4 month creditor period) w/Full Authority,
expect three (3) weeks for noticing and loan processing before loan docs can
be signed and loan funded. w/Limited Authority, do Petition to Borrow, expect
five (5) weeks before loan docs can be signed and loan funded.
Benefits to Parties: Can be used to successfully pacify a
difficult or uncooperative heir residing in estate owned real property without
obligating Executor personally.
Financing Technique #4
Borrower signs for mortgage as Trustee of Intervivos, Testamentary or other Trust.
Goal: Pay attorney fees, creditor claims and other costs
of administration. Borrower wishes to retain property for own or others’ benefit.
Interest in Estate: May have full, fractional or No beneficial
interest in trust.
Distribution Plan: Fund proceeds go to estate for attorney
and creditor distribution. Real property may be distributed to trust beneficiaries
subject to mortgage; Trustee and/or beneficiaries may elect to personally assume
mortgage or not.
Timing: If Trust Agreement provides for trustee to have authority
to borrow/encumber expect three (3) weeks for loan processing before loan docs
can be signed and loan funded. If trustee authority an issue, Nunc Pro Tunc
order can often resolve. If not, expect five (5) weeks before loan docs can
be signed and loan funded
Benefits to Parties: Real property may remain in trust (not
change trust funding status). Permits maximum flexibility to structure financing
without transfer or tax flagging.
Financing Technique #5
Borrower signs for mortgage personally
Goal: Pay attorney fees, bequests, and certain costs of administration.
Borrower wishes to retain property and ultimately vest title in own name.
Interest in Estate: Has 100% distributive share; may or may
not be Exec./Admin.
Distribution Plan: Fund proceeds go to estate for attorney
and other funds distribution. Title to property must pass to borrower before
loan funding can occur; can be via preliminary or final distribution. Escrow
may be used to coordinate title transfer.
Timing: (After 4 month creditor period) w/Full Authority,
expect four (4) weeks for noticing and loan processing before loan docs can
be signed and loan funded w/Limited Authority, do Petition to Distribute or
(?) expect five (5) weeks before loan docs can be signed and loan funded
Benefits to Parties: Offers most attractive financing for
qualified, conforming borrowers.
Financing Technique #6
Borrower signs for mortgage personally
Goal: Pay attorney fees, bequests, and certain costs of administration.
Borrower wishes to retain property and ultimately vest title in own name or
with others.
Interest in Estate: Has fractional (partial) interest; may
or may not be Exec./Admin.
Distribution Plan: Fund proceeds go to estate for attorney
and other funds distribution. Title to property must pass to borrower before
loan funding can occur; can be via preliminary or final distribution. Escrow
may be used to coordinate title transfer. Must advise of funds distribution
plan prior to loan submission.
Timing: (After 4 month creditor period) w/Full Authority,
expect four (4) weeks for noticing and loan processing before loan docs can
be signed and loan funded w/Limited Authority, do Petition to Distribute or
(?) expect five (5) weeks before loan docs can be signed and loan funded
Benefits to Parties: Offers most attractive financing for
qualified, conforming borrowers. Heir(s) can “buy out” other heir(s) and settle
disputes.
Financing Technique #7
Borrower signs for mortgage personally
Goal: Pay attorney fees, bequests, and certain costs of administration.
Borrower wishes to retain property and ultimately vest title in own name or
with others. Purpose is to use borrower’s financial strength to help heir, devisee
or beneficiary who is otherwise unqualified for mortgage.
Interest in Estate: Has No interest; may or may not be Exec./Admin.
Distribution Plan: Fund proceeds go to estate for attorney
and other funds distribution.Title to property must pass to borrower before
loan funding can occur; can be via preliminary or final distribution. Escrow
may be used to coordinate title transfer. Must advise of funds distribution
plan prior to loan submission. Note: transfer can sometimes be via assignment
of heir’s beneficial interest!
Timing: (After 4 month creditor period) w/Full Authority,
expect four (4) weeks for noticing and loan processing before loan docs can
be signed and loan funded w/Limited Authority, do Petition to Distribute or
(?) expect five (5) weeks before loan docs can be signed and loan funded
Benefits to Parties: Borrower can “step into shoes” of heir,
devisee or beneficiary.