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How to use the Seven Most Powerful Probate Mortgage Financing Techniques

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.