Many of our borrowers have no experience being in charge of an estate or trust and have not given much thought to a plan. We want to help you make your job easier.
Begin with the end in mind
If you’ve already watched the Probate Fiduciary MortgageSM video or read the article, you know that since the interest rates and costs of borrowing during probate or trust administration is higher than bank financing, you’ll probably want to have a basic plan in mind.
Your plan may call for a Short Term (3 to 24 months) mortgage to deal with immediate cash needs. Or, a Longer Term (3 to 5 year loan) may fit your plans better. Start by having an idea of what you need to accomplish now and what you need to do later. Here are a few financing ideas to help you with your plan.
Short Term Plans
1.) For example, if the property is in risk of foreclosure, your priority now ought to be in paying off the problem loan rather than risk losing the property. If the existing loan is in default, the Foreclosure-StopperSM mortgage that you obtain during probate to replace it, can be refinanced later with a conventional bank loan once the property title is in your name using your own income and credit.
Betty was the administrator of her Mothers estate consisting of a modest house in La Habra. She was shocked when she learned that her Mom’s friendly” Reverse Mortgage lender started foreclosure while the family was deciding what to do with the house. We made a loan to pay off the problem lender and saved the house and Betty’s family from stress and worry.
2.) Early Cash Out prior to selling, also known as the Don’t-Wanna-Wait LoanSM
This strategy allows the trust or estate borrower to access cash from the equity to pay creditors or other estate-related cash needs. Other clients will use some of loan proceeds to improve a property prior to selling in order to attract a buyer willing to pay more for the property, which means that the trust or estate seller may profit from the higher sale price.
Phillip used this strategy to obtain significant discounts from creditors who would otherwise have to wait until the sale of the property and close of probate to get paid. Since he had advanced some of his own funds, he too was able to benefit from his probate mortgage.
Long Term Property Keeper Plans
3.) Buy-Out/Work-Out LoanSM This is one of our most popular financing services. In a buy-out, the heirs or beneficiaries in a friendly estate or trust arrange to obtain an equity-based fiduciary mortgage in order to create cash liquidity to buy out the interest(s) of one of the others. In a Work-out type loan, we help resolve unfriendly or adversarial situations by lending to executors, administrators or trustees that use the loan proceeds to pay the other party and attorney costs. This means that disputes, sometimes after years in court litigation, can be resolved by an equity-based loan that closes in a few weeks.
In the typical situation, Billy wants his money and Sally wants to keep the house. We make a first position mortgage to the administrator or trustee, and they use the loan proceeds to pay bills and fund the Buy-out and then close the estate or trust subject the new loan, which may remain without being paid off. For whatever reason, we lend to about four ‘Sallies’ for every one ‘Billy!’
4.) Blight-Buster LoanSM This is intended to help an estate, trust or conservatorship pay for repairs on a property that has substantial deferred maintenance, code enforcement required repairs, hoarding or similar issues. We work closely with code enforcement and public administrators to provide an alternative to selling blighted property when repairing makes sense.
5.) Property-Tax-SaverSM The advantages of preserving low property taxes are obvious. Who wouldn’t rather save thousands of dollars in property taxes every year? This financing strategy lets the savvy executor, administrator or trustee obtain a mortgage to pay the attorney, creditors or other cash requirements and then distribute to heirs or beneficiaries subject to the fiduciary loan.
California property tax laws are written such that an exclusion can be obtained for certain property owners when transferred directly from parent to child or grandchild which may offer long term tax saving benefits. The exclusion is NOT available once property is distributed and later transferred between siblings as this triggers reassessment. Be sure to consult your attorney or tax advisor when considering this financing plan.
6.) The Mini-LoanSM is a newer product intended for trust and estate borrowers who only require a small ($25,000) loan on a free-and-clear property to pay attorney costs or other unsecured creditors. It’s offered as a one size fits all product in order to keep loan costs to a minimum.
7.) The Short-Term-to-Permanent-LoanSM plan is a two-step loan process. The executor, administrator or trustee obtains a fiduciary mortgage in order to close and distribute the probate estate or trust. The real estate may be distributed subject to the fiduciary loan, which does not require being paid off unless property is sold.
This allows the heir or beneficiary who is receiving the property to use the time period (perhaps months or even several years) to qualify for a conventional bank loan. The new property owner (that is, once title is in their name) can refinance at the best conventional market rate mortgage available.
Another smart plan: Those who are now — or will be – at least age 62 in a few years, may opt for a reverse mortgage later to pay off the probate fiduciary mortgage.
8. PFELOC Fiduciary HELOCSM Private professional fiduciaries and public administrators may be able to obtain a Line-of-Credit secured by a first mortgage on residential, commercial or other income -producing real estate. While minimum loan sizes are typically larger ($250,000+) this strategy can be used to provide liquidity for professionally managed property which is currently generating income.
9.) Probate Fiduciary MortgageSM combined with Internal-Financing-Buy-OutSM. This strategy makes it possible for trusts or estates to use seller financing to create & structure a higher loan-to-value buyout Plan than would be possible using a commercially available equity-based mortgage.
In step one, the executor, administrator or trustee obtains a short-term fiduciary mortgage for up to the maximum amount available. The Non-property takers accept a ‘carry-back’ Promissory Note secured by 2nd TD lien on the subject property for their share(s) of equity to balance the buy-out agreement. The borrower may or may not be the person receiving the property, nor would they typically sign for any loan personally.
The Borrower(s) can also negotiate with other heirs’ value of getting their money now, including sharing the cost of obtaining and arranging this financing plan. Most (but not all) borrowers who are keeping the property plan to refinance in a few years anyway and pay off the Note held by the heirs or beneficiaries who did not receive real estate. The transactioneering is typically arranged by an experienced fiduciary lender and the attorney representing the estate or trust.
Have we lost you yet? Head spinning? Now for the really interesting part:
10.) Double-Dip-Buy-OutSM combines our exclusive Probate Fiduciary MortgageSM with an Internal-Financing-Buy-OutSM plan. This makes it possible to sell for full price now by getting some money now AND later. Usually a lump sum and monthly payments
The simple facts, as follows: The trust or estate obtains a Probate Fiduciary MortgageSM for most of the required funds. The rest of the agreed upon price is settled by the others receiving a Note secured by the property, as in #9 above. There can be one or more notes and may contain different amounts or terms for different heirs. There are almost an infinite number of ways to structure this.
What is different in this plan is that the heirs or beneficiaries who received a Note in lieu of real estate can pre-arrange to sell all or part of their carry-back Note or future payments for cash now.
Plan you work and work your plan
Even if the Probate Fiduciary MortgageSM is not offered by other lenders, you do have a number of financing plan choices. Get started now! We’ll help you create your plan and soon your mortgage loan will provide you the money you need to close probate and enjoy life.